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Hedge and Correlation Strategy

  • #3,421
  • Nov 29, 2011 6:51am Nov 29, 2011 6:51am
Quoting AltosTrader
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...

Nice idea. I have tried similar before with limited success. My problem was the indicators were never accurate enough. I mean it is hard enough picking which direction 1 trade is going to go, try getting 20 right. I was of the belief opening more trades with different pairs might average things out, but I didnt find that. Not to discourage. I tried lots of indicators, but the problem was if you set it up for the market norm, then you get into an extreme trend everything goes out the window.

I have been trading a hedging system with multiple pairs for a while. Currently running 4, 6, 8 & 10 pair hedging systems.(and more)
The main reason I am using so many pairs is that it creates a more stable hedge.
ie if you are trading 6 pairs and you get a large movement in the wrong direction with one currency it is only 1/6th of the hedge.
  • #3,422
  • Nov 29, 2011 9:25am Nov 29, 2011 9:25am
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...


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...
Thanks for your input, looks like a nice EA and trading method,
I never tested the raw stochastic before,
Im not sure if I can configure my stoch this way,
is this a custom indicator you use?
and how reliable would you say the signal is?
did you try a 1500 period stochastic?
Bulls are stupid Animals!especially when Im short!
  • #3,423
  • Nov 29, 2011 10:55am Nov 29, 2011 10:55am
Quoting MaxDoom
Signal:
I use a raw stochastic of the pip difference between the pairs. I sell @ 100 buy @ 0 and exit at 50.
A
Instead of a stochastic of the pip difference try 2 standard deviations bollinger bands of the difference. I tried to build an indicator to do this but for some reason or another doesn't refresh well.

Buy FXpair1 and Sell FX Pair 2 when Pipdifference is below 2 standard deviations and the reverse when difference is above 2dtandard deviations.

Here was my indicator.. It would be great if someone can fix it so there's no strange zero divide or refreshing errors.

http://www.forexfactory.com/showthread.php?t=327767
  • #3,424
  • Nov 29, 2011 12:32pm Nov 29, 2011 12:32pm
Quoting drgoodvibe
Instead of a stochastic of the pip difference try 2 standard deviations bollinger bands of the difference. I tried to build an indicator to do this but for some reason or another doesn't refresh well.

Buy FXpair1 and Sell FX Pair 2 when Pipdifference is below 2 standard deviations and the reverse when difference is above 2dtandard deviations.

Here was my indicator.. It would be great if someone can fix it so there's no strange zero divide or refreshing errors.

http://www.forexfactory.com/showthread.php?t=327767
Thanks for the tip! I will try it http://www.forexfactory.com/images/icons/icon14.gif
I downloaded your indicator,
unfortunately I don't have the knowledge to fix it for you,
I hope someone else can.
Bulls are stupid Animals!especially when Im short!
  • #3,425
  • Nov 29, 2011 1:49pm Nov 29, 2011 1:49pm
Quoting roughtrader
Thanks for your input, looks like a nice EA and trading method,
I never tested the raw stochastic before,
Im not sure if I can configure my stoch this way,
is this a custom indicator you use?
and how reliable would you say the signal is?
did you try a 1500 period stochastic?
The raw stochastic is a custom calculation defined as follows:

Stoch value = Close - min(Ln) / Max(Hn) - Min(Ln)

where Min(Ln) = lowest low of n periods
where Max(Hn) = highest high of n periods

this is the raw stocastic to get this back to an ordinary stoch value the normal indcators would apply a 3 period or greater moving average to the answer but that causes lag.

I have attached an indicator that I wrote to cover this. If you put a second symbol name in then it will also add that raw stoch to the indicator window and the diff betweeen the two.

I would never use a value of 1500 for a stochastic for the following reasons:

A stochastic is a value of 0 - 100 (normally) that indicates how high the current close (normally) is comapred with the last n periods. So if you had 10 periods set and it was making a new 10 bar high on the close you would expect a value of 100 as the stocastic reading.

