Basket trading, pair trading.

[Dmitry]

Choosing the best pairs for pair trading is more or less an easy task, but selecting a basket of currencies for basketball trading is difficult. I would like to know forum's opinion on how to develop an algorithm for selecting a basket of currencies. By the way, I think GBPCHF and EURCHF is the best way to do pair trading (of course, without exotics). I would also welcome your opinion on the algorithm of selecting pairs for pair trading. I am looking forward to a serious discussion...

[Aleksey]

I'm not sure you can pick up a stable basket of currencies for pair trading. Imho

There has been a lot of talk on the foursome though...

[Dmitry]

I have one idea for the pair selection algorithm, but I do not have time to write it down and test it: we take two pairs, take CopyRates on a monthly timeframe, and compare the differences of these currencies on several candlesticks, and so on all currencies, those pairs where the change of these differences is minimal - it is the best for pair trading. By the way, I'm talking about pairs with positive correlation. But for a basket with three or more currencies - I don't know how to create an algorithm ... Probably something similar as for two pairs, but I need to think about it...

[Dmitry]

Yeah... apparently "maths, physics..." and "interesting and humour..." are really more interesting than trading algorithms for forum users, sadly (

[Dimitar Manov]

07041982:
Yeah... apparently "maths, physics..." and "interesting and humour..." are really more interesting than trading algorithms for forum members, sadly (

If you want to differentiate your risk, you need at least 5-6 pairs... 10 is better.

Why do you want only 2 pairs? The algorithm will be useless....The result is always different ....

[Sergey Petruk]

I was waiting for the discussion to continue as I haven't quite grasped what paired trading is and its usefulness, I guess it's probably one way of diversifying the depo, but that's in the realm of managing it rather than algorithmic trading.

For memulti-currency trading is based on the position that at a certain moment in time one or more currencies may be more demanded than others (for example in a sample of 5-7 currencies - more than 10 related pairs), and on such moments I build my TS, although I also consider the medium-term trend of each currency pair.

[Dmitry]

Pair trading and basketball trading are market-neutral strategies designed to make a profit, based on the correlation of traded instruments, for those who are unfamiliar I suggest reading the wiki and elsewhere, very interesting stuff. Usually these strategies are used on stock exchanges but can also be used on forex.

[Serj]

07041982:
Pair trading and basketball trading are market-neutral strategies designed to make a profit, based on the correlation of traded instruments, for those not familiar, I suggest reading the wiki and elsewhere, very interesting stuff. Usually these strategies are used on stock exchanges, but you can also use them on forex.

Can I have a simple example on MT5 to start with?

[GaryKa]

07041982: Choosing the best currency pairs for pair trading is more or less easy, but selecting a basket for basketball trading is hard.

Why if selecting a pair for pairing is a simple task, making a basket is difficult. Add a few pairs selected for pair trading to the basket ))

Of course it's a joke, but in every joke... Any basket, real or virtual, consisting of two or more pairs (unless it is a closed ring) will always need to be rebalanced in order to maintain market neutrality. That's sort of the problem.

Can we have a simple example on MT5 to start with?

07041982: But for a basket with three or more currencies - I don't know how to make an algorithm... probably something similar as for two pairs, but I need to think about it...

The fourth forum is full of material and interesting threads. Here's a pretty well known work

[Dmitry]

If there is a correlation divergence in the picture, we buy the blue currency and sell the red one with the same amount of volume, and then we exit the position as shown in the picture.

[Dmitry]

GaryKa:

Why if selecting a pair for pairing is a simple task, making a basket is difficult. Add to your basket a few pairs selected for pair trading ))

By the way, yes it's an interesting idea to put together a basket of a few pairs selected for pair trading