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Hedge and Correlation Strategy

  • #3,721
  • Feb 17, 2012 9:35am Feb 17, 2012 9:35am
  •  duca
  • | Joined Dec 2011 | Status: Investing is simple, but not easy | 409 Posts
i prefer only EUR/GPB
LESS COST spread brokers
Attached Image (click to enlarge)
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give 1 and get 100
  • #3,722
  • Feb 19, 2012 12:41am Feb 19, 2012 12:41am
Quoting duca
is better:
gbp/$ long-
€/$ sell
can you please tell exactly what pairs you trade ...???? and what is exactly the way you are using this method to trade ..

I want to focus on 2 or 3 pairs , i need to know how they move..

please advise ..!!
  • #3,723
  • Feb 19, 2012 12:42am Feb 19, 2012 12:42am
Quoting duca
i prefer only EUR/GPB
LESS COST spread brokers
please explain how you trade those pairs ..!!!
  • #3,724
  • Feb 19, 2012 4:01am Feb 19, 2012 4:01am
Quoting khalidhassan
please explain how you trade those pairs ..!!!
Open a chart for eurusd gbpusd eurgbp in 15 m time frame.
Put the Bollinger Band on every chart

When eurgbp touch or cut the lower band buy eurusd and sell gbpusd
When eurgbp touch or cut the upperband sell eurusd and buy gbpusd
Before putting the 2 trades you can also wait eurusd and gbpusd begin to retrace

Spread is important if you trade in lower time frames
  • #3,725
  • Feb 19, 2012 5:10am Feb 19, 2012 5:10am
Quoting pierre
open a chart for eurusd gbpusd eurgbp in 15 m time frame.
Put the bollinger band on every chart

when eurgbp touch or cut the lower band buy eurusd and sell gbpusd
when eurgbp touch or cut the upperband sell eurusd and buy gbpusd
before putting the 2 trades you can also wait eurusd and gbpusd begin to retrace

spread is important if you trade in lower time frames
i do appreciate your reply brother , but i don't like to use lower time frames , i usually use 1-4 hours time frames.

What will be the rules if i want to use 1h or 4h time frame..????

Would you please do me a favor and tell me whats the idea of enter short on eurusd and long on gbpusd while every one know they go in same direction most of the time , ??

Would you please attach some charts showing the entry points ...???
  • #3,726
  • Feb 19, 2012 5:31am Feb 19, 2012 5:31am
Quoting khalidhassan
i do appreciate your reply brother , but i don't like to use lower time frames , i usually use 1-4 hours time frames.

What will be the rules if i want to use 1h or 4h time frame..????

Would you please do me a favor and tell me whats the idea of enter short on eurusd and long on gbpusd while every one know they go in same direction most of the time , ??

Would you please attach some charts showing the entry points ...???
- 4h timeframe is better, but you need to wait long time before trigger a trade
-eurusd and gbpusd are positively correlated, then if you will hedge and limit the risk, if you buy one the sell the other
- Eurusd and gbpusd go most of the time in the same direction, but, sometimes go in opposite dir; here you will trade
-I use 15 m and 5m time frame
- I use also for help me the indi NeutalHedge osc v 3.3
-multi Instrument indi is also useful
  • #3,727
  • Feb 19, 2012 5:48am Feb 19, 2012 5:48am
Quoting pierre
- 4h timeframe is better, but you need to wait long time before trigger a trade
-eurusd and gbpusd are positively correlated, then if you will hedge and limit the risk, if you buy one the sell the other
- eurusd and gbpusd go most of the time in the same direction, but, sometimes go in opposite dir; here you will trade
-i use 15 m and 5m time frame
- i use also for help me the indi neutalhedge osc v 3.3
-multi instrument indi is also useful
i want to keep it as simple as possible so i will stick to just the 3 bollinger bands .

It seems that your are a hedge strategies fan , so let me ask you what is the best and simple strategy you advise .????
  • #3,728
  • Feb 19, 2012 5:53am Feb 19, 2012 5:53am
Quoting khalidhassan
i want to keep it as simple as possible so i will stick to just the 3 bollinger bands .

