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Hedge and Correlation Strategy

  • #3,361
  • Nov 8, 2011 9:37pm Nov 8, 2011 9:37pm
Hello FRV,

Good to hear from you again.

I am attaching all indicators that I use--just two of them.

I take all pairs that pop up above 80% and hook, as long as they are daily correlated over 75%.

Yes, I use 50% for stop loss and take profit.

Quoting Frv
Hello again Dreamliner .... I just read much of your thread ... excellent job .... it is really relaxing to see a system where we dont need to worry about news, patterns, PA, and all that .... ... but really it was dispersed by the amount of EA's and indicators ... but even so all those interested contributed a lot ....
I sent you a message today, and I'm trying to mix it with yours and see if i can get something constructive .... surely notice you ....
I would like to ask you which couple of pairs do you use, this saves a lot of research for...
Attached File(s)
File Type: ex4 Tradable Correlations 1.8 (1).ex4   17 KB | 2,707 downloads
File Type: ex4 Stochastic different pairs 1.7_3.ex4   21 KB | 2,470 downloads
  • #3,362
  • Nov 8, 2011 9:39pm Nov 8, 2011 9:39pm
Here is my template...
Attached File(s)
File Type: tpl correlation.tpl   3 KB | 1,950 downloads
  • #3,363
  • Nov 9, 2011 12:45am Nov 9, 2011 12:45am
Greatings DL./..

Pleased to see you back!
Yes H & C works best of all Hedge. i have tried many Hedge but this one is more safe and logically fresh.

my Request to dreamline.........

DO NOT CHANGE THE ROOT CONCEPT AND SETTING! its fresh and much more profitable. just keep trading with it. i have been trading for 10 weeks so far with 115% profit. NO EA, NO EXTRA FILTERS.

but you traded with nzdjpy ! whats the spread of this pair ? its more than 6 pip in my broker. I trade only with those top 10 pair with not more than 3 pip spread.

My Suggestions to other follower......

AGAIN DO NOT CHANGE THE MAIN SETTINGS. yes we should not stop researching about this method. so i have something for those researchers. DO RESEARCH WITH NEGATIVE CORRELATION! find out a way to play with those Negative CORE.

thanks
kader
  • #3,364
  • Nov 9, 2011 7:20am Nov 9, 2011 7:20am
Thank you so much Dreamarliner and all the others guru's for sharing their knowledge with the beginners like me.
  • #3,365
  • Edited 11:49am Nov 9, 2011 7:24am | Edited 11:49am
Hello only1kader,

do you set your lotsize according to the pipvalue of the currencypair or do you use a fixed lotsize?

if for example you are in a trade because it shows over 80% coincidens and later on if falls below 80% but don't touches 50%. do you add orders if it raises again over 80%?

Kind Regards

Mediator
  • #3,366
  • Nov 9, 2011 9:30am Nov 9, 2011 9:30am
Hello Kader,

NZD/JPY is 2.7 on my broker (Oanda).

Thanks for your comments!

Quoting only1kader
Greatings DL./..

Pleased to see you back!
Yes H & C works best of all Hedge. i have tried many Hedge but this one is more safe and logically fresh.

my Request to dreamline.........

DO NOT CHANGE THE ROOT CONCEPT AND SETTING! its fresh and much more profitable. just keep trading with it. i have been trading for 10 weeks so far with 115% profit. NO EA, NO EXTRA FILTERS.

but you traded with nzdjpy ! whats the spread of this pair ? its more than 6 pip in my broker. I trade only with those top 10 pair with not more than 3 pip spread.

My...
  • #3,367
  • Nov 9, 2011 9:45am Nov 9, 2011 9:45am
There were numerous profit opportunities today. I had to take my wife to the doctor so I was unable to take part in most of them. I did however take the following trade:

USD/CAD Short
EUR/NZD Long

Made 12 pips.
  • #3,368
  • Nov 9, 2011 9:52am Nov 9, 2011 9:52am
  •  Frv
  • | Joined Dec 2010 | Status: Keep working and you will get there | 77 Posts
Thank you .... DL
I understand completely the correlation factor .... but I still have a doubt in relation to the indicator lines .... one has to remain below 20 and the other above 80 to open the position? or both (red and blue) can be above 80? and dotted yellow line, which represents?
They can be simple questions but I'm new here ... tks again ....
" Keep walking and you will get there "
  • #3,369
  • Nov 9, 2011 10:00am Nov 9, 2011 10:00am
Hi FRV,

We are really only interested in the dotted yellow line which shows the difference. When it is above 80 and hooking downward we open our positions. We close when the dotted yellow line reaches 50.

Quoting Frv
Thank you .... DL
I understand completely the correlation factor .... but I still have a doubt in relation to the indicator lines .... one has to remain below 20 and the other above 80 to open the position? or both (red and blue) can be above 80? and dotted yellow line, which represents?
They can be simple questions but I'm new here ... tks again ....
  • #3,370
  • Nov 9, 2011 10:09am Nov 9, 2011 10:09am
Greetings all,

Does anyone know how to make the Trade Explorer work properly? I thought I would link my Oanda trading account so we can keep track of the trades (will help to keep me accountable to trading this method better, too) but right now I'm getting this error message:

"Explorer functionality is
limited because there are
no closed trades in this
brokerage account."

