Hedge and Correlation Strategy | Page 171 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Correlation + Momentum Strategy? 6 replies

MT4 MTF Correlation table and Correlation oscillator indicators 155 replies

InsomiaFX Correlation Double Hedge EA 66 replies

Looking for EA for Correlation Strategy 6 replies

Hedge strategy (not a hedge fund) 13 replies

Attachments: Hedge and Correlation Strategy
Exit Attachments

Hedge and Correlation Strategy

  • #3,401
  • Nov 22, 2011 6:13am Nov 22, 2011 6:13am
I'm also trying the indicator Basket Profit 2 Pairs Sq on Alpari and works well.

Make sure to compile Pair 1 and Pair 2 in settings.
  • #3,402
  • Nov 22, 2011 10:19am Nov 22, 2011 10:19am
I'm trying to recall the indicator in an expert but it doesn't work, could you help me?

Thank you!

Print(iCustom(NULL,NULL,"Basket Profit 2 Pairs sq (1)",0.1,0,-0.1,0,0,1)) ;
  • #3,403
  • Nov 22, 2011 1:29pm Nov 22, 2011 1:29pm
Just fyi gang.. I have done a statistical test using R on EURUSD and GBPUSD.. and the results are that these pairs are not cointegrated. Thus doing this type of hedge pair trading strategy will not work on these two currency pairs. It only works sometimes because EURGBP is range bound right now and essentially your using the stochastics indicator on EURGBP as the decision maker to trade and when it's ranging you profit!
  • #3,404
  • Nov 22, 2011 9:19pm Nov 22, 2011 9:19pm
Quoting traderjess87
I was just wondering what the chart based on minute, hourly or daily values? Thanks again for the indi!
Thanks you are welcome.
it's based on correlation, it's really advanced stuff.
I wish I could tell you more.
but I know my coder had to work on it for quite some time.
you just change the timeframe in MT4 and the indicator will adapt automaticly to the new timeframe,
I suggest keeping the periods to 50,
I noticed thats the closest to the Forexticket site,
but feel free to experiment
Bulls are stupid Animals!especially when Im short!
  • #3,405
  • Edited 9:43pm Nov 22, 2011 9:31pm | Edited 9:43pm
Quoting drgoodvibe
Just fyi gang.. I have done a statistical test using R on EURUSD and GBPUSD.. and the results are that these pairs are not cointegrated. Thus doing this type of hedge pair trading strategy will not work on these two currency pairs. It only works sometimes because EURGBP is range bound right now and essentially your using the stochastics indicator on EURGBP as the decision maker to trade and when it's ranging you profit!
you are right, many pairs moves the same way
because they are positivly correlated,
like EURUSD and GBPUSD which basically moves in the same direction,
but there is many that are negativly correlated aswell
check out EURUSD and USDRUB
Bulls are stupid Animals!especially when Im short!
  • #3,406
  • Nov 23, 2011 2:08pm Nov 23, 2011 2:08pm
Quoting roughtrader
you are right, many pairs moves the same way
because they are positivly correlated,
like EURUSD and GBPUSD which basically moves in the same direction,
but there is many that are negativly correlated aswell
check out EURUSD and USDRUB
Problem is that you need the two fx pairs to be cointegrated, not necessarily correlated. Correlation is not important for pair trading..
  • #3,407
  • Nov 29, 2011 12:38am Nov 29, 2011 12:38am
Is anyone pursuing this system or have you all moved on OR become so profitable you no longer wish to talk about it ? Anyone ?
  • #3,408
  • Nov 29, 2011 12:42am Nov 29, 2011 12:42am
I noticed this thread has been a little bit quiet
Im still interested in the system and I like to further developing it,
I think the entry is something we could improve on,
I even made a indicator for it, so sure Im still up for it
the best I found for the entry so far is a 1500 period stoch,
some say at the 80 level or above 80.
Bulls are stupid Animals!especially when Im short!
  • #3,409
  • Nov 29, 2011 12:49am Nov 29, 2011 12:49am
Hi RT - I just noticed DreamL said you had coded an EA and I am currently looking for it. Can you tell me the name please ?
I am currently trading this but I need an EA to close individual pairs when in profit. Sometimes a pair comes into profit just for a short time and then decouples again. If not watching you miss the profit and have to wait. This really limits the number of trades you can have open because unless you TP when available your DD can begin to climb.
  • #3,410
  • Nov 29, 2011 1:03am Nov 29, 2011 1:03am
Quoting AltosTrader
Hi RT - I just noticed DreamL said you had coded an EA and I am currently looking for it. Can you tell me the name please ?
I am currently trading this but I need an EA to close individual pairs when in profit. Sometimes a pair comes into profit just for a short time and then decouples again. If not watching you miss the profit and have to wait. This really limits the number of trades you can have open because unless you TP when available your DD can begin to climb.
