Hedge Trading #1 - EUR & CHF

Don · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

Don please do not feel offended.

No no no! :)) We're just discussing here. :D

Maybe you mean Correlation_IND_ChartLite indi? See Starting's post here: http://www.indo-investasi.com/viewtopic.php?p=52105#p52105

Don · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

Again: big_price / small_price * base_lotsize = lotsize_for_small_priced_pair

Imo, that's wrong. The report between EURAUD and AUDCHF is expressed by none other than EURCHF, which is where you should get the lot sizes from.
We have the following relationship:
EURAUD * AUDCHF = EURCHF
Putting the current values into it:
1.6990 * 0.8916 = 1.5148

So, if I want to get the correct lotsizes for both hedged pairs, then I have to do the following:

Example: 1st pair: EURUSD, 2nd pair: USDCHF, "derived" pair: EURCHF

Prices at the moment of calculation:

EURUSD: 1.45840

USDCHF: 1.03830

EURCHF: 1.51437

The base lotsize is: 1.0

Lotsize for the EURUSD pair:

1.51437 / 1.45840 = 1.03837

1.0 lot X 1.03837 = ~ 1.04 lot

Lotsize for the USDCHF pair:

1.51437 / 1.03830 = 1.45850

1.0 lot X 1.45850 = ~ 1.46 lot

BTW we also can say this:

EURUSD lotsize is: base_lotsize X USDCHF price

USDCHF lotsize is: base_lotsize X EURUSD price

Now, is that okay above?

matka · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

Maybe you mean Correlation_IND_ChartLite indi? See Starting's post here: http://www.indo-investasi.com/viewtopic.php?p=52105#p52105

Thanks Don :-bd

⭐ birt · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

So, if I want to get the correct lotsizes for both hedged pairs, then I have to do the following:

Example: 1st pair: EURUSD, 2nd pair: USDCHF, "derived" pair: EURCHF

Prices at the moment of calculation:
EURUSD: 1.45840
USDCHF: 1.03830
EURCHF: 1.51437

The base lotsize is: 1.0

Lotsize for the EURUSD pair:
1.51437 / 1.45840 = 1.03837
1.0 lot X 1.03837 = ~ 1.04 lot

Lotsize for the USDCHF pair:
1.51437 / 1.03830 = 1.45850
1.0 lot X 1.45850 = ~ 1.46 lot

BTW we also can say this:
EURUSD lotsize is: base_lotsize X USDCHF price
USDCHF lotsize is: base_lotsize X EURUSD price

Now, is that okay above?

Guess so, but I believe you have to also factor in the tick value for the pairs. Just thinking about this gives me a headache, probably because it's so late :)

Lots are calculated as 100000 units (except JPY pairs where they're 1000000 I believe) of the opposed pair, the second pair that is, so the tick value is a function of your base account currency and the second currency in the pair.

So, assuming that your account base currency is USD:

EURUSD - pip value = 100000 USD * 0.0001 * 1/1 = 10 (1/1 being the USDUSD report)

USDCHF - pip value = 100000 CHF * 0.0001 * 1/1.03860 = 9.628 (where 1.0386 is the current USDCHF rate)

EURCHF - pip value = exactly like USDCHF, but you shouldn't care much about this one anyway

Of course, you just have to use MarketInfo(Symbol(), MODE_TICKVALUE) - the point of the explanation was to illustrate why you have to factor it in your calculations.

⭐ birt · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

Actually, probably the simplest way is to do the following:

1. Assume the EURCHF rate is a constant.

2. Increase EURUSD by 1000 pips and calculate what would the USDCHF difference be.

3. Multiply the 1000 EURUSD pips by the EURUSD tickvalue and multiply the USDCHF difference by the USDCHF tickvalue.

4. Find out how many lots you would need for each pair to have a counterbalancing $$ move on both currencies.

5. Work out the lot formula by going back through each calculation :D

Don · September 10, 2009

Re: Hedge Trading #1 - EUR & CHF

Okay, thanks birt.

I have modified my little EA. Now it opens a trade on EURUSD/USDCHF with the appropriate lotsizes, same direction (let's say buy). When it reaches 2.0 dollars of profit, then a trailing stop function kicks in. If the fallback in profits reaches the 40% of the current trailing stop level (2.0 dollars), then it closes the trade. If the profit grows further, then it increases the trailing stop level further.

