Pair trading. How to close orders with maximum profit? - page 7

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Youri Tarshecki:

The point of paired trading is mutual hedging of two anticorrelation instruments. I.e. it is assumed that pairs bought at the peak of rascorrelation will certainly want to get back together again and then there will be a loss for one and a profit for the other, and because they will not meet exactly in the middle, the profit of one will definitely cover the loss of the other. That is, the whole calculation of paired trading is the volatility and non-linearity of the market.

Pair trading combines two ideas - the calculation of correlation and hedging, which are achieved in one action, this simultaneity is a BENEFIT of this method. But unfortunately it works only under one condition - if after the entry the instruments actually stopped diverging and started moving backwards. If they continue diverging - instead of hedging you receive a double loss. Therefore there is no fundamental difference whether to trade with one instrument or several ones, except for diversification. But diversification is another subject.

Theoretically, it is possible to buy a selected instrument separately by correlation with another one (others), and to hedge with the third or fourth instrument, or not to hedge at all. Correlation is just an indication of the extent to which an instrument is oversold/oversold and, in practice, it may rarely be the only sufficient criterion for making a decision. A multicurrency Expert Advisor is one that takes into account the state of more than one instrument and not one that necessarily trades many currencies. In MT5, testing is possible using multiple pairs.

The closing is not necessarily a mirror function of the opening. Closing should take into account the changing situation, and therefore it is impossible to say in advance which variant of closing is better. We just need to test all variants by ourselves and not take anyone's word for it.

If you use this strategy as an Expert Advisor (EURUSD/USDCHF) or another mirror pair, I think you should avoid direct market analysis.

If, for the first time, you open both Buy and Sell position simultaneously, close the profitable position, then open it again and, depending on what happens with the orders, the Expert Advisor should act in one way or another. It seems to me this way is easier, and maybe even better, than to analyze the market. Market analysis, especially in automated mode, is a thankless task.)

I opened an order on EURUSD/GBPUSD on H4. I could open and close orders a long time ago, I don't really understand what kind of analysis is needed there)

[Andrey Khatimlianskii]

edutak:
This strategy assumes four orders in the market at all times. There will be lots on the euro and the pound. You cannot make lots in MT5, if I remember correctly.

You can do them virtually (in your mind).

[[Deleted]]

Alexandr Murzin:
It is easier to use the script to close all trades when the desired profit is reached. And guessing the maximum is up to Nostradamus.

It happens that after closing the desired profit, the missed profit increases manifold, or vice versa, without having reached the desired profit, goes into deficit.

In my opinion, (possibly erroneous) you can be guided by period separators. Close the profit, if any, at the end of the day, or week. This is not the best prices, but not the worst, but there is no need to sit near the computer.

[[Deleted]]

Andrey Khatimlianskii:
You can do it virtually (in your mind).

Have you ever ordered one of these robots?

[Avals]

edutak:
Have any ideas on what principle, or rules, to close the orders at profit. For simplicity, let it be EURUSD/USDCHF.

Pair trading is essentially trading a new instrument that differs from the standard ones in that it does not trade by itself. In your example it is simpler - it is EURCHF trading and it trades on its own. In other cases there will be another instrument such as gold/silver and this instrument will have its own chart, its own patterns, etc. Therefore your question could in principle be reworded as "how to close orders on profit".

If we are speaking about the classic application of pair trading, it would be trading on the convergence of the spread. On the chart of a new symbol, this would be trading on the return from the flat line, channel, a large deviation from the MA, etc., etc. Therefore we will close with a profit either in the middle of this flat/channel/on the MA or on the deviation in the opposite direction.

For the beginning, just display a chart of a new instrument (spread). This may remove the questions.

Z.U. Correlation is not important for paired trading. Co-integration is important. And to put it simply, the chart of the pair should be flat, but not necessarily all the time.

[Andrey Khatimlianskii]

edutak:
Have you already ordered such a robot?

Yes, I've written a few pair trading robots.

I even had such a bot at the last championship, and it was even profitable. However, I managed to open it using the crossover.)

But it can also open on several symbols.

[[Deleted]]

Avals:

Pair trading is essentially trading a new instrument that differs from the standard ones in that it does not trade by itself. In your example it is simpler - it is EURCHF trading and it trades on its own. In other cases there will be another instrument such as gold/silver and this instrument will have its own chart, its own patterns, etc. Therefore your question could in principle be reworded as "how to close orders on profit".

If we are speaking about the classic application of pair trading, it would be trading on the convergence of the spread. On the chart of a new symbol, this would be trading on the return from the flat line, channel, a large deviation from the MA, etc., etc. Therefore we will close with a profit either in the middle of this flat/channel/on the MA or on the deviation in the opposite direction.

For the beginning, just display a chart of a new instrument (spread). Maybe the questions will disappear.

Z.U. Correlation is not important for pair trading. The cointegration is important. And to put it simply, the chart of the pair should be flat, but not necessarily all the time.

I understand that EURCHF is a cross rate. The fact that when opening on mirror pairs, the market should be calm - I understand.

I do not understand the "Convergence of the spread". Please, explain.

[Дмитрий]

edutak:

I understand that EURCHF is a cross rate. The fact that when opening on mirror pairs, the market should be calm - I understand.

The "spread convergence" I do not understand. Please explain.

When you overlay one chart on another, the distance between the charts is the spread.

If the instruments are correlated, then after the divergence they should converge again - the spread is reduced to 0

[Avals]

edutak:

I understand that EURCHF is a cross rate. The fact that when opening on mirror pairs, the market should be calm - I understand.

The "spread convergence" I do not understand. Please explain.

Pair trading is also called spread-trading. Spread is a new tool, which is obtained by pair trading. There is a lot of information on the Internet, for example googled))

[Avals]

Дмитрий:

When you overlay one chart on top of another, the distance between the charts is the spread

If the instruments are correlated, then after the divergence they should converge again - the spread is reduced to 0

not correlated, but cointegrated. The correlation can be high, but the spread will not return to zero. Cointegration is in fact a scientific formalization of this return and of spread trading in general. But we can do it without science. Just flat trading on the spread)) Spread stationarity is a dream. Either it is temporary, or the deviations from zero are so small that they do not cover the costs. Therefore, periodic stationarity, or flat areas on the spread in simple terms, is sufficient.