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Hedging synthetic pairs

  • #1
  • First Post: Aug 24, 2012 2:21pm Aug 24, 2012 2:21pm
hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?
  • #2
  • Aug 25, 2012 6:36am Aug 25, 2012 6:36am
Quoting tarrini65
hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?
The most likely reason is that you end up with more euro units either long or short and that brings the profits... I assume that profit will not always be the case if the euro moves against your "net" positioning.

J.
  • #3
  • Oct 6, 2012 3:55am Oct 6, 2012 3:55am
Quoting tarrini65
hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?
Do you still trading this scenarrio? How about max DD?
  • #4
  • Oct 15, 2012 12:43am Oct 15, 2012 12:43am
Quoting tarrini65
hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?
hello my friend
also you can use this 3 pair for easier trading

Eurjpy Buy
Audjpy Sell
Euraud sell

i am currently writing one expert for this method of basket trading
and every time this expert completed i attach in foroum for use
if you have any ideas for this strategy writ in topic to i change the expert befor completting
thank
  • #5
  • Oct 15, 2012 1:04pm Oct 15, 2012 1:04pm
correction
follow as previus post
this 3 pair have e big spread but this 3 pair have e lower spread and better than

EURUSD buy
EURJPY sell
usdjpy buy
  • #6
  • Nov 2, 2012 3:06pm Nov 2, 2012 3:06pm
hello my friends
i complete the expert advisor for this pair
and attach in this post for all
this expert have e very low drawdown and profitable
please first run in demo account

please note that this expert cant work for backtesting and only take a position in forward test
enjoy it
Attached File(s)
File Type: ex4 HEDGE 3 PAIR.ex4   11 KB | 1,574 downloads
File Type: zip SETTING.zip   < 1 KB | 1,566 downloads
  • #7
  • Nov 2, 2012 3:28pm Nov 2, 2012 3:28pm
Spread would normally kill the profit in such trades, no?
  • #8
  • Edited 5:16pm Nov 2, 2012 3:41pm | Edited 5:16pm
hi davari

i am glad that you developed this ea.This was already described , try and discussed in several threads in ff....three pair hedging and so on .

There is one thing that you should consider in your ea , i mean selling / buying all three pairs together .

let me explain you .

you open the ring

eu buy
ej sell
uj buy

you let it run for a while ..

this is your indicator .

you will have a situation like this

eu + 45 pips
uj + 13 pips
ej - 55 pips

the eu and the ej are the anchor pairs, this is a bull market .
as soon as one of the anchor change position , example :

ej + 13 pips
eu - 7 pips
uj - 10 pips

that means that the market is bear now, so you sell all the three pairs together , and get pips as soon as another anchor change happen .

this is a trick to better use this hedging ....

can you develop something like this ?
  • #9
  • Nov 2, 2012 4:44pm Nov 2, 2012 4:44pm
Quoting tarrini65
hi all

i would like to know your opinions about creating synthetic pairs

i am running a basket like this since two weeks, and it's closing in profit
once a day with low dd ,

eurjpy buy
usdjpy sell ( these two make eurusd long )
eurgbp sell
gbpusd sell ( these two make eurusd short )

the story is that due to the different pip value and volatility the basket goes in profit ....

is it a case or there are good reasons ?
IMO it's a waste of time, unless you can find a br0ker where the swap differentials in the 'hedge', over time, exceed the spread.

As far as I know, you're exactly correct in stating that EJ / UJ = EU and EG x GU = EU; and therefore EU effectively cancels EU, but any P/L is caused by the imbalance in the pip values. [Hence you could balance this perfectly (although it would likely be pointless) by trading suitably sized positions for each pair].

Ask yourself this question: what would happen if exactly the opposite price movement (in all of the pairs) to the one that caused the profit was to occur? Wouldn't the result be an equivalent loss (made even worse by the spread, which will obviously work against us in all scenarios)?

Hence it becomes a question of which types of price movement are more likely to occur. Probably nobody can predict this, as markets can pretty much do anything they please, given enough time.

We might also reasonably ask: if this particular hedge is guaranteed to deliver profit infallibly, why isn't it more widely published, and why doesn't everybody use it? Why do the vast majority of retail traders lose?

