A-B-C-D Trade - page 216
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Expanding our comments on the arbitrage trading. Attached 1-hour chart applies indicator MultiInstrument(4).
We input the following pairs:
EUR/AUD
EUR/USD
EUR/GBP
EUR/JPY
The data box in the upper right-hand corner calculates profit/loss based on trading 2 pairs in different match-ups.
The first line is BUY EUR/AUD and SELL EUR/USD simultaneously.
The indicator's default is to calculate 200 candles back. That can be changed. This examples has a start of Aug 30th 06:00.
At time of picture, this is ahead, with a +407 mini pips (40 full pips).
The money management would entail a stop-loss based on the combined effective balance from both pairs. Sure to be software, EA, or script that handles this automatically. We'll complete our search and post.
The company that we cited as a practitioner, reportedly uses standard deviation to gauge and select a pair that is due to "revert back to the mean".
After fear drove gold down from Sept 6th highs, it's rebound started during the U.S. session of Sept 7th.
The attached split-screen 1-hour charts focus on the period between the 7th and 9th. The Low was 1792.58, and near the Mars 90-degree, and High 1886.13 at the Mars 270-degree. The blue vertical lines mark the borders of the move.
Chart on the right shows fib extension plot, which culminated with a 127.2 extension to the top. The plot's Highs are adjusted en route up, with the last one being 1865.60 on Sept 8th 13:00.
Chart on the left utilizes the Standard Deviation Channel, which is on the MT4 platform. It is plotted from Low to High. The tool is used for S&R and breakouts from top and bottom channel lines.
Once the pivot occurred at the top, the plot's 2nd point is dragged there. The subsequent breakout to the downside is the trade.
It turned out to be a massive candle that made a 61.8% retrace (white fibs 1828.32). The price at the channel line was 1860, but due to the speed of the spike, realistic SELL fill was about 1850.
The bottom of 1823 is also the 50% fib area of the plot as seen on the chart on the right.
Other observations:
BAJA bullish divergence Sept 7th at bottom of big move up.
BAJA bearish divergence on 30-min Sept 9th 07:00 and 08:00 candles.
Long-legged doji at bottom Sept 9th 10:30 candle of 30-min chart.
Retrace from bottom to 1869 hit the Moon 270-degree (green on left chart).
This intersected the channel bottom. We manually extended that channel line by aligning a new trend line to it. Adjust width of channel by checking "ray" box in edit function of tool.
Can adjust deviation from default of 1.00. If elect to use 1.6182 as deviation, this allows for use of fib channel tool application to get more levels beyond channel. When going down, align Fib Channel plot to Standard Deviation's middle(or upper) and lower lines.
The chart on the right has its 61.8% extension channel (white) at this retrace point. The plot using the fib channel was aligned to the Moon 180 (A) and Moon 90 (B2), as mentioned previously.
The 3 major swings:
Move up = $94.00
Move down = $63.00
Move up = $46.00
These have been nice trend periods for gold instruments. Understanding S&R will fortify our trading and enhance profits.
For those of you that don't have XAU_USD charts, here is an example for EUR/USD on 30-min.
Low = Sept 6th 15:00 1.39710 High = Sept 7th 08:00 1.41327
Plot Standard Deviation Channel (SDC) tool, pulling from low to high. Set deviation to 1.6182, and it will round to 1.62. Check "ray" box for width of channel.
Now, apply the Fib Channel (FC) tool aligning it with the SDT's middle and lower lines.
Compliance was excellent, with FC catching pivot lows, including the
Sept 8th 12:30 low, with its 423.5% extension
Sept 8th 20:30 low 1.38715 with its 635.4%
You probably don't hear those high extension numbers often, but they are simply derived from multiplying the last fib number by the Golden Ratio 1.6182.
261.2 X 1.6182 = 423.6
423.6 X 1.6182 = 685.4
314.2 is not a fib number, but is a multiple of Pi 3.14 and is our own preference as a significant ratio. However, it is same as Gann's 270-degree (3/4th of circle) + 45 (Gann interval) = 315.
