Position averaging to earn interest

[akeakamai]

Originally Posted by Andrewunknown

Long EUR/USD + short USD/CHF = long EUR/CHF. I know you know that akeakamai: just clarifying in case anyone became confused.

The inverse coefficient on these two pairs is normally very high, although never (except perhaps for very brief periods) -1; but EUR/CHF's range and volatility is not reliant on inefficiencies in the fiber/swissie correlation; remember that activity on cross pairs is not wholly (and sometimes not even mostly) derivative of activity on their base pairs.

Nope, I meant what I said the first time, because it's right

If they were confused before, they'll be doubly confused by now :P

[Andrewunknown]

Originally Posted by akeakamai

Nope, I meant what I said the first time, because it's right

I re-read and see what you're saying now.

Long EUR/USD + Long USD/CHF will create the hedge, such as it is, under the presumption that EUR/USD will continue to go up, yielding "passive income" through net positive swap. Maintaining the hedge is thus equivalent to bullish EUR/CHF sentiment.

[PIP CHASER]

Originally Posted by Andrewunknown

I re-read and see what you're saying now.

Long EUR/USD + Long USD/CHF will create the hedge, such as it is, under the presumption that EUR/USD will continue to go up, yielding "passive income" through net positive swap. Maintaining the hedge is thus equivalent to bullish EUR/CHF sentiment.

As the EUR/USD is going down the USD/CHF is going up giving us protection. I know this doesn't happen in lock step and that is when the drawdown enters the picture. This is what I would like to measure over a long period to see what the max drawdown would have been after building up 60 lots. Does anyone have any suggestion on doing this? We will continue to receive positive swap for both pairs as long as the country's interest rate says as is.

[akeakamai]

Originally Posted by PIP CHASER

As the EUR/USD is going down the USD/CHF is going up giving us protection. I know this doesn't happen in lock step and that is when the drawdown enters the picture. This is what I would like to measure over a long period to see what the max drawdown would have been after building up 60 lots. Does anyone have any suggestion on doing this? We will continue to receive positive swap for both pairs as long as the country's interest rate says as is.

Wow man, are you even reading the replies you're getting? We were just saying how EUR/CHF represents the imperfections in the hedge, and thus your historical drawdowns. Check the chart out.

But I hope you know that EUR/USD + USD/CHF isn't the only combo that results in positive swap, not sure why you picked those 2 pairs specifically for this idea.

[Andrewunknown]

Originally Posted by PIP CHASER

As the EUR/USD is going down the USD/CHF is going up giving us protection. I know this doesn't happen in lock step and that is when the drawdown enters the picture. This is what I would like to measure over a long period to see what the max drawdown would have been after building up 60 lots. Does anyone have any suggestion on doing this? We will continue to receive positive swap for both pairs as long as the country's interest rate says as is.

I am familiar with this strategy, but have never employed it for a variety of reasons, a couple of which are mentioned here. Let's just say the long-term feasibility of this is questionable at best; and the drawdowns that can be generated are unacceptable, despite the loss mitigation the hedge supposedly provides. I won't post a warning about this, because it's been done already.

A few years ago (2004? 2005?) when Freedomrocks (which I think was mentioned earlier in this or another thread on this strategy) began to take off, there was quite a bit of debate on this topic because it was the basis of FR's "income-producing" model. A lot of individuals involved in FR - of those who actually traded - had initial success but when on to blow up their accounts once conditions beneficial to hedging subsided. You may be familiar with this.

The only real means of figuring the outcome of the scenario you've mentioned is to model it by backtesting. You might search around for posts on FR or something like "EUR/USD USD/CHF hedge" because there is no doubt a lot of material on this subject to be found, some along the lines of what you're looking for.