After it closed the positions, it reopens them in the opposite direction and the game continues so on and so on. Let's see what happens with my demo dollars. ;))

OK, it would be more elegant if the direction would be dictated by the correlation indi, but I did not investigated that one so deeply.

Edit: I had to restart the EA. The first conclusion is that it does not work so good in the asian session. However there is an overall "flatness" in volume in the asian period, yet the EURUSD moved far more times than the completely dead USDCHF. Another effect was the widened spread of both pairs. These two things are caused frequent off-hedge situations and produced no profitable periods. Now I have closed the positions and the EA is opened two new one in the opposite direction, as planned.

Anybody knows a good currency strength meter? Or at least the method how to calculate strength of each currencies (NOT pairs)? I think this would help here, too.

Starting · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

Hello guys,

Will do some paper trades today with indi.

As to the guys point that trading EURSD and USDCHF is similar to trading EURCHF.

Yes, it's similar, but I also agree with Don that when betting on one pair (EURCHF) it is less safe than trading its components (EURSD and USDCHF) which are only fluctuates between each other with certain level of correlation and drawdown happens when correlation either on its top (if we opened our trades on correlation bottom) or vice versa.

With EURCHF it's purely trade decision and if we were wrong betting on long, when it goes short, our drawdown and losses, I'm afraid, are much bigger than if we would trade EURSD and USDCHF.

I'm thinking of relationship of EURCHF and our pairs, sure if we were wrong selecting go long with our pairs and EURCHF went adverse direction, then we're in a drawdown with our pairs. But let's see if this drawdown is the same as if we would enter EURCHF at the same moment. I gotta check this myself.

In principle, I do agree that EURCHF is not a pair, but consists of our pairs. If it's move results in EXACTLY the same move by its components, then agree with birt and matka.

But what we're trying to do is to find divergence in EURCHF components and enter the trade.

It's similar as if we found that EURCHF components are in imbalance now and in due course they'll come to balance again, so our chances to bet on EURCHF long or short are pretty high.

With purely looking on EURCHF we can't evaluate the balance of its components between each other, so we cant achieve same level of confidence trading just EURCHF.

This is my opinion, so I'm open and glad to hear other opinions and critics as well.

Don,

As for currency strength meter, I think clusters indis are the best. But this will become a different story from what we were doing here all the time. Let's stick to our initial plan first and check if we can succeed with our initial strategy, and later on it can be evolved further. Just to avoid complicateness on this initial stage.

Later today will post my paper trades using correlation indi. Let's see how it works, if it works at all. I hope it works, otherwise people would not develop a lot of things, but to make money from the fact of different movements of correlated currencies.

And agree, we can have profit, as birt said, from one currency faster move to direction of our trade.

That is that simple formula: starting from 0 level for both, that if one goes faster (breaks correlation), we have profit difference.

Birt, Matka,

Thank you for your valuable comments. If you're more advanced in this, appreciate you can post some of your researches, so we can spend less time doing same things again what you have already done. I'm not by any means expert in this and just try to apply common sense and logic from what I see, so grateful if you guys can teach things you well know.

Anyways, our task is to prove we can make some money out of it, or to prove we can't and forget about it.

ryaz · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

...As to the guys point that trading EURSD and USDCHF is similar to trading EURCHF.
Yes, it's similar, but I also agree with Don that when betting on one pair (EURCHF) it is less safe than trading its components (EURSD and USDCHF) which are only fluctuates between each other with certain level of correlation and drawdown happens when correlation either on its top (if we opened our trades on correlation bottom) or vice versa.
...

Wrong

Always EURUSD*USDCHF/EURCHF~1, if not there is an arbitrage opportunity

The decorrelation of EURUSD and USDCHF happens because EURCHF price changes, and vice versa there is larger correlation between EURUSD and USDCHF because EURCHF is less volatile.