So when it comes to knowing how high the current price is compared to the last 1500 periods I would question what value that info has to trade from as the period is just too large. If I thought a 1500 period was worth using then I would probably look for a larger timeframe and use a smaller period.

The period value for my stochastic is the only parameter in my trading system that directly impacts the signal and I have a maximum value set for TF M1 = max 240 all others max 100. but my system auto calibrates itself and rarely using a period near these maximums.

I hope this is clear and helpful
Attached File(s)
File Type: ex4 !Stochastic RAW.ex4   3 KB | 962 downloads
  • #3,426
  • Nov 29, 2011 2:29pm Nov 29, 2011 2:29pm
Quoting MaxDoom
The raw stochastic is a custom calculation defined as follows:

Stoch value = Close - min(Ln) / Max(Hn) - Min(Ln)

where Min(Ln) = lowest low of n periods
where Max(Hn) = highest high of n periods

this is the raw stocastic to get this back to an ordinary stoch value the normal indcators would apply a 3 period or greater moving average to the answer but that causes lag.

I have attached an indicator that I wrote to cover this. If you put a second symbol name in then it will also add that raw stoch to the indicator window and the diff betweeen...
Yes very helpful thanks! the reason I used a 1500 period is that it seems to find good entrys most times on a 15 minute timeframe, I tried a lot of things but your way maybe is better, thanks for sharing your indicator!
I will try it the first thing in the morning, now Im off to bed
Bulls are stupid Animals!especially when Im short!
  • #3,427
  • Edited 5:01pm Nov 29, 2011 4:50pm | Edited 5:01pm
Quoting hedgeitall
Nice idea. I have tried similar before with limited success. My problem was the indicators were never accurate enough. I mean it is hard enough picking which direction 1 trade is going to go, try getting 20 right. I was of the belief opening more trades with different pairs might average things out, but I didnt find that. Not to discourage. I tried lots of indicators, but the problem was if you set it up for the market norm, then you get into an extreme trend everything goes out the window.

I have been trading a hedging system with multiple...
That makes sense - I could do the same with my selections, ensure my second pairing had minimum correlation to the first pairing and so on. There is an expected direction for the pairing to move but never a guarantee. :-( IF two pairs are historically correlated and have moved out of whack, then does it really matter which direction it goes. In this case here we are trading from an extreme "de-coupling" and expecting to go back towards a closer coupling. So far in my very limited experience this has worked like a charm. If both pairs gravitate toward each other there will be profit, if one pair stays high, so to speak, and the other comes toward it there will be profit, if they keep trending apart you will have DD until the correlation or co-integration kicks in and they move back to closer coupling.

Can you expand on your system, sounds like the area I want to be moving in.
  • #3,428
  • Nov 29, 2011 5:59pm Nov 29, 2011 5:59pm
Quoting AltosTrader
That makes sense - I could do the same with my selections, ensure my second pairing had minimum correlation to the first pairing and so on. There is an expected direction for the pairing to move but never a guarantee. :-( IF two pairs are historically correlated and have moved out of whack, then does it really matter which direction it goes. In this case here we are trading from an extreme "de-coupling" and expecting to go back towards a closer coupling. So far in my very limited experience this has worked like a charm. If both pairs gravitate...
I have been putting more effort into how to improve my systems safety and profit rather then the opening as I found however you open there is always the chance of the market going against you.

I use added lot sizes to correct the hedge. I start with 0.01 and go up in lot sizes in 0.01 increments.

When to open new trades is always based on the first opened positions.

My take Profits targets are dynamic based on number of open positions.

I use trailing stop on the Profit targets.

I also use trailing open on opening the next lot of trades. This is important as it adds protection against a large movement against me. I am always trying to open orders at the bottom of the cycle.

When to open the next orders is based on market conditions rather then a grid system.

I can trade multiple pairs on 1 account. Opening of which pairs is based on a % of free margin. This works sort of like a money management system.
ie the more free margin(or profit you make) the more pairs you can open. This is based on the expectancy that x number of pairs will close straight away and x number will close within 2 cycle, so on.

