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  • #41
  • Jun 14, 2006 3:19pm Jun 14, 2006 3:19pm
apart from the aussie the numbers are pretty similar, do you agree?
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  • #42
  • Jun 14, 2006 3:23pm Jun 14, 2006 3:23pm
So I'm pretty sure I'm OK with these numbers.

The more important one is the middle (2000-06). I wouldn't look any nearer than 12 months so that's my main problem with these sites is that they're much too short sighted, plus no flexibility to customise searches.

If you go out too far then the nature of the markets change like they seem to have done post 2000, so you may end up including less reliable and relevant data. Too near then you have too much noise. Like Goldilocks sampling the 3 porridges, you want neither too hot, nor too cold, but just right! :
  • #43
  • Jun 14, 2006 3:29pm Jun 14, 2006 3:29pm
The USD has some pretty stiff correlation problems. The Euro has the worst and the Yen has the best correlations. So if you were basing your strategy on the Euro you're pretty much screwed against the other majors. You'd be better off just picking the Euro by itself. Cable fares slightly better, along with the Swissy.

The aussie and loonie (so called commodity pairs) dont look to clever in the same portfolio either (so much for the diversifying into commodities idea).

If you want to trade more than one USD major then basing your strategy on the Yen and perhaps just picking the swissy seems to come out trumps!

Still confident trading all the USD majors then?
  • #44
  • Jun 15, 2006 4:23am Jun 15, 2006 4:23am
Hi Iso,

Great stuff

I'm interested in gbpchf and eurjpy.

Could you add those currencies in

Also a yearly breakdown would be good to see if there are any trends/differences in correlations.

Best regards
Alan
  • #45
  • Jun 15, 2006 4:31am Jun 15, 2006 4:31am
And EURCHF too :.
-soso
  • #46
  • Jun 15, 2006 4:36am Jun 15, 2006 4:36am
Hm, that's strange. I see that for 2000-2006 correlation(EURUSD, USDCAD) = 89% while correlation(EURUSD, USDJPY) = 54%, much lower. However I always felt, and still do, that EURUSD and USDJPY are much more correlated than EURUSD and USDCAD . At least since I began trading, around 9 months ago. Anyone else feels like this?
-soso
  • #47
  • Jun 15, 2006 11:55am Jun 15, 2006 11:55am
Hi,

Have you ever tried to use one currency pair to lead you to the next movement of correlated pair immediately?

I was trying with EUR/USD leading USD/CHF with the 1 and 10 minute charts but it's quite tricky (I lost...). However, the market was fairly slow. Maybe if there was greater movement there would be more opportunity?

CT
  • #48
  • Jun 15, 2006 3:32pm Jun 15, 2006 3:32pm
gbpchf and eurjpy is on my list...

Quoting firehorse
Hi Iso,

Great stuff

I'm interested in gbpchf and eurjpy.

Could you add those currencies in

Also a yearly breakdown would be good to see if there are any trends/differences in correlations.

Best regards
Alan
  • #49
  • Jun 15, 2006 3:33pm Jun 15, 2006 3:33pm
and this one too.

Quoting soso_beton
And EURCHF too :.
  • #50
  • Jun 15, 2006 3:36pm Jun 15, 2006 3:36pm
i was surprised since it is often touted to mix in a few commodity pairs like the aussie and loonie to a (usually) dollar weighted currency basket.

remember that short term correlations will converge and diverge from their long term counterparts but you will suffer from more noise so that's why i would recommend 1 year minimum.

Quoting soso_beton
Hm, that's strange. I see that for 2000-2006 correlation(EURUSD, USDCAD) = 89% while correlation(EURUSD, USDJPY) = 54%, much lower. However I always felt, and still do, that EURUSD and USDJPY are much more correlated than EURUSD and USDCAD . At least since I began trading, around 9 months ago. Anyone else feels like this?
  • #51
  • Jun 15, 2006 3:37pm Jun 15, 2006 3:37pm
yes you will see scalpers and intraday traders using correlation techniques such as following a missed move on the GBPUSD on the EURUSD, like after a 0930 gmt UK report.

Quoting CautiousTrader
Hi,

Have you ever tried to use one currency pair to lead you to the next movement of correlated pair immediately?

I was trying with EUR/USD leading USD/CHF with the 1 and 10 minute charts but it's quite tricky (I lost...). However, the market was fairly slow. Maybe if there was greater movement there would be more opportunity?

CT
  • #52
  • Jun 15, 2006 3:39pm Jun 15, 2006 3:39pm
Here is the euro vs majors:

According to this table trading the eurusd & eurjpy is a big mistake (90%) (which i do right now), followed by eurgbp (which i also used to do).

Notice the dominance of the EURUSD in pulling almost every other pair into its influence. It is easily the most important pair in forex. So it will suffer the worst correlations as a result.

Again the chf, as in eurchf comes out top.
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  • #53
  • Edited 4:31pm Jun 15, 2006 4:02pm | Edited 4:31pm
Again a cross reference with mataf, however the date i matched against was 1 month earlier, end of Jan. So I'm now wondering how accurate their data is, since all you get is a nice printed table. You don't ge to see the data they're using.

Hmmm...

