User
Experienced member
- Messages
- 1,170
- Likes
- 23
You may be inclined to spot the regular correlation with the EUR.USD and GBP.USD or FTSE100 & DAX but mark words this may not be apparent at first but does become apparent with experience and some in depth thinking that every market is pitched against the dollar and that’s what they ALL follow...
Sang Froid
Well-known member
- Messages
- 344
- Likes
- 60
A while ago I had some success 'hedging'. I'd go long eur/usd and short gpb/usd, with good MM this was on ok strategy for a while. I've been thinking of bringing it back into my trading now I understand about RR ratio.
What would the chances be then of doing the same on the ftse 100 and dax be then?
Actually I'm just being incredibly lazy here, I could just pull up the charts on IG and look for myself
What would the chances be then of doing the same on the ftse 100 and dax be then?
Actually I'm just being incredibly lazy here, I could just pull up the charts on IG and look for myself
meanreversion
Senior member
- Messages
- 3,398
- Likes
- 537
The recent correlation I've noticed is that EURUSD down = GBPUSD down even more, and vice versa. In other words, EURUSD down = EURGBP higher and vice versa. It's probably related to the Greece issue -- if Greece is in trouble, then EURUSD lower (makes sense) but the UK is in even more trouble (who's going to bail us out?). Or put another way, GBPUSD is a high beta recovery currency pair.
GammaJammer
Guest Author
- Messages
- 1,246
- Likes
- 830
A while ago I had some success 'hedging'. I'd go long eur/usd and short gpb/usd, with good MM this was on ok strategy for a while. I've been thinking of bringing it back into my trading now I understand about RR ratio.
What would the chances be then of doing the same on the ftse 100 and dax be then?
Actually I'm just being incredibly lazy here, I could just pull up the charts on IG and look for myself
You werent hedged. You were long eur/gbp basically (depending on relative position sizes). If eur/gbp tanks you could easily lose money on both legs.
The index one is probably a better bet as it's a more 'pure' relative value play.
GJ
TraderNumber7
Well-known member
- Messages
- 376
- Likes
- 45
To the OP:
You created a synthetic Long position of two European currencies that just happen to also be two of the largest by turn-over volume according to the most recent quadrennial BIS report. You were not actually "hedged" - as already pointed out to you.
If you are going to play this kind of game, then you can consider something more disconnected, such as the: GBPCHF paired with USDJPY. At least this way, you have the USD and the JPY potentially pulling in opposition against both the GBP and the CHF. However, you will have to account for the differential in the ATR between the two in your money management strategy.
This is just one example - there are other dual-pair risk mitigation match-ups that you can apply as well. But, you are definitely not "hedged," here. Hedging, is always risk mitigating. However, not all risk mitigation is likewise, hedging. Just keep that in mind when you do this kind of thing.
You created a synthetic Long position of two European currencies that just happen to also be two of the largest by turn-over volume according to the most recent quadrennial BIS report. You were not actually "hedged" - as already pointed out to you.
If you are going to play this kind of game, then you can consider something more disconnected, such as the: GBPCHF paired with USDJPY. At least this way, you have the USD and the JPY potentially pulling in opposition against both the GBP and the CHF. However, you will have to account for the differential in the ATR between the two in your money management strategy.
This is just one example - there are other dual-pair risk mitigation match-ups that you can apply as well. But, you are definitely not "hedged," here. Hedging, is always risk mitigating. However, not all risk mitigation is likewise, hedging. Just keep that in mind when you do this kind of thing.
SuperDriveGuy
Active member
- Messages
- 129
- Likes
- 1
A while ago I had some success 'hedging'. I'd go long eur/usd and short gpb/usd, with good MM this was on ok strategy for a while. I've been thinking of bringing it back into my trading now I understand about RR ratio.
What would the chances be then of doing the same on the ftse 100 and dax be then?
Actually I'm just being incredibly lazy here, I could just pull up the charts on IG and look for myself
Hi sangfroidFX,
The DAX and FTSE are highly corelated IMHO.
The ratio I would trade them is 1 DAX to 2 FTSE contracts. If you are spread betting then if you bet the same amount, that would be OK. Its basically a spread trading strategy I have been researching, go LONG on the DAX if you are bullish on the markets in general and SHORT on the DAX if you are bearish.
You just need to take into account if the market move is sector related i.e financials(more weight in the FTSE), industrials(more weight in the DAX) etc
HTH's
Regards,
SDG
4xpipcounter
Experienced member
- Messages
- 1,557
- Likes
- 29
This thread has been opened for 3 years, and I'm kind of surprised no one has mentioned the mathematical correlation between all forex pairs.
Take the current price of the EUR/GBP * GBP/USD = EUR/USD. Simple algebra there.
The average daily high-low range of the GBP/USD is 160, and the average for the EUR/USD is 125. If they move within the average range, then the prevailing direction for that day will be in favor of the EUR/USD. In other words, if the EUR/USD goes up, the GBP/USD goes up, and they traded within their respective ranges, then the EUR/GBP went up.
Afterwards, you have the respective variables if they did not trade within the range.
The reason the EUR/GBP corresponds directionally to the EUR/USD is because by taking the ranges and dividing them 125/160 = .7813. This means that when price is above that level directional bias favors the EUR/USD with the EUR/GBP. If we were to ever get below that level--.7813, then the bias would reverse.
If the currencies, GBP/USD and EUR/USD move in contrarian directions, then the move always favors the EUR/USD by virtue of it being the primary currency in the EUR/GBP.
This algebraic correspondence can also be done for multiple currencies which shows the undeniable relationships of all the currency pairs.
Take the current price of the EUR/GBP * GBP/USD = EUR/USD. Simple algebra there.
