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Is 3 SMA Spread

3-SMA-Spread - cross-instrument Indicator of market Spread of 3 (three) different instruments via building visual iChannel (see below formula) that is changing its Width proportionally to the input from each instrument ("Statistical Arbitrage" based on SMA).

Core principle: Price lines following the prices of "their" symbols after each discrepancy are constantly tending to return to the total of "synthetic" central.  In other words, a system of 3 "related" instruments//pairs constantly strives to revert to their mean (so called "mean-reversion" effect).

  • Works on any Instrument/TF (must open Charts/TF for all instruments used)
  • Synchronization in place.  After current bar is closed -- No re-paint / No re-draw
  • "SetIndexBuffer" available for all variables (can be used in EA)
  • Auto-detect 4- and 5-digit prices 

 The following formulas have been used to build iChannel:

  • Price-line Symbol-1     SMA(1)_Fast / SMA(1)_Slow (chart where Indicator is turned on)
  • Price-line Symbol-2     SMA(2)_Fast / SMA(2)_Slow (plus "reversal=true" Mode for instruments with negative correlation)
  • Price-line Symbol-3     SMA(3)_Fast / SMA(3)_Slow (рlus "reversal=true" Mode for instruments with negative correlation)
  • Middle-line М  = "synthetic" central (S1 + S2 + S3)/3 (yellow dotted line)
  • iChannel = (S1-M) + (S2-M) + (S3-M) (red and green dots)

This formula allows combining various instruments on one chart (see Fig. 1), for example:

  • XAUUSD ~1100
  • AUDUSD ~0.7
  • USDCAD ~1.33  

Conditions for Signal:

#1. Width of iChannel started to narrow (first green dot after series of red dots)

#2. Width of iChannel > Level

#3. Price Line S1 is on one side of Middle-line М, аnd Price Lines S2 and S3 are on the opposite side of Middle-line М -- as following:

  • Signal BUY Symbol-1:  S1<M  S2>M  S3>M   -- NOTE: iChannel width (red and green dots) is changing wider or narrower
  • Signal SELL Symbol-1:  S1>M  S2<M  S3<M   -- NOTE: iChannel width (red and green dots) is changing wider or narrower


Parameters: 

  • Inp_Fast_MA - period of Fast moving average
  • Inp_Slow_MA period of Slow moving average
  • Inp_MA_Method - parameter of SMA
  • Inp_MA_PriceType   - parameter of SMA
  • Inp_Symbol_1 - Symbol-1 (by default GBPJPY)
  • Inp_Symbol_2 - Symbol-2 (by default EURJPY)
  • Inp_S2_revers - =True in case Symbol-2 has negative correlation to Symbol-1
  • Inp_Symbol_3  - Symbol-3 (by default CHFJPY)
  • Inp_S3_revers - =True in case Symbol-3 has negative correlation to Symbol-1


Other useful information: 

Typical EXAMPLES of highly correlated 3-way instruments:

  •  GOLD vs. gold-forming currency pairs AUDUSD, USDCAD and NZDUSD
  •  GOLD vs. Crude/WTI and Brent/BRN
  •  Stocks vs. Indices (S&P500, NASDAQ, DJIA etc.)
  •  Soybean Meal March 2016 (ZMH16) vs Soybean Oil March 2016 (ZLH16) vs Soybeans March 2016 (ZSH16), etc.

Complete list of 120 classic 3-way combinations of currency pairs - see link in the Comments section. 

NOTE: for classic 3-way combinations (where participating 3 currencies only), Middle-line М will be always a straight line.
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