oh did he say that? Im sorry then he must have been missinformed,
all I did was posted a indicator in here if that is what you mean,
you can find it on the previous page btw,
I trade this manually, what time frame are you using?
Bulls are stupid Animals!especially when Im short!
  • #3,411
  • Nov 29, 2011 1:15am Nov 29, 2011 1:15am
Quoting roughtrader
oh did he say that? Im sorry then he must have been missinformed,
all I did was posted a indicator in here if that is what you mean,
you can find it on the previous page btw,
I trade this manually, what time frame are you using?
Yes, Post 1. I found three EA's but haven't looked in them yet. Currently I am trading 5 minute charts but have really only started it this week. I am using a slightly different system from Traders Lab. I have 90 correlated pairs displayed but don't yet know how effective some of them may be. It does though, I think, pay to monitor all and not limit oneself. Problem as I mentioned is if too many open trades it becomes a pain. Don't think I can use MPTA but yet to fully check it out.
Cheers.
  • #3,412
  • Nov 29, 2011 1:48am Nov 29, 2011 1:48am
Quoting AltosTrader
Yes, Post 1. I found three EA's but haven't looked in them yet. Currently I am trading 5 minute charts but have really only started it this week. I am using a slightly different system from Traders Lab. I have 90 correlated pairs displayed but don't yet know how effective some of them may be. It does though, I think, pay to monitor all and not limit oneself. Problem as I mentioned is if too many open trades it becomes a pain. Don't think I can use MPTA but yet to fully check it out.
Cheers.
the drawdown in this system can be really huge,
thats just a part of the system and something you should expect.
you must have big stones to be able to run this system,
and be calm when your DD is about 200 bux or more.
you should be prepared to even addon more.
I trade only live, no demos
it will return to profit eventually.
I trade on 15M and I only have one trade
I think 5 min might be too short,
anyway I have been most sucsessful on 15 min
I think you will get a little more room there to exit trades
I like to trade the pairs that mirrors eachother the most,
like EURUSD/USDRUB, EURUSD/USDDKK
even USDCAD/AUDUSD,
I won't trade a pair like EURUSD/GBPUSD
simply because they are not mirroring eachother enough
that makes the drawdown to be larger to
Bulls are stupid Animals!especially when Im short!
  • #3,413
  • Nov 29, 2011 2:35am Nov 29, 2011 2:35am
Quoting roughtrader
the drawdown in this system can be really huge,
thats just a part of the system and something you should expect.
you must have big stones to be able to run this system,
and be calm when your DD is about 200 bux or more.
you should be prepared to even addon more.
I trade only live, no demos
it will return to profit eventually.
I trade on 15M and I only have one trade
I think 5 min might be too short,
anyway I have been most sucsessful on 15 min
I think you will get a little more room there to exit trades
I like to trade the pairs that mirrors eachother...
Umm, yeah ! This is one reason I am looking at multiple positions/pairs, is to spread the TP points and so limit the DD - that's my thinking. I only get into pairs that show a good history of returning. I know past history does not guarantee future history but then again, past history is the best predictor of future history - so really, we are damned if we do and damned if we don't. Just have to manage it and if not going as expected maybe hedge directly or with another "co-integrated" pair. I don't use US brokers so hedging is not a problem. It is early days on this however, I am happy to just demo it to find the hitches and tricks. Order entry in MT4 can be confusing when you are not on the relevant chart and using market orders Gotta watch you enter the right pair the right way. I will try getting used to this and once all is clear, run it in conjunction with direct trading.
Cheers.
  • #3,414
  • Nov 29, 2011 2:52am Nov 29, 2011 2:52am
Quoting AltosTrader
Umm, yeah ! This is one reason I am looking at multiple positions/pairs, is to spread the TP points and so limit the DD - that's my thinking. I only get into pairs that show a good history of returning. I know past history does not guarantee future history but then again, past history is the best predictor of future history - so really, we are damned if we do and damned if we don't. Just have to manage it and if not going as expected maybe hedge directly or with another "co-integrated" pair. I don't use US brokers so hedging is not a problem....

