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Forex Correlation Theory - page 2

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Marco vd Heijden
Moderator
5536
Marco vd Heijden  
Oleksandr Medviediev:
Well, must admit - didn't try Kendall and Spearman correlations (due to some MT4/MT5 limitations), but have a sneaking suspicion overall output would be no different.
Thats odd correlations is my second greatest strategy.
Oleksandr Medviediev
2088
Oleksandr Medviediev  
Marco vd Heijden:
Thats odd correlations is my second greatest strategy.
What's the first?
Marco vd Heijden
Moderator
5536
Marco vd Heijden  
Oleksandr Medviediev:
What's the first?

Good question.

It's Manual Trading.

Oleksandr Medviediev
2088
Oleksandr Medviediev  
Marco vd Heijden:

Good question.

It's Manual Trading.

Make my day - any live results via correlations !!?
Marco vd Heijden
Moderator
5536
Marco vd Heijden  

You just trashed it by saying:

Oleksandr Medviediev:

Free advice - don't waste your time.

This is the worst thing you can say about a trading system.

And shortly after this you admit you did not try it all, which makes me think, what have you tried ...? And then why did you even say it ?

The problem is that people read it and may discard it based upon your words, it's very destructive.

But i have given an example already:

Marco vd Heijden:

Heres some quick examples:

EURAUD * AUDUSD = EURUSD
1.4065 * 0.9335 = 1.3130

EURCAD / USDCAD = EURUSD
1.4273 / 1.0870 = 1.3130

EURCHF / USDCHF = EURUSD
1.2070 / 0.9192 = 1.3130

EURGBP * GBPUSD = EURUSD
0.7903 * 1.6613 = 1.3130

EURJPY / USDJPY = EURUSD
137.01 / 104.34 = 1.3130

This is called:

Pythagorean Theorem

Named after the ancient Greek mathematician Pythagoras (c. 570 – c. 495 BC)

Now i will expand on this because numbers do not trigger the same trading ideas as visual representations.

So here it is visually:

This image represents those numbers in a visual way and immediately you can spot things.

For example CHF is low, this means it has the highest odds (out of these 5) to move back up.

It is less likely that all the other 5 will move towards the one lower.

On the other hand, JPY is the highest so it has the highest odds (Potential) of moving back down shortly.

Then you look at  all the spreads and make sure you only enter on the best deals.


Of course this is just a tiny element that is bundled into a much larger system,

So my question is,

Did you try this specific correlation strategy ?

Stanislav Korotky
21582
Stanislav Korotky  
Marco vd Heijden:

So here it is visually:


Marco, how did you get those numbers in the screen, which differ from what you pasted as text quote? Do you mean they are USD cross-rates, and you are after two pairs with largest spread on synthetic EURUSD? Then this is a scalping strategy, isn't it?
Stanislav Korotky
21582
Stanislav Korotky  
Most simple and profitable strategy based on correlation is pair trading. Try gold/AUDUSD, or gold/silver.
Oleksandr Medviediev
2088
Oleksandr Medviediev  
Marco vd Heijden:

Of course this is just a tiny element that is bundled into a much larger system,

So my question is,

Did you try this specific correlation strategy ?

Correlation strategy that starts with collecting Tick-volumes - No, I didn't try. 

If you believe it can be profitable - great, wishing your best of luck.

You may find usefull to see all possible 3-way-combinations that I have checked (below).

NOTE: markets are perfect - any tiny disbalance gets caught by big sharks =))