It seems that your are a hedge strategies fan , so let me ask you what is the best and simple strategy you advise .????
this strategy in 5 and 5 m tf using the bollinger bands and neutral hedge indi only for help
  • #3,729
  • Feb 19, 2012 6:23am Feb 19, 2012 6:23am
Quoting pierre
this strategy in 5 and 5 m tf using the bollinger bands and neutral hedge indi only for help
where can i find information about this strategy >>???? What pairs you prefer to use with this strategy ..????
  • #3,730
  • Feb 19, 2012 6:37am Feb 19, 2012 6:37am
Quoting khalidhassan
where can i find information about this strategy >>???? What pairs you prefer to use with this strategy ..????
1)pairs: eurusd gbpusd ; low spread is essential
2)This strategy? read the first post (2 pairs correlated above 75%; sell the pair that is high, buy the pair that is low); instead of stochatic I use BBands
3) Someone in this thread do the opposite (buy the highter pair and sell the lower: very dangerous because they are correlated)
4) close all at 10 pips on 15m TF
  • #3,731
  • Feb 19, 2012 9:57am Feb 19, 2012 9:57am
  •  duca
  • | Joined Dec 2011 | Status: Investing is simple, but not easy | 409 Posts
Quoting Pierre
Open a chart for eurusd gbpusd eurgbp in 15 m time frame.
Put the Bollinger Band on every chart

When eurgbp touch or cut the lower band buy eurusd and sell gbpusd
When eurgbp touch or cut the upperband sell eurusd and buy gbpusd
Before putting the 2 trades you can also wait eurusd and gbpusd begin to retrace

Spread is important if you trade in lower time frames
hello pierre -
is the same thing long eur/gbp
-
but it costs less than spreads-
-


prices change for trend-
not for Bollinger
give 1 and get 100
  • #3,732
  • Feb 19, 2012 10:32am Feb 19, 2012 10:32am
Quoting duca
hello pierre -
is the same thing long eur/gbp
-
but it costs less than spreads-
-


prices change for trend-
not for Bollinger
Maybe I have not understood what you write, but if you go long eurusd and eurgbp you dont hedge

the system is easy (first post) and is countertrend
1) 2 pairs correlated
2) when the pairs uncorrelate you buy the lower and sell the highter
there are many systems for looking at correlation: eurgbp is the basic pair for eurusd and gbpusd then if eurgbp go highter you SELL EURUSD and buy GBPUSD and if eurgbp go lower you BUY EURUSD and sell GBPUSD

This is the system of this thread

You can use negative correlated pairs i.e. eurusd usdchf and this is the SPIELER SYSTEM (you buy or you sell the 2 pairs)

Sometimes I sell (eurusd) and buy(usdchf) negative correlated pairs and it is very profitable but dangerous
  • #3,733
  • Feb 19, 2012 10:48am Feb 19, 2012 10:48am
Quoting duca
hello pierre -
is the same thing long eur/gbp
-
but it costs less than spreads-
-


prices change for trend-
not for Bollinger
Now I have understood what you mean
Trade eurgbp is cheaper but it is not as trading the 2 pairs eurusd gbpusd;in this thread we trade the difference between 2 pairs,and we take profit also if trend is against us; we trade the difference in pips between 2 pairs positives correlated. And if the pair are correlated at 85% the prices of the 2 pairs will return at the mean deviation giving us profit

Yours is a different system: you trade the trend of eurgbp looking at eurusd and gbpusd trend and what is the more strong between the two pairs.

Maybe you have to move at another thread; this is the system of Dreamliner
  • #3,734
  • Feb 19, 2012 11:37am Feb 19, 2012 11:37am
  •  duca
  • | Joined Dec 2011 | Status: Investing is simple, but not easy | 409 Posts
85% correlation is a law? -
who reads it?
are BOE, ECB, TREND-
leading to 85% at periods is-
periods in no-
My system is equal to this thread
give 1 and get 100
  • #3,735
  • Feb 19, 2012 11:44am Feb 19, 2012 11:44am
  •  duca
  • | Joined Dec 2011 | Status: Investing is simple, but not easy | 409 Posts
eur / gbp is synthesis
-
eur / $ -
gbp / $
The first change in banks $
give 1 and get 100
  • #3,736
  • Feb 19, 2012 5:25pm Feb 19, 2012 5:25pm
  •  duca
  • | Joined Dec 2011 | Status: Investing is simple, but not easy | 409 Posts
difference image first = uncorrelation= eur/gbp
Attached Images
give 1 and get 100
  • #3,737
  • Feb 20, 2012 4:10am Feb 20, 2012 4:10am
Quoting duca
difference image first = uncorrelation= eur/gbp
I don't mean to be rude, but you have to be more specific. I don't see any "uncorrelation" in your stated numbers. How could you possibly say anything about the future movement of EUR/GBP based on these three pairs? Both EUR and GBP are appreciating relative to the USD, but the movement in EUR is relatively stronger, therefore we observe a strengthening of EUR compared to GBP. No surprise.