I like your idea about using several pairs hedging,
also it will nullify the margin,
it's probably a good idea, it will netrualize the position as long as it goes against you, you could just use the same pairs the oposite direction,
then you'll be kinda flat in the market, I experimented with this before,
I found that when I "thought" the market would go against me and I hedged, a minute or so afterwards it started to go in my direction again, so now I got loss on the hedge trade also I think if we could develop some entry rules for exactly when to enter a hedge it might be more profitable
Bulls are stupid Animals!especially when Im short!
  • #3,415
  • Edited 3:28am Nov 29, 2011 3:16am | Edited 3:28am
I started trading a strategy very close to this about 2 months ago so you might find it useful if I tell you how I trade it...


Signal:
I use a raw stochastic of the pip difference between the pairs. I sell @ 100 buy @ 0 and exit at 50.
A raw stocastic is a stocastic calculated without the MA to smooth it. This makes it a more timely signal which is what you need for this kind of trading.

Correlation:
I calculate the RANK correlation only for signal verification.
I only take the trade if the current correlation is between -0.25 & +0.80.
I do not trade if they are > 0.80 correlated because the profit potential is too small if they are too close.
I do not trade if it is < -0.25 because it means they are moving too far apart and it could mean a big move is underway that will suck you into a big DD.

Position Size:
I have a primary value say 1.0 lot for the first pair, I then adjust this amount twice for the second pair, first to get them to equal $ amounts per pip, then I adjust for volatility as each pair will have a different daily pip range so I use an ATR calculation to adjust the lot size again.

TP & SL:
None I use the signal it is the only logical thing to do as price was not a factor in entry. Once it hits 50 the mean there is no point being in the trade anymore as they are back to normal so exit.

Timeframe:
I have been testing on M1, M5, M15 H1 and so far M5 seems the most consistent and profitable.
I have been running this on Live with M5 for two months.

Pairs:
So far I have limited it EU v GU but I am just starting to expand out.


Success?
Well so far but they have been three big losing days when the markets went completely mad otherwise it posts a steady profit every day with 2-5 trades.

I use an EA that I have developed to trade this screen shot attached.
Attached Image (click to enlarge)
Click to Enlarge Name: p1.gif Size: 38 KB
  • #3,416
  • Nov 29, 2011 3:32am Nov 29, 2011 3:32am
Quoting roughtrader
I like your idea about using several pairs hedging,
also it will nullify the margin,
it's probably a good idea, it will netrualize the position as long as it goes against you, you could just use the same pairs the oposite direction,
then you'll be kinda flat in the market, I experimented with this before,
I found that when I "thought" the market would go against me and I hedged, a minute or so afterwards it started to go in my direction again, so now I got loss on the hedge trade also I think if we could develop some entry rules for exactly...