1 AUDCAD CADJPY AUDJPY

2 AUDCAD EURCAD EURAUD

3 AUDCAD GBPCAD GBPAUD

4 AUDCAD USDCAD AUDUSD

5 AUDCHF CHFJPY AUDJPY

6 AUDCHF EURCHF EURAUD

7 AUDCHF GBPCHF GBPAUD

8 AUDCHF USDCHF AUDUSD

9 AUDJPY CADJPY AUDCAD

10 AUDJPY CHFJPY AUDCHF

11 AUDJPY EURJPY EURAUD

12 AUDJPY GBPJPY GBPAUD

13 AUDJPY NZDJPY AUDNZD

14 AUDJPY USDJPY AUDUSD

15 AUDNZD EURNZD EURAUD

16 AUDNZD GBPNZD GBPAUD

17 AUDNZD NZDUSD AUDUSD

18 AUDUSD EURUSD EURAUD

19 AUDUSD GBPUSD GBPAUD

20 AUDUSD USDCAD AUDCAD

21 AUDUSD USDCHF AUDCHF

22 AUDUSD USDJPY AUDJPY

23 CADJPY AUDJPY AUDCAD

24 CADJPY EURJPY EURCAD

25 CADJPY GBPJPY GBPCAD

26 CADJPY USDJPY USDCAD

27 CHFJPY AUDJPY AUDCHF

28 CHFJPY EURJPY EURCHF

29 CHFJPY GBPJPY GBPCHF

30 EURAUD AUDCAD EURCAD

31 EURAUD AUDCHF EURCHF

32 EURAUD AUDJPY EURJPY

33 EURAUD AUDNZD EURNZD

34 EURAUD AUDUSD EURUSD

35 EURAUD GBPAUD EURGBP

36 EURCAD AUDCAD EURAUD

37 EURCAD CADJPY EURJPY

38 EURCAD GBPCAD EURCAD

39 EURCAD USDCAD EURUSD

40 EURCHF AUDCHF EURAUD

41 EURCHF CHFJPY EURJPY

42 EURCHF GBPCHF EURGBP

43 EURCHF USDCHF EURUSD

44 EURGBP GBPAUD EURAUD

45 EURGBP GBPCAD EURCAD

46 EURGBP GBPCHF EURCHF

47 EURGBP GBPJPY EURJPY

48 EURGBP GBPNZD EURNZD

49 EURGBP GBPUSD EURUSD

50 EURJPY AUDJPY EURAUD

51 EURJPY CADJPY EURCAD

52 EURJPY CHFJPY EURCHF

53 EURJPY GBPJPY EURGBP

54 EURJPY NZDJPY EURNZD

55 EURJPY USDJPY EURUSD

56 EURNZD AUDNZD EURAUD

57 EURNZD GBPNZD EURGBP

58 EURNZD NZDJPY EURJPY

59 EURNZD NZDUSD EURUSD

60 EURUSD AUDUSD EURAUD

61 EURUSD GBPUSD GBPUSD

62 EURUSD NZDUSD EURNZD

63 EURUSD USDCAD EURCAD

64 EURUSD USDCHF EURCHF

65 EURUSD USDDKK EURDKK

66 EURUSD USDJPY EURJPY

67 EURUSD USDNOK EURNOK

68 EURUSD USDSEK EURSEK

69 GBPAUD AUDCAD GBPCAD

70 GBPAUD AUDCHF GBPCHF

71 GBPAUD AUDJPY GBPJPY

72 GBPAUD AUDNZD GBPNZD

73 GBPAUD AUDUSD GBPUSD

74 GBPAUD EURAUD EURGBP

75 GBPCAD AUDCAD GBPAUD

76 GBPCAD CADJPY GBPJPY

77 GBPCAD EURCAD EURGBP

78 GBPCAD USDCAD GBPUSD

79 GBPCHF AUDCHF GBPAUD

80 GBPCHF CHFJPY GBPCHF

81 GBPCHF EURCHF EURGBP

82 GBPCHF USDCHF GBPUSD

83 GBPJPY AUDJPY GBPAUD

84 GBPJPY CADJPY GBPCAD

85 GBPJPY CHFJPY GBPCHF

86 GBPJPY EURJPY EURGBP

87 GBPJPY NZDJPY GBPNZD

88 GBPJPY USDJPY GBPUSD

89 GBPNZD AUDNZD GBPAUD

90 GBPNZD EURNZD EURGBP

91 GBPNZD NZDJPY GBPJPY

92 GBPNZD NZDUSD GBPUSD

93 GBPUSD AUDUSD GBPAUD

94 GBPUSD EURUSD EURGBP

95 GBPUSD NZDUSD GBPNZD

96 GBPUSD USDCAD GBPCAD

97 GBPUSD USDCHF GBPCHF

98 GBPUSD USDJPY GBPJPY

99 NZDJPY AUDJPY AUDNZD

100 NZDJPY EURJPY EURNZD

101 NZDJPY GBPJPY GBPNZD

102 NZDJPY USDJPY NZDUSD

103 NZDUSD AUDUSD AUDNZD

104 NZDUSD EURUSD EURNZD

105 NZDUSD GBPUSD GBPNZD

106 NZDUSD USDJPY NZDJPY

107 USDCAD AUDCAD AUDUSD

108 USDCAD CADJPY USDJPY

109 USDCAD EURCAD EURUSD

110 USDCAD GBPCAD GBPUSD

111 USDCHF AUDCHF AUDUSD

112 USDCHF CHFJPY USDCHF

113 USDCHF EURCHF EURUSD

114 USDCHF GBPCHF GBPUSD

115 USDDKK EURDKK EURUSD

116 USDJPY AUDJPY AUDUSD

117 USDJPY CADJPY USDCAD

118 USDJPY CHFJPY USDCHF

119 USDJPY EURJPY EURUSD

120 USDJPY GBPJPY GBPUSD

121 USDJPY NZDJPY NZDUSD

122 USDNOK EURNOK EURUSD

123 USDSEK EURSEK EURUSD

Marco vd Heijden
Moderator
5536
Marco vd Heijden  
