HedgeEA - page 46
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
I don't understand why you say that there will be a cash grab simply due to the correlation returning to the 0.8 (in the first paragraph above). There are two pairs here, and there is no way to determine which movement of which pair was responsible for the reduction in correlation. There may be a cash loss. More information is required to make that statement. Doug
I agree, there is an equal chance of a drawdown. As correlation decreases the chances of a cash grab AND a drawdown incease.
As I mentioned, I don't use corelation yet other than to help determine risk, but then correlation must be on a longer term.
Let's continue this discussion and maybe we can figure out how to optimise correlation.
Correlation, Correlation and Correlation
Yesh. Correlation must be used for long term analysis. This is the basis of the strategy.
Not sure how we going to use range for entry, maybe steven could shed some light on this.
As for optimising correlation.
Lets me start off with something.
Scenario A
----------------------------
GBPJPY and CHFJPY
SHORT TERMCorrelation: -0.99
This means that GJ and CJ are totally opposite.
A.1) GJ Price High (buy)
A.1) CJ Price Low (sell)
1) CJ lagging behind GJ, which means CJ will rise from Low to High --> Lose Money!
2) GJ lagging behind CJ, which means GJ will drop from High to Low --> Lose Money!
A.2) GJ Price Low (buy)
A.2) CJ Price High (sell)
1) CJ lagging behind GJ, which means CJ will drop from High to Low --> Make Money! Resultant = 0.99 Coreelation
2) GJ lagging behind CJ, which means GJ will rise from Low to High --> Make Money! Resultant = 0.99 Corelation
Scenario B
----------------------------
GBPJPY and CHFJPY
SHORT TERMCorrelation: 0.99
This means that GJ and CJ are in sync.
B.1)GJ Price High (buy)
B.1)CJ Price High (sell)
if both GJ and CJ prices drop and CJ drop faster, make money. Resultant Correlation = -0.99
if both GJ and CJ prices drop and GJ drop faster, lose money. Resultant Correlation = -0.99
B.2)GJ Price Low (buy)
B.2)CJ Price Low (sell)
if both GJ and CJ prices rise and CJ rise faster, lose money. Resultant Correlation = -0.99
if both GJ and CJ prices rise and GJ rise faster, make money. Resultant Correlation = -0.99
I think I listed out the possibilties.. My head is super confused now. Any kind soul able to summarise those scenarios that able to make profits?
I think I am driving a point here that.. not necessary we can enter trades at 0.99(if both pairs on the + correlation). -0.99 can also be an entry point as well.
I mention about lagging part here.. is there any indicators to show that one currency pair is actually lagging behind another?
Yesh. Correlation must be used for long term analysis. This is the basis of the strategy.
Not sure how we going to use range for entry, maybe steven could shed some light on this.
As for optimising correlation.
Lets me start off with something.
Scenario A
----------------------------
GBPJPY and CHFJPY
SHORT TERMCorrelation: -0.99
This means that GJ and CJ are totally opposite.
A.1) GJ Price High (buy)
A.1) CJ Price Low (sell)
1) CJ lagging behind GJ, which means CJ will rise from Low to High --> Lose Money!
2) GJ lagging behind CJ, which means GJ will drop from High to Low --> Lose Money!
A.2) GJ Price Low (buy)
A.2) CJ Price High (sell)
1) CJ lagging behind GJ, which means CJ will drop from High to Low --> Make Money! Resultant = 0.99 Coreelation
2) GJ lagging behind CJ, which means GJ will rise from Low to High --> Make Money! Resultant = 0.99 Corelation
Scenario B
----------------------------
GBPJPY and CHFJPY
SHORT TERMCorrelation: 0.99
This means that GJ and CJ are in sync.
B.1)GJ Price High (buy)
B.1)CJ Price High (sell)
if both GJ and CJ prices drop and CJ drop faster, make money. Resultant Correlation = -0.99
if both GJ and CJ prices drop and GJ drop faster, lose money. Resultant Correlation = -0.99
B.2)GJ Price Low (buy)
B.2)CJ Price Low (sell)
if both GJ and CJ prices rise and CJ rise faster, lose money. Resultant Correlation = -0.99
if both GJ and CJ prices rise and GJ rise faster, make money. Resultant Correlation = -0.99
I think I listed out the possibilties.. My head is super confused now. Any kind soul able to summarise those scenarios that able to make profits?
I think I am driving a point here that.. not necessary we can enter trades at 0.99(if both pairs on the + correlation). -0.99 can also be an entry point as well.
I mention about lagging part here.. is there any indicators to show that one currency pair is actually lagging behind another?bodshyipmonitor,
I like the thought process in your post. The major issues that would have to be overcome kind of take us back to the standard EA problems, such as "how high is high", and "how low is low"? If I knew when a pair was high, I would simply short it and forget about the hedge EA. However, I don't think anyone can ever know for certain when a pair (or stock for that matter) is "high" or "low".
Again, just my two cents.