***
2nd chart aligns FC to SDC's upper and lower lines. The FC's
31.4 caught the Sept 7th 13:00 pivot low 1.40163
314.2 caught the Sept 8th 17:30 low of 1.38849 (and pullback's high)
685.4 caught Sept 9th 15:30 pivot low 1.36419
Horizontal fib plot:
High = Sept 7th 20:00 1.41072 Low = Sept 8th 18:00 1.38744
The 200% extension of 1.36416 intersected the FC 685.4%
Here's the CFD that mimics Dow 30 Futures, on a 1-hour basis.
Plot SDC and horizontal fibs:
Low = Sept 6th 14:00 10931
High = Sept 8th 15:00 11477
Align FC to middle and lower SDC lines.
Back to pairs trading fro arbitrage. Attached is a split-screen 4-hour charts of EUR/AUD (left) versus EUR/GBP (right).
We used the indicator MultiInstrument(4), and zeroed out the other 2 pairs. Also on chart is Standard Deviation and RSI(4).
We inserted vertical lines for entry and exit points, with the start at Sept 2nd 16:00 and finish with end of Sept 6th 04:00 candle period.
Note that you must input proper amount of candles look-back (control bars) as this example, to Sept 2nd 16:00.
We have yellow arrows on the RSI(4) EUR/AUD, when it crosses above and below the mid-point 50 value. This means we BUY EUR/AUD, and SELL EUR/GBP on Sept 2nd 16:00.
The standard deviation (set on default value of 20) was coming down for EUR/AUD, prior to entry. Higher SD values invariably means it will "revert to the mean soon" (move lower in value).
The EUR/GBP chart had its RSI(4) at oversold level. We would SELL, as O/B O/S indicators can always continue to extremes. This setting at 4-period is very fast and can often allow for more room to the downside.
When the EUR/GBP RSI(4) crosses the 50-midpoint, this is the exit for both pairs. Market was a bit choppy, making this a good example, instead of using a big trend and pretending the market always behaves that way.
The net pip result was +50 for EUR/AUD and +16 for EUR/GBP for total of +66 pips. S/L and money management accompanies trades, as usual. We've covered the use of fibs and pivots for S/L.
We had a blended 40 pips for S/L, which makes result R/R 1.65:1
***
After the pairs crossed at the end of Sept 6th 12:00 candle period:
SELL EUR/AUD and BUY EUR/GBP.
Exit was end of Sept 8th 00:00 candle period, when EUR/AUD RSI(4) crossed 50 mid-point.
EUR/AUD = +36.5
EUR/GBP = + 31.9
Total = +68
Blended S/L = -70
These example utilized trigger of RSI(4) crossing 50, for entry/exit. Some traders can capture more profit by using fibs.
EUR/AUD exit just above 127.2 extension to downside at 1.32027 captured about +100 pips.
EUR/GBP exit just below 78.6 retrace fib .88299 captured about +50 pips.
These are maximum profit examples, and results will vary with each trader.
***
Total both sets of trades using trigger: 134/110
R/R = 1.2:1
EUR/USD 1-hour chart - Standard Deviation Channel (SDC) plot:
Sept 6th 08:00 to Sept 8th 12:00
Align Fib Channel (FC) to the SDC's upper and lower lines to get fibs to downside.
Pair bounced up near round number 1.3500 at the end of the 04:00 period. Currently bumping up against the FC's 261.8
Asian High = 1.36183 established 00:30. Asian Low = 1.35080.
88.6 = 1.36057 (hit 08:15)
1.3621 high at 23:00 Sunday
Aiding resistance is Moon 270, as shorts are on from day's 1.3621 level.
EUR/USD bounced off Sunday high area 1.3621 to the 78.6 fib of 1.3595 for +26 gross, and about 20 net pips. Conversely, low/high retrace to 23.6 = 1.3597
Pairs subsequently has breached high in attempt to close week opening gap. Friday closing Low = 1.36541.
Here's an update on the CFD SPX500 that mimics S&P500 Futures. On Sept 8th, we posted an Andrew's Pitchfork (APF) plot that pointed to price meeting the upper fork line.
The attached shows price currently at the Upper_ML1. This is a level as measured by fib ratios inside the APF. "Upper" denotes above median line (middle fork). This is also below pivot of 1137.
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