So buy EURUSD-USDCHF is EXACTLY THE SAME thing as buy EURCHF (if you adjust lots), the only difference beeing the spread you pay. The exception is a quite large price movement that affects the proper lot wheighting between pairs.

if buy EU buy UC sell EC: (EURUSD+spread)*(USDCHF+spread)/EURCHF always >1 for the same broker (unless your broker is a dumbhead)

if sell EU sell UC buy EC: EURUSD*USDCHF/(EURCHF+spread) always <1 for the same broker (unless your broker is a dumbhead)

regards

Starting · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

Wrong
Always EURUSD*USDCHF/EURCHF~1, if not there is an arbitrage opportunity
The decorrelation of EURUSD and USDCHF happens because EURCHF price changes, and vice versa there is larger correlation between EURUSD and USDCHF because EURCHF is less volatile.
So buy EURUSD-USDCHF is EXACTLY THE SAME thing as buy EURCHF (if you adjust lots), the only difference beeing the spread you pay.
if buy EU buy UC sell EC: (EURUSD+spread)*(USDCHF+spread)/EURCHF always >1 for the same broker (unless your broker is a dumbhead)
if sell EU sell UC buy EC: EURUSD*USDCHF/(EURCHF+spread) always <1 for the same broker (unless your broker is a dumbhead)
regards

Thanks, ryaz!

I'm fine to be wrong as long as I not risk my money making wrong decisions.

So this is how I thought it could be, but I want to investigate if we can extract profit from difference of the movements of EURUSD and USFCHF.

Let's forget that cross EURCHF exists, let's focus only on trading EURSD and USDCHF for now.

If we can develop rules when and which direction (both long or short) enter a trade with EURSD and USDCHF, we can use this learning in trading purely EURCHF.

So it'll be like a signal for us to enter a trade with EURCHF, thus making economy on spread etc.

This way we can develop a solid system of trading EURCHF, with help of analysis of its components.

Thanks, ryaz, I know crosses components is basic knowledge, but good to hear that someone on the forum can always remind you about them. :shand:

deadsoul · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

simply still holding the tow positions test and here its positive again

http://img11.imageshack.us/img11/5073/trend2.gif

⭐ birt · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

simply still holding the tow positions test and here its positive again

If you read above, you will understand that the reason for it being positive is EURCHF going south while you had short positions in both pairs. Should EURCHF turn up, your profit will turn into a loss.

fx1001 · September 11, 2009

Re: Hedge Trading #1 - EUR & CHF

Hello,

Thanks to all for this really interesting and creative thread.

Here is my little contribution which I hope that will help a bit.

4X-ROX.com offers this indi for $37 for monthly subscription. Don't worry its a full code indicator.

This is where you can time your entries and exits much more quickly.

OK, here is how it works. You want to enter long trades ( both pairs: EUR/USD and USD/CHF) just

about the time the thick green lines begin to appears above the zero line. Stay in the trade until

the green lines begin to thin in width, at which time you exit the trade. Enter short trades when

the thick red lines begin to appear below the zero line. Stay in the short trade until the red lines

begin to thin in width, at which time you exit the trade. This same scenario is repeated over and

over.

This indi goes on EUR/CHF chart only.

http://www.4shared.com/file/132004321/129bd983/eu_ind.html

Enjoy

http://i29.tinypic.com/25zmgp5.gif

Starting · September 12, 2009

Re: Hedge Trading #1 - EUR & CHF

Hello,

Thanks to all for this really interesting and creative thread.

Here is my little contribution which I hope that will help a bit.

This indi goes on EUR/CHF chart only.
http://[email protected]/file/132004321/129bd983/eu_ind.html
Enjoy

Mate, many thanks for your contribution!

Over the weekend I'll try it and btw instead of trading both pairs (Sell EURUSD USDCHF) we can do the same with EURCHF only (Sell it) making economy on spread.

So I don't care how exactly we produce results, but if we produce them, we will use our analysis in best viable way.

Will post my results when ready.

Again, thanks!

APopovA · September 13, 2009

Re: Hedge Trading #1 - EUR & CHF

Thanks for the indicator!

If you guys have time to do that, I think it can be used as a filter with a scalper, such as Xtreme, Enterra even FAP so that to extend the time of trading EURCHF and PT's as well.

What do you think?

yaron222 · September 13, 2009

Re: Hedge Trading #1 - EUR & CHF

link dont work can you try again [-O< [-O<

Starting · September 13, 2009

Re: Hedge Trading #1 - EUR & CHF

link dont work can you try again [-O< [-O<

Mirror for you:

http://www.forexsharing.com/247253

APopovA,

I do support if we at least can make better entries on EURCHF out of experience earned in this thread. 8-)

Don · September 13, 2009

Re: Hedge Trading #1 - EUR & CHF

Yep, this or that way, but it will be catched at the end! :))

Nice indicator!

yaron222 · September 14, 2009