Yeah, that is always a problem but that takes us back to MM and what your targets are. Some years ago I was hedged in the GU - on the big run up about 2006. I was using two different laptops one at home one at work. One morning I opened the platform having forgotten I had the EA "Delete or Close All" loaded. I opened the platform and it immediately closed both positions for about a $5k + loss. That was with FXLQ. I rang them from Australia and told them what I had done hoping they might just reverse it but of course they would not. - Was worth a try though :-) In the thread "Trading Made Simple" I think "Big E" advocates getting out if a 5 min chart trade goes against him 5 pips on entry. He figures he timed it wrong and better to get out for a small loss than watch it grow into a big one. Some might say, "death by a thousand cuts" The point is you have to equate your loss tolerance to your profit objective. If on 4 hour bars and straight trading say the EU I am quite happy for it to be 50 pips against me. If much more, time to re-evaluate the trend, if it is just a pullback it may even be prudent to add to your position, or, bail out and place a pending order for when it re-traces. There ain't no golden rule though. Ones own MM must rule.
MaxDoom just posted a comment. He didn't post his EA tho". :-)
  • #3,417
  • Nov 29, 2011 3:58am Nov 29, 2011 3:58am
Quoting MaxDoom
I started trading a strategy very close to this about 2 months ago so you might find it useful if I tell you how I trade it...
Nice Max. I like that information display. I am wrestling with the one big lot versus many smaller lots. Certainly it is easier to track just the two pairs. You might note my comment about wishing for an EA to close my multiple positions as without such I have to watch the screen. I am currently using "close all at equity level" and while I was typing it closed out four trades. This is not ideal though as I would sooner have an EA on each set of pairs. I will trade this manually for a while, gain some experience and more insight and if all is going well then maybe Steve Hopwood can write me an EA for a donation. At present this correlated or co-integrated or whatever, is an exercise, I like the "hedged" aspect of it, it seems to me to be less likely for all to go south. I don't currently have a clear view on predicting the profit and so am just increasing my lot sizes as I become familiar with the style. I would be most interested if you could occasionaly give us an update on your experiences as this is only my second day using my current tools.
  • #3,418
  • Nov 29, 2011 4:18am Nov 29, 2011 4:18am
Quoting AltosTrader
You might note my comment about wishing for an EA to close my multiple positions .
Hi Altos

I can help you with the EA so long as it is not to time consuming, what would the EA need to do?
  • #3,419
  • Nov 29, 2011 4:51am Nov 29, 2011 4:51am
Quoting MaxDoom
Hi Altos

I can help you with the EA so long as it is not to time consuming, what would the EA need to do?
Oh ! Thankyou, that was not my intention - just grumbling about all the multiple closings - I have missed a couple today.

All the EA needs do, is close pair a and pair b when profit on that pairing reaches x. The bigger problem may be that I have up to eight or nine pairs on a chart - I am currently showing 90 pairings and as far as I know, an MT4 chart will only accept one EA. Maybe it can run independent of the chart tho' as we only wish to monitor the P/L figure in the live order box, or, maybe I could have the first chart blank and run the EA from there but then it would need multiple pairings. i.e. a&b close at $ sum x, c&d close at $ sum y, e&f close at $ sum z etc. etc. I can see easily having 20 open positions. I also run the P4X - Connection Manager which just, I think, keeps pinging the MT4 server to keep the connection alive, it can be on any chart and probably non interfering.

Eventually it would be nice if manual input could be avoided but that is going to a whole new level of complexity and just the first described above would be wholly adequate at present.

Sincere thanks,
Altos
  • #3,420
  • Nov 29, 2011 5:27am Nov 29, 2011 5:27am
Hi Guys - This is one screen of many, I posted something similar about 4 weeks or so ago. This shows the options for the AUDCAD and there are plenty more for other pairs. :-) Red and Blue are the pairs, yellow the difference - as you all know.
Attached Image (click to enlarge)
Click to Enlarge Name: CorrScreen.jpg Size: 383 KB
3 traders viewing now