Risk. There is still risk. Worst case scenario if things went totally bad. I lose 1/2 my account. So I plan for this to happen and work on the odds of it happening. Not that I have had it happen on live trading yet.(around 12 months of trading it live) I am pushing it at about 30%-50% per month at the moment. Still improving the system all the time.
  • #3,429
  • Nov 29, 2011 7:06pm Nov 29, 2011 7:06pm
Quoting MaxDoom
The raw stochastic is a custom calculation defined as follows:

Stoch value = Close - min(Ln) / Max(Hn) - Min(Ln)

where Min(Ln) = lowest low of n periods
where Max(Hn) = highest high of n periods

this is the raw stocastic to get this back to an ordinary stoch value the normal indcators would apply a 3 period or greater moving average to the answer but that causes lag.

I have attached an indicator that I wrote to cover this. If you put a second symbol name in then it will also add that raw stoch to the indicator window and the diff betweeen...

Please can you illustrate how you use this indicator in trading with charts if possible? THANKS
  • #3,430
  • Nov 29, 2011 9:04pm Nov 29, 2011 9:04pm
Anyone making profit with this system?
  • #3,431
  • Nov 30, 2011 1:18am Nov 30, 2011 1:18am
Quoting aelimian
Please can you illustrate how you use this indicator in trading with charts if possible? THANKS
Hi Aelimian,

This indicator is just the Raw Stochastic plus will show the diff between two pairs raw stochastic values.

You could use to trade as follows:
Sell Pair 1 & Buy Pair 2 when yellow line (diff) makes a new n period High
Buy Pair 1 & Sell Pair 2 when yellow line (diff) makes a new n period Low

However I put the indi up to demonstrate the difference between a raw and normal stochastic value.

The way I trade pairs is to use a raw stochastic calculation on the pip differences between two pairs. I do this through my EA so I don't need an indi for it but I can alter this one to show that too if anybody wants it. That way you would just trade when it hits 100 or 0 and exit at 50.

I will try and get it done at the end of the week as I am a bit busy until then.
  • #3,432
  • Nov 30, 2011 2:05am Nov 30, 2011 2:05am
Quoting MaxDoom
Hi Aelimian,

This indicator is just the Raw Stochastic plus will show the diff between two pairs raw stochastic values.

You could use to trade as follows:
Sell Pair 1 & Buy Pair 2 when yellow line (diff) makes a new n period High
Buy Pair 1 & Sell Pair 2 when yellow line (diff) makes a new n period Low

However I put the indi up to demonstrate the difference between a raw and normal stochastic value.

The way I trade pairs is to use a raw stochastic calculation on the pip differences between two pairs. I do this through my EA so I don't...
Hey, that sounds great too. It is a little bit of a "culture shock" coming from trend and breakout et al style trading to pair trading. It seems that one can build positions over time which allow you to offset any short term losses by bringing in another pairing to mitigate the southern bound pairs. It would appear also that trading in this way can give you greater insight to simultaneously trade single pairs alongside coupled pairs - it is going to take some little time but I can see the possibility. For the moment we have some impetus back in this thread and I love the various views and slightly varying approaches which broadens our understanding. Great and thanks to all.
  • #3,433
  • Nov 30, 2011 5:19am Nov 30, 2011 5:19am
Quoting MaxDoom
The way I trade pairs is to use a raw stochastic calculation on the pip differences between two pairs. I do this through my EA so I don't need an indi for it but I can alter this one to show that too if anybody wants it. That way you would just trade when it hits 100 or 0 and exit at 50.

I will try and get it done at the end of the week as I am a bit busy until then.
I'd be interested in seeing this as well!
Every time you use 'hopium' in a post, God kills a kitten.
  • #3,434
  • Nov 30, 2011 5:59am Nov 30, 2011 5:59am
Quoting MaxDoom
Hi Aelimian,

This indicator is just the Raw Stochastic plus will show the diff between two pairs raw stochastic values.

