Hi! I'm here to share with you a story about a trader journey in search for the holy grail. And also intruduce you to a powerful hedge calculator, incase you haven't heard of it.
June last year, a biker friend of mine who is a chief mechanic of our motorcycle association learned that I was engaging in forex trading, it just so happened that he is also trading forex part time. He excitedly intruduced me to use the hedge calculator he bought from the web. I looked at it, it was just a sheet of excel file with a tag price of $199. I didn't gave any comment but at the back of my mind, I'm laughing at him. "you've been scammed, stupid!" I rather buy EA on ebay with that kind of price. What a motorcycle mechanic know about FX trading anyway? We all know that to be an expert in forex trading takes years of experience, glued to the platform learning every swing. If he is a banker with degree in finance, I might give it a second thought.
Months has past. I've been paying EA on ebay worth more than $199, cherry picking free EAs from site to site, forward testing lots of methodologies from mouteki, sidus, vegas, fozzy to named a few. I even develope my own trading strategy, but hard to code it into an EA and eats a lot of time trading it manually..... I gave up on it.
I use to cruise to the country side with my bikers buddy every weekends. But due to my new found urge of finding the holy grail, I'm stuck in between the keyboard and chair even on weekends.
On one fine sunday morning, I took a break and went cruising with the gang. To my surprize, our chief mechanic is now riding on his new Harley (still wearing the same old stinky rugged pair of leather pants). He just use to owned a rusty custom chopper made out of junk, now on a brand new Harley with full accesories. I asked him in a sarcastic manner, "Did you robbed a bank?" laughing answered me. "No, I earned it from trading forex using the hedge calculator that I told you".
Ouch! I felt like I was hit by a truck, thrown to the other side of the highway and run crossed by a speeding car. rolled down the cliff.
Some lessons learned that day. Never under-estimate anybody. Sometimes, what we are looking for is already in front of our nose, we just to blind to see it. We often take the lesson the hard way.
The hedge calculator is created by a group of elite traders together with their hired mathematicians. The company is True North if I remember it right. I'm using it right now, and gaining pips slowly but surely.
I attached a history statement and screenshot (a little distort compared to the actual) of a simple hedge calculator that change the life of a motorcycle mechanic and hope mine as while.
Take it for what its worth.
I've been receiving lots of PMs asking where to contact the company or how to pay for the calculator. Here's there email address: email@example.com that's true underscore north at email.com
What is web site for this calculator?
can you tell us more about this company ?
Can even find their web site in google
This calculator really isn't that complicated to replicate. I'm working on a similar hedging technique that I will be sharing here when ready, but regardless, it's simple ratios between pairs.
Edit: and I highly doubt that it was made by elite traders.. anyone with high school math (or less?) could replicate this. Since it looks like there may be interest, I am considering making a replicate. Would you guys like that?
can u post website mines has an error
looks like same basic thing
I haven't been around here for awhile, but someone pointed this thread out to me. Atonix is right, the math for this is not all that complicated. Try doing a search on 'hedge ratio.'
I've done google search with the key words hedge ratio, formula, equation, correlation, as suggested by bwilhite. But none of the formulas (Sharpe, Black-Scholes, Delta, Optimal formula) I found is relevant to the computations we are looking for, even if it does, it is not for an average mathematician to compute it. If it were that easy... no one will pay a monthly subscription fee for Freedomrocks, forexforsmarties, forex-assistant. Hope someone can point me to the right web site to get the right computation.
Atonix, If its not too much to ask. Can you post the formula here? Spliting ratios between pairs is easy, but what I like to know is how they add the correlation coefficient ratio to their computation and what (time) period do they use.
I'll pay a visit directly to the person who recommended that hedge calculator to our chief mechanic (Fred), and see if I can get some answers to your questions. Be back later. Ciao!
Alright, here I go.
Yes, it is that easy, and people pay for it. I'm going to break something to you: they don't factor in any correlation. There's no reason. Let's back up to see what they are attempting to do, what the correlation is for, then how it could be done easier (and save the subscription). How do I know so much about this? I'm a math junkie, and spent a while evaluating these systems (figuring out exactly what they did). Needless to say, after my trial expired, I never began to look back.
FreedomRocks (and simular ones) are performing carry trades to take advantage of positive swap. Easy enough. They do this by trading low-volitility pairs. Unfortunately for anyone who doesn't pay attention, they aren't hedging anything. Let's take the USD/CHF and EUR/USD (a popular cross). They are buying and selling the exact same amount of dollars. They even tell you this. Making this super simple, they are buying $1 (and selling the equal amount in CHF), and then selling $1 (and buying the equal amount in EUR). This equals (exactly):
($1 in EUR)/($1 in CHF)
Which is (supprise!) EUR/CHF, a pair that your broker should have. Wait, wait, wait.. why would they buy and sell two different pairs instead of just buying EUR/CHF? I'm not exactly sure, I think it's to maintain the illusion that you are hedged. Well then, what are you doing?
You're trading a very stable pair. Check out a EUR/CHF graph. This is what the correlation refers to: how stable the cross-pair is. The EUR and CHF have a high correlation, so are pretty stable. Others aren't so stable (especially the Yen), but pay more.
So you're simply trading two pairs that are simular (due to very simular economic conditions). The higher the correlation, the higher the volitility, and higher the risk (but generally higher the reward). You generally trade multiple pairs to put your eggs in several baskets, because even these "stable" pairs can change.
Want to know another secret? The correlations they list are optimal. Check out http://fxtrade.oanda.com/currencyCorrelations/heatmap.html. First notice that the CHF is fairly well correlated to the EUR, but if you look closely, the 1 year correlation (this system is long term, right?) is -0.71. 6 month is -0.76. 1 month is -0.85. This isn't even close to what they claim. What's the value in any correlation then?
Stability. High absolute correlations means the pairs react very simularly, so are good for lower risk carry trades.
Ok, this should give you enough info to start looking into this and verifying everything I've said yourself. These guys run a pretty good chop-shop of a system. Need your magic amounts of each currency? Just buy the resultant cross-pair in the amount you want. I'd suggest that you buy several different, low volitility pairs.
I'm releasing a technique soon that takes these principals and uses them only in profitable conditions and diversely to manage risk effectively. And without the $100+/month rip-off. Oh, and if after reading this you don't believe me, I have the formula FreedomRocks uses to calculate lots.
thanx you very much atonix a lot of research went into this one
Atonix, Thanks for sharing your thoughts. It helps a lot for novice traders to understand how those 2 major pairs related to the crossed pair. I'm already aware of that, even the True North's "instruction of use" ask us to use EUR/CHF as a barometer to enter trades. Those system are just simply carry trading the EUR/CHF pair, the reason I see/think why they have to split it in 2 is so that you can still buy low and sell high on their respective pairs from time to time, which hardly can be done if you were just buying the eur/chf pair.
The website I'm using to check the correlation ratio is http://www.mataf.net/en/analysis-correlation_MarketVsMarket.htm
It has correlation rates computed down to hourly ratio.
Like I've said, parity of 2 currency pairs lot is easy, I do have my formula for that. I tested the formula along side with the True North and Freedomrocks, the lot allocation is slight similar with few fraction lot difference. But the trade results give more profit and accuracy using the True North and FR computation. This is the reason why I think that correlation ratio need to be conjunct with the lot parity formula.
Not that I doubt you. But can you share us the same exact formula Freedomrocks is using? maybe we can brainstorm it a little further so we can come up with a better system here. What do you think?
I'm also looking forward to the release of your system. Good luck!