Stanislav Korotky:
Marco, how did you get those numbers in the screen, which differ from what you pasted as text quote? Do you mean they are USD cross-rates, and you are after two pairs with largest spread on synthetic EURUSD? Then this is a scalping strategy, isn't it?

That text example is related to a fixed EURUSD value it has little to do with the screenshot.

The screen is a real life scenario which displays the minor differences in between.

I am after the two pairs with the lowest spread these happened to be EURJPY and USDJPY last week.

It could be considered scalping but that depends on the position sizes.

You can run it shortly with large lotsizes, but it also works very well with 0.01 or 0.1 and longer running combo's.

The beauty of it is the safe haven it creates you can set it up in several ways.

For example you can set it up in a way, that it will be profitable in both directions, the only requirement that has to be made is a asymmetric move in either one direction.

Those occur on a regular basis, or you can set it up to be more profitable in one direction while still using the mirrored currency as a compass.

Tiny details are what make all the difference, when both become profitable you can trail both positions as far as possible.

When one becomes profitable but the other shows a slight loss but the combined position is positive you can also trail that if you know how.

Another setup i love to do is trading bidirectional at the same time in both directions but this requires you to learn those skills since you have to know what to look for.

And in case they both get over 5% risk you simply close the both of them and restart the process at the next time node.



 

Marco vd Heijden
Moderator
5536
Marco vd Heijden  
Oleksandr Medviediev:

Correlation strategy that starts with collecting Tick-volumes - No, I didn't try. 

If you believe it can be profitable - great, wishing your best of luck.

You may find usefull to see all possible 3-way-combinations that I have checked (below).

NOTE: markets are perfect - any tiny disbalance gets caught by big sharks =))

This strategy only looks at tick volumes to discriminate between fast and slower moving markets.

This is combined with the trend strength to further discriminate between steady one way trends, and trends with a more limited amplitude.

Then the spreads are compared to calculate the final decision, a combination of the highest volumes, preferably in the same direction, with the lowest spread.

Then these results are sorted, and combinations are calculated to discover the higher odds cross combinations with the best set of conditions.

There is a difference between blindly opening a multi symbol hedge position, and calculating every aspect to pick the one that has the highest probability on a successful outcome.

In the beginning i saw great losses which made no sense at all, but i never gave up on the strategy and improved it over the years,

Up to the point where it produces acceptable performance, of a quality that i find difficult to reproduce with any other given strategy.

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