T101 basket trading system - math analysis - page 2

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randolermo
4
randolermo  

How Perfect a Hedge is Best

Nopik, first thanks for doing this research.

I've always thought if the hedge is too perfect, the opportunity for profit would be less. I recall reading in Trader101 FF thread he stated the 14 pairs have an imbalance at some level so profit can be taken during swings without too much risk. So, it seems we are getting back to the typical risk vs profit balance.

Therefore, if you're suggesting adding a second chy/jpy for 15 pairs, that may reduce risk but wouldn't also reduce profit opportunities?

Rando

Nopik
147
Nopik  

Hi Rando

Yeah, sometimes too perfect means too impossible to get advantage of Just like in trading correlation - when pairs are 100% correlated, there is zero risk and zero profit.. at 90% correlation, there is profit and big risk, while at 95% both risk and profits are smaller.. typical tradeoff as you described.

Please note, that I was talking about IA account - it seems to behave like chf/jpy, so adding new chf/jpy lot would make the hedge more perfect. But this is not the trade you would do. The risk-profit tradeoff do not exist here. The basket you are trading is dominated by eur/jpy instead, and you can trade risk for profit there.

Original system is not so influenced by my observation. However, there is a variation of this system (until today I thought it was very interesting), that you watch on cumulative profit/loss on your IA account and then make real trades based on this knowledge. However, such variation looks too much as looking at chf/jpy for possible setups on eur/jpy, something which is not appealing to me (though it definitely have some potential, as people are profitable using it).

I just decided to go for exploring other possibilities, will describe them here soon. Mostly, I've decided that some split into two parts is necessary. First part is original system which bases on 14 slots, jumping pairs, anchor slots and imperfect hedge. Second part is completely different - perfect hedge, oscillations of currencies, being not biased toward any currency etc. And this is completely different system - seems more like trading plain CCFp indicator.

randolermo
4
randolermo  

Thanks Nopik.

I've had an IA setup for a few weeks doing some demo trades. Even in that short of time, I can definitely see where you can make profits because my trades regardless of entry make money at some point. The key, of course, which I have not discovered from any analysis is what is the right entry and exit points. I also wonder what is the max drawdown but it seems everyone just uses 560 pips as stop loss but to me, it would be helpful to know max drawdown.

Anyway, I look forward to reading any new thoughts you have as you research this method.

Rando

Nopik
147
Nopik  

Yes, you've touched all weak points of this system There is no clear entry/exit points, most common entry is when anchor slot starts to be occupied by opposite pair.

As for the drawdown, there is no such thing like max drawdown here. If you buy or sell 14 pairs as described, you'll end up having about 4 lots eur against jpy. Asking for max drawdown is asking for how long eur/jpy can go.

Yet, it seems, that such opened basket from 14 trades is more or less cyclic. If you enter in correct part of cycle, you'll get dragged into profit, with profit guard stopping your trades and locking in profit. And if you enter on wrong moment, you'll hit 560 quickly.. If you get feeling of that and 'tune in', you'll be consistently winning.. hard, but not impossible.

iGoR
1481
iGoR  

Hi Nopik,

Thanks for your enormous contribution to this forum. I gave you a 5* rating ( the first time I give this to a topic).

I can only aplaud your work, the time and effort you spend on this topic. Even if it is very new. You give sign of great insight on your subject and did your home work more then toroughly.

Even that very few people will follow this system because of not being "sexy" enough and not looking like the cockpit of an airplain with fancy indicators (which most of the people want) I hope that it gets the nescessary attention because this is by far the best manual Forex system that one can find on the internet or in a book.

Again thumbs and keep up the good work!..

Friendly regards...iGoR

Nopik
147
Nopik  
iGoR:
Hi Nopik,

Thanks for your enormous contribution to this forum. I gave you a 5* rating ( the first time I give this to a topic).

Thanks! I'm glad you liked it.

As a matter of fact, I'm more and more against any fancy indicators.. the more strategy have them, the less I like it.. all kinds of oscillators, 'improved' moving averages.. seen too much of this stuff. I'm for something more sophisticated, like correlation, baskets etc.

Nopik
147
Nopik  

Did anybody who is trading this system manually tried to open 'imperfect' baskets, without the low anchor pair? In meantime I was analyzing 'part 2' approach (described in #13 above), just analyzing CCFp indicator alone. I've realized that when things go bad, most likely just one currency is causing them. And that currency is always on the outside.. so entering positions only from middle slots will give smaller profit, but should reduce drawdown really significantly..

Maybe such idea will happen here as well? One would have to check few failed baskets and see which pairs did most damage, and what was their position upon basket opening. Maybe there is some pattern there?

primera
12
primera  
primera:
hope these helps you creating more insight study on BTS, i can't wait for more revealing the secret of currencies selections forming the buy table and sell table and their mechanism from Julius aka trader101.

If we found the exact formula's, the constanta and variables, i'm very sure we just not build 14 pairs, but we create such a the new model of pairing currencies mechanism that help us creating the basket.

anyway it's EA, not indicator, and sorry if i give these much, i really want helping someone to decode basket trading system in terms of analysis.

btw, i still have another "weapons" from that neighbour if you want but still thinking twice to put in forex-tsd coz i really want to avoid those b*st$rds that love to sell via EBay.

cheers

oops i forgot to tell everyone who read my previous post that they should turn the chart properties color in black like the candlestick / line chart color in black, with the bid / ask line, to make the orest indicator appears correctly.