You're absolutely correct about the vital need for correlation though. It's pretty much what this EA is built on. That being said, I'm with you in that I'd like to see how to use correlation to optimize entry times. To me, its still up in the air.
Doug
I mention about lagging part here.. is there any indicators to show that one currency pair is actually lagging behind another?
This is a very interesting idea. To me, there are two parts to the lagging question.
1. One pair might "move" at the same time (in equal or opposite directions), but one pair might only move a fraction of the other. This would be captured in the daily range indicator.
2. One pair might move FIRST on a consistent basis. This would be the real gold mine to determine. One would have to start with a HIGHLY correlated pair (i.e. 90+ % correlation, either positive or negative), and using the 1M or tick TF's, determine the 'average lag' of one pair relative to the other. I would suggest using percent of daily range movement per specific time/bar as the metric for this comparison. This would certainly be beneficial in timing our entry into our hedged positions. We would simply wait for a significant move of the lead pair, and enter asap in hope that we would be in prior to the lagging pair making it's move.
I think this idea deserves some attention on this thread.
Doug
There is another aproach to this, the existence of a third pair that can be systesised be the first two.
Like GBPCHF on our case, we could get GBPCHF by GBPJPY/CHFJPY
Comparing the two sintetic and real maybe this way we could get something. Some time ago I was looking at this to make an EA, but I give because this works in theory, but this can catch small movements, and then you deduct the spead and ... you loose
maybe worth to try on small spread currencies.
bodshyipmonitor,
I like the thought process in your post. The major issues that would have to be overcome kind of take us back to the standard EA problems, such as "how high is high", and "how low is low"? If I knew when a pair was high, I would simply short it and forget about the hedge EA. However, I don't think anyone can ever know for certain when a pair (or stock for that matter) is "high" or "low".
Again, just my two cents.
You're absolutely correct about the vital need for correlation though. It's pretty much what this EA is built on. That being said, I'm with you in that I'd like to see how to use correlation to optimize entry times. To me, its still up in the air.
DougUsing Bollinger Bands to show how high is high and how low is low?
Stevensign,
do you have any ideas on how FR calculate their limit and stop orders?
FR Micro orders
Stevensign, do you have any ideas on how FR calculate their limit and stop orders?
It was recently pointed out to me by several of my team members just how important the microtrades are. One person ran a demo for a month, made $1700, $400 from interest and the rest from micro-orders. Another team member came up with the following info: use about 2% of your original order for each currency (if you bought 1 lot of GBPUSD, then use .02 lot for the micro-order on the GBPUSD) place the Buylimit below by about the daily range (120 PIPs for the GBPUSD.) and the sell limit (actually a close) for 0.02 lots about 120 PIPs above the entry price.
I'm still evaluating this info. You are relying on the currency reversing. Since the micro-orders are so small, the interest on the main order may compensate if the currency continues a down or up trend.
It was recently pointed out to me by several of my team members just how important the microtrades are. One person ran a demo for a month, made $1700, $400 from interest and the rest from micro-orders. Another team member came up with the following info: use about 2% of your original order for each currency (if you bought 1 lot of GBPUSD, then use .02 lot for the micro-order on the GBPUSD) place the Buylimit below by about the daily range (120 PIPs for the GBPUSD.) and the sell limit (actually a close) for 0.02 lots about 120 PIPs above the entry price. I'm still evaluating this info. You are relying on the currency reversing. Since the micro-orders are so small, the interest on the main order may compensate if the currency continues a down or up trend.
Can we have some examples here?
BUY 0.8 Lots GBPUSD @ 1.9671
BUY 1.45 Lots USDCHF @ 1.2445
Current Price
GBPUSD @ 1.9629
USDCHF @ 1.2499
The Orders should be set according to the current price right?
GBPUSD Range is 140
USDCHF Range is 90
GBPUSD Sell Limit @ 1.9769
GBPUSD Buy Limit @ 1.9489
USDCHF Sell Limit @ 1.2589
USDCHF Buy Limit @ 1.2409
Once the Order has been executed, New limit orders are being calculated again.
Stevensign,
What we are talking about here is leverage and money management. I started a GBPJPY carry trade with $1,000.00 and micro lots (.10 cents per pip) since 10/26/06 and my account is currently up 754% with swap profit of 71%. At the end of the day it's all about risk and reward. I try to keep my exposure to 10% max which allows me to ride out decent size drawdowns.
TimeFreedom
It was recently pointed out to me by several of my team members just how important the microtrades are. One person ran a demo for a month, made $1700, $400 from interest and the rest from micro-orders. Another team member came up with the following info: use about 2% of your original order for each currency (if you bought 1 lot of GBPUSD, then use .02 lot for the micro-order on the GBPUSD) place the Buylimit below by about the daily range (120 PIPs for the GBPUSD.) and the sell limit (actually a close) for 0.02 lots about 120 PIPs above the entry price. I'm still evaluating this info. You are relying on the currency reversing. Since the micro-orders are so small, the interest on the main order may compensate if the currency continues a down or up trend.