Going long E/U and short G/U is exactly the same as going long E/G.
Proof: 1.3218/1.5873 = 0.8327. Actually you create a synthetic pair. Any risk-free profit could be gained if and only if the above fraction is significantly different from the EUR/GBP value. (By that I mean significantly different from the sum of spreads). This is called triangular arbitrage and is impossible to exploit for retail traders like us due to execution time and high spreads.

If your trading decisions are based on MAs, bollinger bands etc., then hedging and correlation analysis seem highly irrelevant and misleading.

Correlation is in itself a dubious trading concept. Let's say EUR/USD is going upwards, and GBP/USD is going downwards, and you conclude that this is a profit opportunity. (Because you observe a high positive correlation coefficient). As a consequence, you believe that prices will correct, and you take one short and one long position. But which of the two currencies lead the other one? Stated more formally: Is really one of the currencies exogenous, and the other one endogenous? This is a question of temporal dependency, and as far as I understand, the outcome of this kind of "misalignment/uncorrelation/" (or whatever) is completely random. However, any purely correlation-based strategy has to deal with causality, and more specifically which way it runs.

Unfortunately, I'm not able to get any meaningful out of the last few pages of this thread. Please correct if I'm wrong, or if I've missed something. I think lots of people reading this thread share my frustration.
  • #3,738
  • Feb 20, 2012 5:09am Feb 20, 2012 5:09am
Quoting latouche88
If your trading decisions are based on MAs, bollinger bands etc., then hedging and correlation analysis seem highly irrelevant and misleading.

Correlation is in itself a dubious trading concept. Let's say EUR/USD is going upwards, and GBP/USD is going downwards, and you conclude that this is a profit opportunity. (Because you observe a high positive correlation coefficient). As a consequence, you believe that prices will correct, and you take one short and one long position. But which of the two currencies lead the other one? Stated more formally:...
Hi Latouche, we trade exactly the same concept as stated on post 1 by Dreamliner.
We are only changing the stochastic with something that represents more accurately the difference in prices between 2 correlated pairs. That's all.
  • #3,739
  • Feb 22, 2012 3:03am Feb 22, 2012 3:03am
Hi Guys,
I have read this thread for some time and keep an eye on it to see if anything new crops up. I noticed Luca's Luku EDiff indicator and was hoping that might become a useful tool but development stopped. Now I notice there are two approaches being used. Luca who is basically trading catchup on lag between pairs and the original approach.

I would like to float another indicator that may even be in this thread but has had virtually no exposure. Just as the present two approaches exist for catchup arbitrage and "returning home" methods I would canvas any thoughts on the use of the attached indi as shown in the jpg.

Any interesting opinions ?
Attached Image (click to enlarge)
Click to Enlarge Name: Overlay Line.jpg Size: 129 KB
Attached File(s)
File Type: mq4 OverLayChartLINE.mq4   12 KB | 7,440 downloads
  • #3,740
  • Feb 22, 2012 5:26am Feb 22, 2012 5:26am
Quoting AltosTrader
Hi Guys,
I have read this thread for some time and keep an eye on it to see if anything new crops up. I noticed Luca's Luku EDiff indicator and was hoping that might become a useful tool but development stopped. Now I notice there are two approaches being used. Luca who is basically trading catchup on lag between pairs and the original approach.

I would like to float another indicator that may even be in this thread but has had virtually no exposure. Just as the present two approaches exist for catchup arbitrage and "returning home" methods...
Same results as 2 otherss overlaycharts indi; changing the time frames the deviation change and can go from postive to negative and viceversa
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