The average daily high-low range of the GBP/USD is 160, and the average for the EUR/USD is 125. If they move within the average range, then the prevailing direction for that day will be in favor of the EUR/USD. In other words, if the EUR/USD goes up, the GBP/USD goes up, and they traded within their respective ranges, then the EUR/GBP went up.
Afterwards, you have the respective variables if they did not trade within the range.
The reason the EUR/GBP corresponds directionally to the EUR/USD is because by taking the ranges and dividing them 125/160 = .7813. This means that when price is above that level directional bias favors the EUR/USD with the EUR/GBP. If we were to ever get below that level--.7813, then the bias would reverse.
If the currencies, GBP/USD and EUR/USD move in contrarian directions, then the move always favors the EUR/USD by virtue of it being the primary currency in the EUR/GBP.
This algebraic correspondence can also be done for multiple currencies which shows the undeniable relationships of all the currency pairs.
shakespeare515
Active member
- Messages
- 134
- Likes
- 6
That is the key! Many traders do not realize that to trade an one currency pair it is a good idea to always be aware of three. I call them "Triads". Eur/Usd and GBP/USD are "connected" by EUR/GBP. If EUR/GBP is range bound then EYR/USD and GBP/USD will move in tandem, also revealing it as a USD driven move. Whenever you see EUR/GBP start to move it throws off the correlation between EUR/USD and GBP/USD. When you see EUR/USD and GBP/USD moving in opposite directions the best trade is actually the EUR/GBP, because the opposite movements of euro and cable create a "perfect storm" for EUR/GBP.
My favorite triad to trade is EUR/USD, USD/JPY and EUR/JPY . If you do the calculation, then EUR/USD X USD/JPY = EUR/JPY. That shows their connected and you are aware of all technical aspects of any of the three that you decide to take a position on.
Whatever of the three you trade, the other two are your "sidecars". so if you are long EUR/JPY, you want to be aware of your sidecars (EUR/USD and USD/JPY) support levels. Since you want your sidecars to move up also (in this example). Then you dont want your sidecars to break below their respective support levels, consequently dragging your trade down..
Here are some other Triads:
GBP/USD, USD/JPY, GBP/JPY
AUD/USD, USD/JPY, AUD/JPY
EUR/USD, USD/CHF, EUR/CHF
USD/CAD, CAD/JPY, USD/JPY
NZD/USD, AUD/NZD, AUD/USD
This is actually the essence of my trading style, I am always watching the entire triad on multiple timerames to make a decision on a trade..
hope this helps.
...good trades,
Sam
4xpipcounter
Experienced member
- Messages
- 1,557
- Likes
- 29
We can go with any of them: MEX/USD*USD/CAD= MEX/CAD.
Also if the numerators or the denominators are the same, then you multiply by the reciporcal, or just divide them.
USD/CAD / USD/CHF = CHF/CAD. If you happen to have the CAF/CHF, then take the reciporcal of the answer on the CHF/CAD, you get the CAD/CHF.
Also, EUR/AUD * GBP/JPY * AUD/GBP = EUR/JPY. Of course in this case you would have to take the reciporcal of the GBP/AUD to equal the AUD/GBP.
EUR/AUD * GBP/JPY * AUD/CHF * JPY/CAD = EUR/ CHF * GBP/CAD.
EUR/CHF * GBP/CAD = GBP/CHF * EUR/CAD.
I was explaining to some students at a nearby college these mathematical relationships, so they could rest assured that the markets could not be fixed.
Also if the numerators or the denominators are the same, then you multiply by the reciporcal, or just divide them.
USD/CAD / USD/CHF = CHF/CAD. If you happen to have the CAF/CHF, then take the reciporcal of the answer on the CHF/CAD, you get the CAD/CHF.
Also, EUR/AUD * GBP/JPY * AUD/GBP = EUR/JPY. Of course in this case you would have to take the reciporcal of the GBP/AUD to equal the AUD/GBP.
EUR/AUD * GBP/JPY * AUD/CHF * JPY/CAD = EUR/ CHF * GBP/CAD.
EUR/CHF * GBP/CAD = GBP/CHF * EUR/CAD.
I was explaining to some students at a nearby college these mathematical relationships, so they could rest assured that the markets could not be fixed.
4xpipcounter
Experienced member
- Messages
- 1,557
- Likes
- 29
I forgot something in my previous post.
I know nothing is ideal, but if the EUR/GBP has gone ideally sideways, then there will be a proportional amount of an 84-pip move on the EUR/USD and a 100-pip move for cable. They could go up or down that amount. Therefore, matheamatically, there is no way to attribute a dicrectional path for the USD based on that information alone-- that is the EUR/GBP going sideways.
BTW, in using your logic got me a couple of huge winning trades on 2 different pairs the other day. I knew a huge reversal for the EUR/CAD was imminent. I knew the obviation was either the EUR/USD was in for a big drop or the USD.CAD. I noticed the relationships with my S&R's and the IC for the loonie, so I shorted it also, and did well.
I know nothing is ideal, but if the EUR/GBP has gone ideally sideways, then there will be a proportional amount of an 84-pip move on the EUR/USD and a 100-pip move for cable. They could go up or down that amount. Therefore, matheamatically, there is no way to attribute a dicrectional path for the USD based on that information alone-- that is the EUR/GBP going sideways.
BTW, in using your logic got me a couple of huge winning trades on 2 different pairs the other day. I knew a huge reversal for the EUR/CAD was imminent. I knew the obviation was either the EUR/USD was in for a big drop or the USD.CAD. I noticed the relationships with my S&R's and the IC for the loonie, so I shorted it also, and did well.
4xpipcounter
Experienced member
- Messages
- 1,557
- Likes
- 29
Then, why does the EUR/CHF, as a rule, move so slow, and the GBP/CHF moves so fast?
Similar threads