[EDIT] Here is a post of mine in reply to a trader ('Tradepro') who's spent 20 years trading in big banks. If you look through his earlier posts (#139, #141), you'll find his comments on these types of hedges.
  • #10
  • Nov 2, 2012 5:16pm Nov 2, 2012 5:16pm
yes, you are right . i studied that also ...i am playing a lot with baskets , i like them ....forex like the sea , and pairs like waves...a simphony ....
  • #11
  • Nov 2, 2012 6:03pm Nov 2, 2012 6:03pm
Quoting hanover
IMO it's a waste of time, unless you can find a br0ker where the swap differentials in the 'hedge', over time, exceed the spread.

As far as I know, you're exactly correct in stating that EJ / UJ = EU and EG x GU = EU; and therefore EU effectively cancels EU, but any P/L is caused by the imbalance in the pip values. [Hence you could balance this perfectly (although it would likely be pointless) by trading suitably sized positions for each pair].

Ask yourself this question: what would happen if exactly the opposite price movement (in all of...
AVT INVENIAM VIAM AVT FACIAM
  • #12
  • Nov 2, 2012 10:18pm Nov 2, 2012 10:18pm
Quoting tarrini65
hi davari

i am glad that you developed this ea.This was already described , try and discussed in several threads in ff....three pair hedging and so on .

There is one thing that you should consider in your ea , i mean selling / buying all three pairs together .

let me explain you .

you open the ring

eu buy
ej sell
uj buy

you let it run for a while ..

this is your indicator .

you will have a situation like this

eu + 45 pips
uj + 13 pips
ej - 55 pips

the eu and the ej are the anchor pairs, this is a bull market .
as soon as one of the...
First I would resolve the ring into the simplest possible position. In this case it is EU x UJ / EJ = 1 ('triangular equilibrium'). Hence any P/L comes merely from the imbalance in the trade sizes. You could calculate this imbalance, and simply trade a single pair; it effectively amounts to exactly the same thing.

Hence I see no benefit in hedging, because all hedges, rings etc can always be resolved in this manner. Except, as I said in my prior post, if you can find a ring where the swap differentials exceed the spread (and the trade sizes in the ring are perfectly balanced, so that the P/L from the 'trades' = 0). But I doubt that any br0ker would be careless enough to allow a money bleed of this kind. However, you might be lucky enough to find swap disparity across multiple br0kers (which is similar to the way that sports arbitrage works). But first, you'd likely need to find two such br0kers that also offer high enough leverage to make any profit worthwhile; and you'd need to be able to transfer money between accounts, prior to any margin call, and cover these associated costs, also. It also assumes that your profit covers any differences in their price quotes.

If the ring is not perfectly balanced, then there is forecasting, and hence risk (if your forecast is incorrect) involved, just as if you were trading the pair(s) that the ring resolves itself to. Hence there is no tangible edge in hedging (but ironically, 'edge' appears in the word 'hedge', LOL).

There are no MM-based shortcuts. The only way to win at FX is to study market behavior and exploit non-random price movement.

David
  • #13
  • Nov 18, 2012 3:28pm Nov 18, 2012 3:28pm
Quoting hanover
First I would resolve the ring into the simplest possible position. In this case it is EU x UJ / EJ = 1 ('triangular equilibrium'). Hence any P/L comes merely from the imbalance in the trade sizes. You could calculate this imbalance, and simply trade a single pair; it effectively amounts to exactly the same thing.

Hence I see no benefit in hedging, because all hedges, rings etc can always be resolved in this manner. Except, as I said in my prior post, if you can find a ring where the swap differentials exceed the spread (and the trade sizes in...



except here is the biggest challenged

I created a log normal distribution of price movement over 252 periods over 100,000 trials over and over and over using R
I also created log normal brownian motion random price patterns using a combination of R and Excel

only the normal distribution of simple returns seem to give a clear difference between a random market and the real market
as far as the random price movement brownian motion goes.....it is very difficult to pick out a random market from a real market

all patterns, S/D, S/R, even momentum loss appears very similar........so it is fair to say that the market acts RANDOM LIKE

and I have a suspicion that most people in FF jump at my throat by stating that reading charts is not the right way to go.....because in fact we do see order and patterns even in randomness
AVT INVENIAM VIAM AVT FACIAM
  • #14
  • Nov 18, 2012 5:30pm Nov 18, 2012 5:30pm
I was messing around with this idea after reading a similar FF thread last week...
So, how about this scenario.........

Sell: GBP/AUD (rollover: +0.80)
Sell: AUD/NZD (rollover: -0.26)
Sell: NZD/CAD (rollover: -0.51)
Buy: GBP/CAD (rollover: +0.16)

All currencies effectively cancel each other out and you end up with a positive swap of 0.19


Feedback always welcome... Happy Trading All
  • #15
  • Nov 18, 2012 6:05pm Nov 18, 2012 6:05pm
Quoting deanoracer
I was messing around with this idea after reading a similar FF thread last week...
So, how about this scenario.........

