On the unequal probability of a price move up or down - page 51
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So, just a reminder, it started a week ago with this:
Here's two days in the M5 tf. To see what happened next, let's show another 7 days, which is almost gone now (it's been a little less than 7 days, but not the point):
The misalignment still has the same sign, but as I said, small. We started with 70 or so parrots, now it's 23.6.
No. The beauty is in the stability of the system. It is clearly shown, a whole week in the market, that the coefficients were chosen correctly, in the sense that during the whole week nothing really went anywhere.
So far it is clearly shown that you have outlived the drawdown, twice as much as the profit taken. Have you tested it over the long haul?
So, 5 tricks are shown to be profitable. Although the last one turned out to be a blurred waiting time. Closer to the night, I'll repeat the death knell with an opening on Friday evening before the close of trading.
Personally, I don't need any more tricks ... Formulas would be nice to see ... :):):)
Dear khorosh, what explanation do you need other than what I have explained in detail? Pure arithmetic, simple. You consider the increments. You get a strict (!) formula linking delta_EURGBP increments to delta_EURUSD, and delta_GBPUSD increments.
I can post these simple ratios a bit later (maybe tomorrow). You see, in short, how to decompose a EURGBP trade into a pair of EUR/something and GBP/something (something can be USD) trades.
So, the answer to your question is: when you trade a linear EUR/whatever and GBP/whatever combination, you have the possibility to manage EUR and GBP shares in the trade independently, while in the EURGBP trade, the ratio of EUR and GBP shares is predefined by EURGBP value at the time of trade opening (and this predefined ratio will very rarely be exactly what you need).
Let's talk about the end goal. The ratio of lots will not be enough. Let's make a mental experiment. Suppose we have entered the EUR and GBP on one and the same section of the market in one case (with some optimally calculated ratio of lots), and we have entered the EUR and GBP in the second case, with the lot calculated to make exactly the same profit as in the first case. Entry and exit times are the same in both cases.
Now let's make some assumptions. How may the first variant be better? There is not much to choose from. 1) Maybe variant 1 will have less maximal drawdown? 2) Maybe it is easier to find the right and more accurate moment of entry and exit in the first variant? What else could be better in option 1? Something else doesn't come to mind. Maybe you can add something else. Unfortunately, I do not have answers to the questions posed, much less with mathematical proofs.
... In one case I entered the euro and the pound (with some optimally calculated lot ratio), and in the second case I entered the euro and the pound, with a lot calculated to make exactly the same profit as in the first case. Entry and exit times are the same in both cases.
You stubbornly do not understand what I am saying. Maybe I will write formulas. Once again: if the "exit time" and rates at the "exit time" are unknown in advance, then there is no way you can "enter with the euro pound, the lot calculated to make exactly the same profit.
Moscow time is 21:25. Let's do the death number (open on Friday evening) again. The layout is as follows:
Obviously EURUSD should be bought and GBPUSD should be sold accordingly. Volume ratio: 2.706.
Focus 6 has started. The divergence of 65 "parrots" is not considerable, of course, there is a probability that it will increase (trades will go in the red) at first, and only then there will be a collapse. Hopefully, this time it won't take that long to collapse.
Grigori.S.B:
... GBPUSD - 2.8*EURUSD synthetic does not increase the chances of success. But it doesn't decrease them either, just like any other.
Synthetic with a constant coefficient of 2.8 - probably. Synthetic with odds calculated for a given moment in time - it increases. It may indeed be easier to predict, due to some additional symmetries.
Greetings!
The deal shouldn't last that long ... For an M5 timeframe. On such a shallow timeframe in my opinion the duration of the trade should be a day maximum ...
I agree. But there are all sorts of things. You can either accept the loss or wait. As long as there is an understanding that the divergence sign is in the direction of the open trade - it makes sense to wait. But there is a sense to admit the loss and compensate for it with the next (successful) move. In fact, both approaches are almost equally reasonable up to overestimate the volume of lots. Note that I started with 2.795 a week ago, and now my ratio is 2.706. So the "accumulated difference in ideal volume ratio estimation" is small, 0.089, i.e. 0.089/2.795 = 3 percent. So it made sense to wait, for the "new move" would be essentially the same. In case it was not, it would have made more sense to make a correction (by closing a small part of the trade, or adding to it).
You stubbornly fail to understand what I'm explaining to you. Perhaps I will write formulas. Once again: if the "exit time" and rates at the "exit time" are not known in advance, then you can't "enter the Euro, with the lot, calculated to make exactly the same profit.
I don't get it. What are you trying to say, that in pair trading the profit will always be bigger? What prevents us from setting such a lot for the euro pound so that the profit is not less than when trading the euro and pound on any lot.
These are all excuses. Can you tell what is the advantage? Maybe the quality of trading, maybe less time in the market, maybe more accurate entry and exit, maybe you can earn more? You have not said what exactly is better, and I don't think you will, because I suspect that there is no advantage. If you can dissuade me from doing so and prove it, I would be glad to. Then maybe I will seriously consider pair trading.