There are numerous closed trades in this account, so I don't know why I'm getting this error message. If anybody knows how to fix this let me know, otherwise I'll just contact Forex Factory and ask them.
  • #3,371
  • Edited 11:10am Nov 9, 2011 10:28am | Edited 11:10am
  •  Frv
  • | Joined Dec 2010 | Status: Keep working and you will get there | 77 Posts
Quoting Dreamliner
Hi FRV,

We are really only interested in the dotted yellow line which shows the difference. When it is above 80 and hooking downward we open our positions. We close when the dotted yellow line reaches 50.
" Keep walking and you will get there "
  • #3,372
  • Edited 12:03pm Nov 9, 2011 11:11am | Edited 12:03pm
  •  Frv
  • | Joined Dec 2010 | Status: Keep working and you will get there | 77 Posts
I heard followers saying that there are several opportunities a day ..... and I wonder if my indi is right, because in some pairs are some days (2 or 3 days) in sequence without the line touch the 80 level , this is right?

These are correlated pairs that I am monitoring

AUD/USD - NZD/USD
EUR/GBP - EUR/USD
EUR/USD - EUR/JPY
AUD/USD - EUR/USD
AUD/USD - EUR/JPY
USD/CHF - EUR/USD
EUR/JPY - AUD/USD

WICH ARE THE OTHER BEST ONES WITH MORE CHANCES A DAY?

Do we need to make some PIP adjustment to operate JPY ?
And what better way to operate EUR/USD - USD/CHF??
" Keep walking and you will get there "
  • #3,373
  • Nov 9, 2011 11:55am Nov 9, 2011 11:55am
Quoting Dreamliner
There were numerous profit opportunities today. I had to take my wife to the doctor so I was unable to take part in most of them. I did however take the following trade:

USD/CAD Short
EUR/NZD Long

Made 12 pips.
nice one

i took

GBPNZD SHORT
GBPCAD LONG

made only +7 pips but diffline @50% said exit. but it was a fast & nice trade.

i know too much spread.

Mediator

BTW.: i don't know if it is a bug, but the stoch_difference indicator calculates the differences between the currency pairs with the High/Low mode. i think it will be better to use the close/close mode.
  • #3,374
  • Nov 9, 2011 10:54pm Nov 9, 2011 10:54pm
Quoting Dreamliner
Here is my template...
Hi Dreamliner,
This system feels a bit more comfortable and I will try and get it going.

Currently I am looking for the best screen setup proposition and at present have the below attached. I understand you are following 20 + pairs and so stacking them seems a logical way to reduce the tags, otherwise they are way offscreen.

Is this what you do or could you comment on your screen setup. The pairs I have shown may not be optimal but that is my next consideration.

I don't want to sidetrack this thread but it may be worth looking at http://www.traderslaboratory.com/for...revisited.html Eric has taken a slightly different approach and since we are interested in the bottom line profits it may be worth a look. I have not set his system up yet but it is on the list.
Your comments on everything most welcome, please.
Regards to all in here,
Altos.
Attached Image (click to enlarge)
Click to Enlarge Name: HC Setup 01.jpg Size: 233 KB
  • #3,375
  • Nov 10, 2011 5:01am Nov 10, 2011 5:01am
Quoting Dreamliner
Hello FRV,

Good to hear from you again.

I am attaching all indicators that I use--just two of them.

I take all pairs that pop up above 80% and hook, as long as they are daily correlated over 75%.

Yes, I use 50% for stop loss and take profit.
Can you post these in .mq4 format? I'd like to do a little modification to them so they're better suited for my screens.

Just FYI I do a lot of statistical arbitrage in all markets including FX. Sometimes FX is just half of the statistical arbitrage but we do straight FX statistical arbitrage as well. That said, it's profitable. I'm not entirely certain about this method, but I'm always looking for new ideas, as I'm sure we all are.
Every time you use 'hopium' in a post, God kills a kitten.
  • #3,376
  • Nov 11, 2011 9:57am Nov 11, 2011 9:57am
The first issue I see with this method (and correct me if I'm wrong as I didn't read every single post) is that there is no normalization of positions. E.g. people are taking 1 lot of X pair long and 1 lot of Y pair short.

What I mean is this:

If you have a USD account and you go long 1 lot EURUSD and short 1 lot GBPUSD your exposure is not the same on both trades. Your USD exposure (at he time that I'm typing this) is 137,281 USD on the EURUSD trade and 160,775 USD on the GBPUSD trade. So in actuality you should go long 1.17 EURUSD and short 1 GBPUSD.

