Correlation Trading - Basic Ideas and Strategies

This is a discussion on Correlation Trading - Basic Ideas and Strategies within the Forex forums, part of the Markets category; Originally Posted by Ingot54 It seems to me that this almost a licence to print money. I am certain there ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Aug 28, 2009, 8:45am   #25
 
Ingot54's Avatar
Joined Jan 2005
Hedging

Quote:
Originally Posted by Ingot54 View Post

It seems to me that this almost a licence to print money.

I am certain there are people trading this already - there would probably be people who have already posted a method for it. If so, could someone please provide links. It's interesting.
Would it be practical to be simultaneously LONG one pair and SHORT the other?

One of the problems with such a hedging strategy, would be that big losses could run up if the method began to diverge against the trader. Nothing correlates 100%.

So in order to scalp the divergances, why not have the pair hedged on demo, waiting for a large loss to occur. This would be the SETUP for putting on LIVE trades.

The TRIGGER would be when the losses start to reduce, as correlation resumed.

The method would need very tight stops, and always have a Take Profit in pace in case of large profit spikes.

But how would you enter a Stop Loss for a hedged trade?
Ingot54 is offline   Reply With Quote
Old Aug 28, 2009, 9:00am   #26
NVP
 
NVP's Avatar
Joined Jun 2004
Euro/Swissie Ideas

NVP started this thread Hey Ingot54 !

thanks for your kind attention and very interesting comments

The close corrlations seen on the Euro and Swissie together with relatively low volatilities most of the time does indeed generate some trading ideas - particularly
when their relationship is perceived to be "stretched" on overbought / oversold positions

I have a Version of the FXcorrelator somewhere that isolates the two pairs for this purpose and also adds a "difference in value" line to highight when we see the big o/B or O/S position.......in truth its not perfect as it carries the usual health warnings when one tries to call the turning point between 2 pairs (but risk can be reduced by introducing standard price analysis principles on the EURCHF chart)....also theres the spreads if you are trading real short TF's

i'm at work but will access my home files remotely and try to find it....just need to hide from the Boss (ha ha )

i'll have a look at other post as well..........

Neil
NVP is offline Coach/Trainer   Reply With Quote
Old Aug 28, 2009, 9:16am   #27
NVP
 
NVP's Avatar
Joined Jun 2004
Stops or Correlation

NVP started this thread
Quote:
Originally Posted by Ingot54 View Post
Would it be practical to be simultaneously LONG one pair and SHORT the other?

One of the problems with such a hedging strategy, would be that big losses could run up if the method began to diverge against the trader. Nothing correlates 100%.
Quote:
Originally Posted by Ingot54 View Post

But how would you enter a Stop Loss for a hedged trade?



Good point !

some (most?) correlation trading systems and strategies require multiple trades to implement the plan and exploit the correlation anticipated

trouble is (and ive seen this discussed in a lot of sites) you have no capability to create stop losses, as in each individual trade being made they are all part of a greater dynamic group of trades (ive heard them called clusters ?) sooooo its a real problemo and without manual monitoring if it goes wrong you are really in the dodo...and even manually you could go down real fast on short TF's before you hit the "abort" buttons

let me have a think and also we may get some more comments as well !

love the Long/short idea !.............regardless of Correlation I have always thought that since all Financial Instruments display Fractal Behaviour across different timeframes one could be long in the 5min whilst being Short in the 1h on the same Currency Pair otr indice etc etc .........if you introduce standardised Money management principles (as you've already mentioned) of say 1-2% per trade then actually they are totally different trades in risk/return terms and could superboost your Capital base over time........assuming you are calling it correctly !

so is this a new form of correlation Trading strategy using the same instrument ?..........

very interesting !

Neil
NVP is offline Coach/Trainer   Reply With Quote
Old Aug 28, 2009, 10:11am   #28
NVP
 
NVP's Avatar
Joined Jun 2004
Eurchf_fxcorrelator

NVP started this thread Hi Ingot54

aaaaaahhh..found it , just tidied it up a little and shes good to go !
I will post this in next post.....heres background

Ma200/Delta 3 .........a fairly standard setting i use

I've removed the other 6 currencies to isolate our Pair

Blue Euro , Grey Swissie

I've added a difference line (yellow) between the 2 currencies

The Zero horizontal line now becomes important to measure the variance to
the yellow line

to estimate o/b or o/s areas you will need to add two further horizontal lines (ive put them in yellow dotted).....then position these to where you feel that point is on particular TF being used (ie eyeball them in !)

in example below I have the lower line (oversold) showing (upper line is not showing) as that is where the pair have been considered to be oversold in the past based on my own judgement ......this i not a fix you see where the yellow line turned to impress you all - as it is based on historical information not on the picture

hey everyone try it out and give me feedback !

comment
confession - in actuality this is not a million miles away from looking at the pair in normal mode and introducing standard o/b o/s methodologies........however a normal pairs chart will not show you the slopes/relativity of the 2 Currencies in question or their relationships with the other Currecies at the points of o/b or o/soldness.....this is where we could create the edge to enhancing its success....!

Neil
Attached Thumbnails
eurchf_fxcorrelator.jpg  
NVP is offline Coach/Trainer   Reply With Quote
Old Aug 28, 2009, 10:19am   #29
NVP
 
NVP's Avatar
Joined Jun 2004
Eurchf_fxcorrelator file

NVP started this thread here she is...........dontcha love remote access technology !

please get questions in today ....i'm away from internet access for 3 days from tonight as I have promised my wife we would go away for the long Bank holiday weekend.....