You could use to trade as follows:
Sell Pair 1 & Buy Pair 2 when yellow line (diff) makes a new n period High
Buy Pair 1 & Sell Pair 2 when yellow line (diff) makes a new n period Low

However I put the indi up to demonstrate the difference between a raw and normal stochastic value.

The way I trade pairs is to use a raw stochastic calculation on the pip differences between two pairs. I do this through my EA so I don't...
Thank you. Looking forward to the alteration.
  • #3,435
  • Dec 1, 2011 2:53am Dec 1, 2011 2:53am
okay attached is an indicator that shows a 'raw stochastic' calculated on the difference between two pairs.

The difference is calculated as a ratio as follows: Pair1 / Pair2

This gives the same results as using pip difference but it is an easier calculation that works across all pairs and digits without the need to change it.

The raw stochastic shows the current ratio value versus the last n periods.

So if you see a value of 100 then you know that the current value is at a high for the last n periods. 0 would mean a low of the last n periods.

I trade this as follows:

Place indicator on Pair1 and set the Pair2 name and n period value in the indicator settings.

If 100 - Sell Pair1 & Buy Pair2
If 0 - Buy Pair1 & Sell Pair2
Exit at 50 in both cases.

Once a trade is open I ignore all other signals until it has reached 50 and I exit. So the indicator may show many 100 values but because you enter on the first valid setup you would be ignoring the following ones as you are in a trade already.

I only trade this between 6am and 4pm GMT for EU v GU. hours need to be adjusted depending upon the pairs you choose. I would only ever trade the market hours for those pairs otherwise you will run into liquidity issues.

I have included the source if you want to mess with it. Please choose your own period settings.
Attached File(s)
File Type: mq4 RatioRawStoch v1.mq4   3 KB | 1,267 downloads
File Type: ex4 RatioRawStoch v1.ex4   3 KB | 895 downloads
  • #3,436
  • Dec 1, 2011 3:18am Dec 1, 2011 3:18am
Mmmm . . . Will rush off and have a look at this - everything is of interest.
Thanks and regards,
Altos
  • #3,437
  • Dec 1, 2011 12:05pm Dec 1, 2011 12:05pm
Quoting MaxDoom
okay attached is an indicator that shows a 'raw stochastic' calculated on the difference between two pairs.

The difference is calculated as a ratio as follows: Pair1 / Pair2

This gives the same results as using pip difference but it is an easier calculation that works across all pairs and digits without the need to change it.

The raw stochastic shows the current ratio value versus the last n periods.

So if you see a value of 100 then you know that the current value is at a high for the last n periods. 0 would mean a low of the last n periods....
clear and good explanation right there
it's going to be fun to forward test this
Bulls are stupid Animals!especially when Im short!
  • #3,438
  • Dec 1, 2011 6:18pm Dec 1, 2011 6:18pm
Quoting MaxDoom
okay attached is an indicator that shows a 'raw stochastic' calculated on the difference between two pairs.

The difference is calculated as a ratio as follows: Pair1 / Pair2

This gives the same results as using pip difference but it is an easier calculation that works across all pairs and digits without the need to change it.

The raw stochastic shows the current ratio value versus the last n periods.

So if you see a value of 100 then you know that the current value is at a high for the last n periods. 0 would mean a low of the last n periods....
I can't the indicator to work on FXDD. Any suggestions? Thanks
  • #3,439
  • Dec 2, 2011 1:34am Dec 2, 2011 1:34am
Quoting aelimian
I can't the indicator to work on FXDD. Any suggestions? Thanks

what do the journal/experts logs say?
  • #3,440
  • Dec 2, 2011 7:01am Dec 2, 2011 7:01am
Hi

Sorry for my english.

I try to a make a EA of a RatioRawStoch V1 indicator



based on: post #3431 and #3435
http://www.forexfactory.com/showthre...81#post5179681

EURUSD, short at 100, long at 0, Close position at 50

Can someone help me with this code.
Thanks.


Martin
Attached File(s)
File Type: mqh RatioRawStoch EA (not working).mqh   10 KB | 434 downloads
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