Nopik
147
Nopik  

Update

Ok, after few private discussions with some of you, and doing some more thinking, I've came to some conclusions as well. Apart of the fact that I temporarily diverted to checking CCFp indicator (well known one, for years, yet somehow I did not checked it before myself, and now I did and it looks interesting), my idea about T101 baskets is that, it is a tool to trade eur/jpy. (At least in original version, as I've shown in first 2 posts that it can be modified to trade any other pair).

This is because, when you open full basket, it looks at the screenshot with the numbers. You end up having about 6 lots eur/jpy, about 3 lots gbp/chf and about 1.5 lots in aud/usd + nzd/usd each. So, such exposure is definitely dominated by eur/jpy (as gbp/chf does not move so much and aud-nzd pairs also are not as volatile, they have 4x less lots as well).

Moreover, if you watch the profit on the IA account, you're also watching how chf/jpy behaves. So, looking at chf/jpy in order to trade eur/jpy is some strategy, yet you have to remember that eur/chf moves like the one from April 1st should invalidate your signals for at least 12 hours.

Here I'm not sure what is best approach here.. one way is to get the basket entries clear to buy eur/jpy itself. Or, maybe just buy eur/jpy straight, reducing margin requirements, lot sizes, drawdowns and noise.. I'm looking for volunteers here, who trade original system now and can open separate account trading straight eur/jpy trades in parallel to their regular baskets.

The other version, is to get more or less equal exposure in all currencies involved. Yet, this will reduce the profit to zero..

So, I think that I'll try the following:

Watch regular IA as in original system. Look for anchor slots etc.

Watch eur/chf and do not enter if there are some massive movements there.

Watch some other indicators, like CCFp, to see if the odds are on my side (i.e. eur is more likely to go up than down, and reverse is true for jpy).

Then, just enter eur/jpy. Or chf/jpy maybe?

Optionally, more balanced IA account, having more neutral hedge, could be used.

What do you think about this approach? It needs to be tested in parallel to the original to see if it is really better, or maybe worse.

Once again, as mentioned few times, original IA account can be tuned to show signals for different pair than eur/jpy, though this requires a lot of focus and some math skills.

During last year, one of my friends was talking to me about how great correlation trading is. For me, it was not so great - if eur/usd and gbp/usd are moving together, then why to trade them, when you can just trade eur/gbp.. and trading eur/gbp is just like trading any other pair, what is so special about it? But when I looked closer, there is something new, very important thing: a zero line. Take a look at the second screenshot (the one with the charts). The top green chart is eur/usd. The red/white candles is reversed usd/chf overlay on it. Then, the yellow line is constructed purely on the eur/usd and usd/chf. As you see, it provides striking similarity to eur/chf chart for that period, it is actually guaranteed by the math. Anyway, looking at the eur/chf graph, would you predict the move marked by red line? It was quite hard. But, if would you had zero line on the chart, things are much easier, aren't they?

Well, basically what IA here does is to provide you the zero line. You must know what you want to see there. You want to see the balance, how much your pairs are out of balance, how the balance shifts, how fast, etc. Then, when you see that odds are on your side, you can enter trade. Can things still go against you? Of course. For example, on my chart, one could open eur/chf short on 9 Apr 17:00. There was nothing to guarantee that price wont go farther away from zero line. Yet, the probability is on our side, and this is what counts.

This is also the reason why good IA account and good hedge there is crucial. The quality of zero-line detection is very important, or you will end up chasing wrong goals. So, watch the IA carefully, and draw conclusions which currencies are moving where. Then ride that trend.

primera
12
primera  
Nopik:
Ok, after few private discussions with some of you, and doing some more thinking, I've came to some conclusions as well. Apart of the fact that I temporarily diverted to checking CCFp indicator (well known one, for years, yet somehow I did not checked it before myself, and now I did and it looks interesting), my idea about T101 baskets is that, it is a tool to trade eur/jpy. (At least in original version, as I've shown in first 2 posts that it can be modified to trade any other pair).

This is because, when you open full basket, it looks at the screenshot with the numbers. You end up having about 6 lots eur/jpy, about 3 lots gbp/chf and about 1.5 lots in aud/usd + nzd/usd each. So, such exposure is definitely dominated by eur/jpy (as gbp/chf does not move so much and aud-nzd pairs also are not as volatile, they have 4x less lots as well).

Moreover, if you watch the profit on the IA account, you're also watching how chf/jpy behaves. So, looking at chf/jpy in order to trade eur/jpy is some strategy, yet you have to remember that eur/chf moves like the one from April 1st should invalidate your signals for at least 12 hours.

Sir, this is the far i read is THE MOST SIGNIFICANT KEYS of Basket Trading System construction have ever man revealed and uncovered, these explained why :

1. Mr. Julius create so much jpy pairs in his basket constructions

2. Mr. Julius included the laggard pairs --- this chfjpy that create "imperfect" sorry i cannot find the best words, chfjpy seems create "early warning" if it moves quite significantly

But some questions just pop up from my heads :

1. Why 14 ? why not 28 or 10 pairs ?

2. What the purpose behind of the order pairs of the basket ? from pair no. 1 to pair no 14, why he create Sell basket and buy basket ? why not sell only or buy only so if the trend is negative profit we just vice versa the DI

3. What the calculation of SL 560 USD julius suggested for setting the exit ? (sorry if i ask little naive questions)

4. Why not we created other Entry rule addition for validating like if the profit / loss basket reach amount dollar in IA / DI then we enter the market ?

Thank you sir, the curtain of Basket Trading system is begin to open up now...

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