It's all wrong, friends. - page 3
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I don't mind. Better a small profit than a big loss -)
It's an illusion...
Does anyone know where to read how to properly hedge in the FX/commodities market? Actually, I'm interested in what asset to hedge with?
Obviously, you have to hedge on highly correlated pairs.
It is not advisable to hedge in different directions on the same pair.
Obviously, you have to hedge on highly correlated pairs.
It is not recommended to hedge in different directions on the same pair.
Um... However, there is a contradiction: if you have to choose strongly correlated pairs, then the pair with itself has the strongest correlation - iron 100%.
Can one find pairs with correlations separated by time: where the behaviour of one pair "mirrors" the other, but with a delay of at least a couple of hours, and then looking at the "leading" pair one can catch up with its movements on the "lagging" one. Illusion of course - but so tempting :) I wonder - has anyone tried it?
Um... However, there is a contradiction: if it is necessary to choose strongly correlated pairs - then the strongest correlation is in a pair with itself - iron 100%.
But may we find pairs correlated different in time: the behavior of one pair "mirrors" to the other with a delay of at least two hours, and then looking at the "leading" pair one can catch up with its movements in the "trailing" one. Illusion of course - but so tempting :) I wonder if anyone has tried it.
If one has a profitable TS, allocation of capital to several instruments allows increasing the total return, because risks decrease as the root of the number of instruments in the portfolio, and the return increases (up to a certain moment) linearly with the capitalization of the total position.
As for the "mirroring of instruments with a delay of several hours", I have studied this problem in some time in quite detail. It turned out that the market aligns local perturbations between instruments at a rate until the next tick. In other words, if there was a noticeable jump in price at any of the correlated symbols, it will appear at the next tick at the mirror pair, i.e. it is unreal to make profit.
I even went further in this direction. It is known that the ratio of EUR/JPY and GBP/JPY is the current EUR/GBP exchange rate, you can check it. So, the EUR/JPY and GBP/JPY pairs are quoting at a rate ten times faster than the EUR/GBP pair... get it? I wrote an indicator that between EUR/GBP ticks (which come in at a speed of 1 - 2 ticks/minute) it managed to show the new price of the expected EUR/GBP tick ten times!
But I could not get anything out of it, for the simple reason that the DC, as soon as the indicator predicted a noticeable advance of the price, has immediately quoted EUR/GBP! There was no time to open the position.
Um... A contradiction, however: if you have to choose strongly correlated pairs, then the pair with itself has the strongest correlation - iron 100%.
No contradiction.
How do you suggest that a brokerage company may send such a pair of orders in different directions to the interbank?
It is clear that with our turnovers we are not talking about interbank, but sooner or later this question will arise.
There is no contradiction.
How do you propose that a brokerage company should be able to send such a pair of orders in different directions to the interbank market?
It is clear that with our turnover we are not talking about interbank, but sooner or later this question will arise.
Hmm... How? The usual way: the difference of buy + sell.)
And only if there is a profit to be paid.
In the case of loss-dominant skewed pose it makes no sense...
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And in general the "locked theme" is quite funny when it comes to determining its necessity and usefulness.
The subject is usually discussed by pundits who... have no idea about loca...
For neither in their platforms nor in their minds it is not provided for... :)))
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They theorize about the possibility of "loving" ;) two women at the same time,
but they can't imagine it in practice... :)))
By turns (bought-sold) YES! but not at the same time...
That's where they come in: not recommended.
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Let me ask you a question: who is not recommended?
;)
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Interbank already means bank, legal entity
I think with such a turnover the tactics will be different,
and the number of traders who have grown to such a turnover is supposed to be quite modest...
If you have a profitable TS, allocating capital to several instruments allows you to increase the total return, because the risk decreases as the root of the number of instruments in the portfolio, and the return increases (up to a certain point) linearly with the capitalisation of the total position.
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Can I have a little more detail? The principle is not clear.
Suppose, for clarity, we have a profitable TS and several non-correlated instruments, the returns on which are equal. Let us consider the case of a single instrument. The income curve (RC) can be represented as a straight line drawn through it using the method of least squares. Then the income of TS is proportional to the slope tangent of the straight line and the risks are proportional to the dimensionless value equal to the ratio of standard deviation of QD points from this straight line to the amount of capital invested in this instrument. Suppose, according to the chosen MM, the risk level of R% is acceptable for us.
Now divide our capital that traded on one instrument into n equal parts by the number of all instruments. Then the return of each instrument will decrease n times, risks will remain the same and not correlated with each other. For such a portfolio, the total return will be additive and equal to the return on capitalization of a single position, and the standard deviations of QD for each instrument will add up as random variables, and in first approximation equal to the square root of the sum of their squares, which for aggregate risk will give the estimate R%/SQRT(n) (see above definition of risk). But, according to the adopted MM, we can assume risks of at least R%, which allows us to increase the capitalisation of the portfolio over the original SQRT(n) times! The return, in turn, is proportional to the capitalization of the position (to a first approximation), therefore one can argue that by dividing capital between n non-correlated instruments we increase the return on the aggregate position as the root of n times, without increasing the risk. This is what I stated in my post above.
Of course, all said is true only for the case when the instruments are independent and the first difference of the balance curve has a normal distribution. For each case, you need to analyze it individually and the growth of the total position return is likely to be weaker than SQRT(n).
In general, the answer to the question of optimal capitalization of an open position allowing to maximize the profitability for a given predictive ability of the algorithm underlying the TS is interesting. Indeed, bothsmaller and larger values of bets decrease the profit. Moreover, an overly risky gamble can lead to a loss at any predictive ability. In the article "Neurocomputing" by Ezhiev and Shumsky the formula allowing to find the optimal share of capitalization is given, if the percentage of successful price movements and the probability density distribution for the TS balance curve increments are known:
%K=2p<|x|>^2/<x^2>, where p is the proportion of correctly guessed TC directions that exceeds the "random" 50/50.
For normal distribution <|x|>^2/<x^2>=0.8, in other cases you need to count individually.
Of course, this is only true if the instruments are independent and the first difference of the balance curve is normally distributed.
For me personally, it is like a spherical horse in a vacuum model - ideal conditions that are not observed in reality. Can I have an example of independent instruments?