Anyway, still since it matches up quite closely, ableit on different dates I know it is roughly correct otherwise I wouldn't be able to match the whole table up - see below (mine first):
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  • #54
  • Jun 15, 2006 4:11pm Jun 15, 2006 4:11pm
similar but better non correlation than usd, so you still have more freedom to chose from this stable than previously.
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  • #55
  • Edited 4:27pm Jun 15, 2006 4:18pm | Edited 4:27pm
actually you can keep a portfolio of similar currencies like the usd or eur pairs above if you construct a truth table telling you which you can trade at the same time and which you can't.

take 50% as a threshold, %ages less than this treat as random (either positive or negative) and mark them as true (t). anything more than 50 treat as correlated - false (f).

so for example, remap the euro 2000 table as follows:
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  • #56
  • Jun 15, 2006 4:26pm Jun 15, 2006 4:26pm
on the last table if you pick just one pair you don't have to worry about anything - go ahead and trade it.

if you pick two pairs and both are non correlated (both t's) then when you AND them you also get a true as a result so you can go ahead and trade. eurchf & eurgbp in this example.

if i then add eurjpy then we get:

eurchf vs eurgbp = t
eurchf vs eurjpy = t

but:
eurgbp vs eurjpy = f

so the net result is false since (t and t and f = f).

(you might have to brush up on your boolean logic here).

the results will vary for different times you draw up your correlation tables and your truth threshold level.

some analysts advise 60% as cut off for correlation after factoring in a random error, so you might be able to crank up your t's.
  • #57
  • Jun 17, 2006 4:57am Jun 17, 2006 4:57am
Quoting diallist

Before I get to your actual question, allow me to emphasize one very important point. Don't open a mini account unless your account is over $30,000. The farther below $30,000 your account balance is on a mini account is the same degree to which you'll suffer from the adverse effects of asymmetrical leverage. I wont go into what asymmetrical leverage is in this post because it doesn't directly pertain to your question. Let it be sufficient to know that you should open a micro account.

Asymmetrical leverage aside, with only $1000 in your account, you should open a micro account over a mini for another reason as well. With a mini account, trading 1 mini lot on a $1000 account would mean you would be trading at 10:1 true leverage out the starting gate. This is too high for a beginning trader. You will lose your $1000. By starting with a micro account, you'll be able to trade 1 micro lot on a $1000 account at 1:1 leverage. Much more conservative. You will most likely still lose your $1000, but it will last longer, allowing you to place more trades and learn a valuable lesson from each trade.

In your question, you mentioned account size, risk amount and leverage, but you left out two important pieces and that is stop size in pips and pip value.

In my opinion, a raw beginner should not trade over 5:1 leverage. Therefore you should lower the leverage by decreasing your percent risked to 1%

Now you have this:

Account Size = $1000
Percent Risk = 1%
Amount Risked = $1000*.01 = $10
Stop size = 30 pips
Pip value = .10 (10 cents on a micro account)
Total pip value = 30 pip stop * .10 = $3.00
Position size = $10/$3 = 3.33 micro lots (round down to 3)
Resultant pip value = .3 (30 cents per pip)
Resultant leverage = $3000 position size / $1000 account size = 3:1
Hi Dail,

Thanks much for the post. I was wondering if you could explain the effects of Asymmetrical leverage a little more, I understand how you calculate it, i was just wondering what the side effects are.

Is it as simple as getting more trades before breaking or is it actually a reduction in real leverage as you are the low chip player at the table, or is there more too it?
  • #58
  • Jun 17, 2006 5:55am Jun 17, 2006 5:55am
Asymetrical leverage is the increase or decrease in the position you put on based on your MM method and how this affects your acct. For instance, If u are using a %R you will risk the same amount of your account on each trade. As your account grows the position size also grows and vice versa.
If u have a 10K account with a broker that only allows 100K positions (a full lot). and you want to risk only 2% of your acct. So u take 1 lot w/ a 20PIP S/L. Any more and u are risking more than 2% and any less is not allowed by your broker.
In order for u to increase your position to 2 lots, u need to increase your acct to 20K to keep with the same 2% of your acct traded rule.
The problem is that when your acct is at say 16K. You cannot yet increase to 2 lots because of your MM. So u still are putting on 1 lot trades, but your risk is actually only 1.25% of your acct. The growth of your acct suffers because u cannot take on a bigger position.
This is why Dial suggests that one start with a small 1K acct that trades mini's .10 per pip so that you can increase your position size in proportion to your acct size.
There is more to it, this is the nutshell version.

Quoting witchazel
Hi Dail,

Thanks much for the post. I was wondering if you could explain the effects of Asymmetrical leverage a little more, I understand how you calculate it, i was just wondering what the side effects are.

Is it as simple as getting more trades before breaking or is it actually a reduction in real leverage as you are the low chip player at the table, or is there more too it?
In trading, there is no bullshit. You either make money or you don't.
  • #59
  • Jun 18, 2006 2:48pm Jun 18, 2006 2:48pm
Gbp Majors - for the most part weaker correlations than Usd or Eur.
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  • #60
  • Jun 18, 2006 2:52pm Jun 18, 2006 2:52pm
I've done three separate tests against an independent data source, and although the dates are off from theirs, I've managed to match up the correlations quite nicely.

So by inductive reasoning I know my techniques are pretty much correct against mataf at least. I still questions their dates though.
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