That said, there is still the volatility factor that comes into play that you could normalize for but that one could be debated into infinity. I find that normalizing for volatility is MUCH more important than any other factor in these trades. If the ADR for the GBPUSD is 2/3 of that of the EURUSD than the trades would be skewed the opposite direction than the above example. Combined with the tick value of the pairs I think this is the most important facet to normalizing pairs in any StatArb scenario.
Every time you use 'hopium' in a post, God kills a kitten.
  • #3,377
  • Nov 11, 2011 10:14am Nov 11, 2011 10:14am
Yes Profxtrader, these two things have been brought up and discussed numerous times on this thread, and is the "Achilles heel" of the method.

Quoting profxtrader
The first issue I see with this method (and correct me if I'm wrong as I didn't read every single post) is that there is no normalization of positions. E.g. people are taking 1 lot of X pair long and 1 lot of Y pair short.

What I mean is this:

If you have a USD account and you go long 1 lot EURUSD and short 1 lot GBPUSD your exposure is not the same on both trades. Your USD exposure (at he time that I'm typing this) is 137,281 USD on the EURUSD trade and 160,775 USD on the GBPUSD trade. So in actuality you should go long 1.17 EURUSD and short...
  • #3,378
  • Nov 11, 2011 10:32am Nov 11, 2011 10:32am
Quoting Dreamliner
Yes Profxtrader, these two things have been brought up and discussed numerous times on this thread, and is the "Achilles heel" of the method.
Then my question naturally is this: Why isn't it being used? There is nothing difficult about the calculations even from an MQL4 standpoint. One just has to agree on how to calculate the volatility. Everything else is simple math and coding.

I have some ideas about how to calculate and compensate for volatility when placing what I like to call medium term StatArb trades (these). After playing around with the EA's in they thread, I dismissed them altogether and I coded my own strategy into MQL4 and like I shared with a member in this thread, it's got the volatility portion (my ideas at least) coded within. IT's only been in a demo environment for 3 weeks now which statistically isn't much, but in that time it's placed 3000+ trades, which statistically tells me it's working as planned. It still has another 5 months of demo testing before I'd consider it for live trading or 2-3 more if I was being aggressive. Even then though it has 6 months of live testing before I'd consider it ready for prime time.

It's here: http://www.myfxbook.com/members/arch...bitrage/144106

Before anyone asks however I cannot share the entire strategy. It contains within it some proprietary algorithms and correlation calculation methods, but there's nothing stopping me from sharing normalization techniques here. That's nothing new nor proprietary.

That said, what's been tried and we can work from there?
Every time you use 'hopium' in a post, God kills a kitten.
  • #3,379
  • Nov 12, 2011 7:55am Nov 12, 2011 7:55am
Quoting profxtrader
Then my question naturally is this: Why isn't it being used? There is nothing difficult about the calculations even from an MQL4 standpoint. One just has to agree on how to calculate the volatility. Everything else is simple math and coding.
Hi Profxtrader,
I can answer this from my point of view. I have done tests with different lot sizes. I could see no real benefit. One issue I had is that the better the hedge the less movement, which made 2 other problems. 1- I had to use larger lot sizes and 2- It become less profitable because the trades stayed open longer.

Quote
Before anyone asks however I cannot share the entire strategy. It contains within it some proprietary algorithms and correlation calculation methods, but there's nothing stopping me from sharing normalization techniques here. That's nothing new nor proprietary.
I like your ea. Can you give it too me please?
just kidding..

I am working on a similar automated project. I am quite happy with the results I am getting. I have come up with some novel ways to make it both safer and more profitable which I am currently testing. I am currently testing in on non correlated pairs to see how it handles wild swings.

http://www.myfxbook.com/members/arbu...pa6-stp/187017
  • #3,380
  • Nov 12, 2011 8:56am Nov 12, 2011 8:56am
Quoting hedgeitall
Hi Profxtrader,
I can answer this from my point of view. I have done tests with different lot sizes. I could see no real benefit. One issue I had is that the better the hedge the less movement, which made 2 other problems. 1- I had to use larger lot sizes and 2- It become less profitable because the trades stayed open longer.

I like your ea. Can you give it too me please?
just kidding..

I am working on a similar automated project. I am quite happy with the results I am getting. I have come up with some novel ways to make it both safer...
I've thought about just throwing the already coded, Pearson method into this EA and yeah.. I could actually share it. Finding the time to work on a side project is the problem

That said, on first glance while the pairs are very different as well as the hold times, but the other stats look very similar to mine. Anyway... one way to cut the hold times down is forget about pips and count actual profits. Up the trade size (within reason) while lowering the profit target for your arbs and you'll get a lot more banked profits a lot quicker and it'll lower your hold time and reduce the# of positions you have open and your floating DD> Look at the equity graph on mine and you can see that in the past week and a half I've done just that and they track together a lot more closely than they did initially.

Another idea for those of you not receiving IB rebates (they're substantial in any type of arb scenario) is to sign up with one of these cash back FX programs. Typically we'll make 5-6% a month in rebates alone getting just $22/million in rebates.

Regarding your lack of "seeing any real benefit " if you're trading minis, it'll literally be cents. If it's $100M it'll be in the tens of thousands. Maybe I'm over thinking the retail implementation of this, but I just think if it's worth doing it's worth over thinking
Every time you use 'hopium' in a post, God kills a kitten.
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