Sell: GBP/AUD (rollover: +0.80)
Sell: AUD/NZD (rollover: -0.26)
Sell: NZD/CAD (rollover: -0.51)
Buy: GBP/CAD (rollover: +0.16)

All currencies effectively cancel each other out and you end up with a positive swap of 0.19


Feedback always welcome... Happy Trading All

Example:
Initiate a standard position in each of the 4 pairs at the market open on January 1, 2012 and hold thru today...
thats 46 weeks or 230 trading days that pay swap/rollover.
230 x 1.90 = $437.00 in swap, and you would have a net profit of 133 pips between the 4 trades
Attached Image (click to enlarge)
Click to Enlarge Name: HedgeIdeaFF2012.11.18.JPG Size: 43 KB
  • #16
  • Nov 18, 2012 6:12pm Nov 18, 2012 6:12pm
Quoting zznbrm
Assuming equal lot sizes, you are left with no exposure to GBP, but a long exposure to AUD and NZD, and a short exposure to CAD.
Thanks for the feedback. I guess I have much work to do.

I see a buy and a sell for AUD
I see a buy and a sell for GBP
I see a buy and a sell for NZD
I see a buy and a sell for CAD

Finding difficulties in the seeing the extra exposures, but I love a good challenge and will dig deeper.
Thx again zznbrm.
  • #17
  • Nov 19, 2012 1:08am Nov 19, 2012 1:08am
Quoting deanoracer
Example:
Initiate a standard position in each of the 4 pairs at the market open on January 1, 2012 and hold thru today...
thats 46 weeks or 230 trading days that pay swap/rollover.
230 x 1.90 = $437.00 in swap, and you would have a net profit of 133 pips between the 4 trades

ok this is a good new...did you measure the drawdown ?
  • #18
  • Nov 19, 2012 8:49am Nov 19, 2012 8:49am
Quoting tarrini65
ok this is a good new...did you measure the drawdown ?
Based on daily closing prices:
the following dates coincide with the max drawdown for each pair.
I have attached a speadsheet to see where the other pairs were for each date...

Not to impressive of numbers whatsoever for this example...
but will check back on Dec 31 closing to see the 1 year results of this example/scenario

Sell GBPAUD on Jan 1 2012 @ 1.51527... Max Drawdown Date: 5/30/12 -1030 pips
Sell AUDNZD on Jan 1 2012 @ 1.31298... Max Drawdown Date: 1/4/12 -37 pips
Sell NZDCAD on Jan 1 2012 @ 0.79358... Max Drawdown Date: 2/27/12 -462 pips
Buy GBPCAD on Jan 1 2012 @ 1.57775... Max Drawdown Date: 11/8/12 -381 pips

So based on the spreadsheet, the max drawdown was about 462 pips on 11/8/12
Attached Image (click to enlarge)
Click to Enlarge Name: HedgeIdeaFF2012.11.19.JPG Size: 43 KB
  • #19
  • Nov 19, 2012 9:38am Nov 19, 2012 9:38am
Quoting deanoracer
Based on daily closing prices:
the following dates coincide with the max drawdown for each pair.
I have attached a speadsheet to see where the other pairs were for each date...

Not to impressive of numbers whatsoever for this example...
but will check back on Dec 31 closing to see the 1 year results of this example/scenario

Sell GBPAUD on Jan 1 2012 @ 1.51527... Max Drawdown Date: 5/30/12 -1030 pips
Sell AUDNZD on Jan 1 2012 @ 1.31298... Max Drawdown Date: 1/4/12 -37 pips
Sell NZDCAD on Jan 1 2012 @ 0.79358... Max Drawdown Date: 2/27/12...

ok what i mean is the total dd, measured on the sum of the four cross ....same day , buy the time we are hedging
  • #20
  • Nov 19, 2012 10:38am Nov 19, 2012 10:38am
Quoting tarrini65
ok what i mean is the total dd, measured on the sum of the four cross ....same day , buy the time we are hedging
All info based on daily close prices...

Please feel free to double check the work, or to ascertain additional info if you like. You can use any info provided so far that you feel is revelent to your further research.

For me personally, the results are not good enough to go that far into it.

I have several other trade research projects showing far better testing results and prefer to focus on those for now.

I will check this scenario at the end of the year and post results to this thread...

Happy Trading and Happy Holidays this week to all...
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