Neil
NVP is offline Coach/Trainer   Reply With Quote
Old Aug 28, 2009, 10:34am   #30
NVP
 
NVP's Avatar
Joined Jun 2004
Longer TF Trading

NVP started this thread Hey Ingot54

I also notice you prefer the Longer TF's.......here the 4h Basic indicator set on the 200Ma/delta 3 as at now

Hope you have been buying your eastern Neighbours currency in August !

Neil
Attached Thumbnails
fxcorrelator_4h-28aug2009.jpg  
NVP is offline Coach/Trainer   Reply With Quote
Old Aug 28, 2009, 11:56am   #31
 
Ingot54's Avatar
Joined Jan 2005
Hi NVP ... (still wondering what "NVP" stands for!)

I don't understand the benefit ... I mean, I don't understand how the correlation charts work, or what they do. Could you please give an example of how it works?

I am off to work shortly, and will also be chilling out on the weekend.

But I'm looking forward to further discussion on this early in the new week.

Thanks for all your work here - good stuff.

Chers and best wishes

Ivan
Ingot54 is offline   Reply With Quote
Old Aug 28, 2009, 12:53pm   #32
NVP
 
NVP's Avatar
Joined Jun 2004
the Weekly EUR CHF 14th Dec 2008

NVP started this thread In the chart(s) below, I have shown some subtle differences in the WEEKLY charts.

I think when looking at these divergances on the 1H TF, the opportunity must surely pop out at you n'est ce pas?[/QUOTE]


Hi Ingot54........its lunchtime so time for some posting !

I have had a look at your post and weekly chart and just some thoughts / observations as I would have read it.........(see the attached below)...unfortunately I do not tend to extend to weekly charts on my indicator as with a 200Ma standard setting the 4h's are quite long enough for my taste

looks like these Bars were around Mid Dec 2008 so i have commented on this period of time.........

Chart 1 attached is my standard 200/3 on the 4h so we can see what was happening

Boy the Euro(Blue) was doing well ! (I remember that time as we went on holiday to Europe and it cost me a fortune in sterling tems )...I would have been recommending a strong buy against (Guess) the USD/Yen until such times as it looked overbought.....sorry not sure if it was at the time....the EURCHF things was interesting (See Below) but not on my radar until Euro started Falling (as it is more volatile than the CHF)

Chart 2 now gets closer to your weekly chart and observation of the Bar movements....
the 14th Dec 2008 week was actually when the CHF started fighting back against the Euro and bounced off its 200ma into a nice nice move downwards (left hand chart)

EDIT ENTRY !
SPOTTED MISTAKE ON CHART 2 - SHOULD READ EURO OVERBOUGHT to CHF (DOH!) - sorry

on the right hand side this was "spotted" on the shorter TF 4h's as the Euro was showing as potentially overbought against the CHF and a reversal/Correction may be imminent

Buy CHF Sell Euro as the yellow line started falling back downwards.......to be honest in Chart 1 there was plenty of signals out there re buying these guys whilst selling USD or Yen so i might have ignored this opportunity.....interestingly the big money got made on the EUR/CHF play when they both reveresed in Strength vs the USD/YEN (this is common as the stronger currency driving the divergence suddenly folds against everyone, not just the targeted Currency in Question)

Now in truth its not this easy......MA's can make everything look simple and in reality the opportunity has gone before the trading signal has materialised......but i'm just using this as Demo only to comment on the Charts you posted

Thats the beauty of Trading ...you can make money a lot of ways (and lose it of course)

Neil
Attached Thumbnails
fxcorrelator_14dec2008_chart-1.jpg   eurchf-14th-dec-2008-chart-2.jpg  
NVP is offline Coach/Trainer   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Basic ideas are sometimes the best sefty Discretionary Trading 28 Feb 14, 2011 3:15pm
Ideas for 2 simple intraday strategies, feedback & ideas appreciated JTrader Trading Systems 38 Nov 24, 2010 7:42pm
Correlation strategies ajmyers Educational Resources 4 Apr 1, 2006 7:49pm
Correlation strategies ajmyers Technical Analysis 9 Mar 30, 2006 11:07pm
basic ideas sefty T2W Feedback & Announcements 0 Feb 1, 2001 12:49pm

LinkBacks (?)
LinkBack to this Thread: http://www.trade2win.com/boards/forex/71854-correlation-trading-basic-ideas-strategies.html
Posted By For Type Date
FXCorrelator - Scalping system - Page 7 @ Forex Factory This thread Refback Apr 8, 2011 3:58am
Forex-TSD - View Single Post - Fxcorrelator This thread Refback Jan 1, 2011 6:29pm
Never Lose Again by DRAGON33 This thread Refback Dec 6, 2010 3:42pm
Indicator that gives me the time correlations in multiple frames? @ Forex Factory This thread Refback Sep 4, 2010 3:19am
FXCorrelator - Scalping system @ Forex Factory This thread Refback May 7, 2010 10:00am
Fxcorrelator - Forex-TSD This thread Refback May 4, 2010 9:30am
Relative Strength Test for Currencies - Forex-TSD This thread Refback May 3, 2010 11:28am
Correlation @ Forex Factory This thread Refback Apr 22, 2010 9:23am
Looking for EA for Correlation Strategy @ Forex Factory This thread Refback Apr 22, 2010 9:17am
Forex Factory - Relative Strength Basket Trading System This thread Refback Apr 17, 2010 10:49pm
Relative Strength Basket Trading System - Page 230 @ Forex Factory This thread Refback Apr 9, 2010 7:11am

Currently Active Users Viewing This Thread: 7 (1 members and 6 guests)
dentist007