Correlation trading - no charts required

[toddanderson]

so you are just entering at any random time,point ? or right after you close your first set for profit, than you are entering again ?


With my hedge trading live buying both the euro/usd and chf/usd
i am generally into profit much faster if the euro/usd moves up
So I look at the Index of the euro,chf,dollar and try and see what direction the euro is going. If the euro goes down i am into draw down for a while until
it goes back up

Originally Posted by daydreamer65

The answer is in the 1st line.

[PIP CHASER]

Buy both pairs at the same time to start the cycle. Follow the rules that I listed. Try this on a demo account before going live. Also, use very small positions in the event a long term trend begins. If you still have any questions just let me know.

[SolomonZhang]

Hi Pip_chaser

1st I would like to thank you for sharing this strategy. I'm always amazed by hedging strategy.

I have a question though. How do you handle strong market movement that is against you?

E.g.
Oct 15 1999 until Oct 26 2006 eur/usd downmove = -2692 pips
Mar 11, 2005 until Nov 15 2005 eur/usd down for -1842 pips

I've been trying to solve the drawdown of that eur/usd position. I think it would be something like this:

#1
1.3482 11 mar 2005
BEP 1.3482

#2
1.3482 11 mar 2005
1.3282 18 mar 2005
BEP 1.3382

#3
1.3482 11 mar 2005
1.3282 18 mar 2005
1.3182 21 Mar 2005
BEP 1.3315

#4
1.3482 11 mar 2005
1.3282 18 mar 2005
1.3182 21 Mar 2005
1.3115 22 Mar 2005
BEP 1,3265

#5
1.3482 11 mar 2005
1.3282 18 mar 2005
1.3182 21 Mar 2005
1.3115 22 Mar 2005
1.3065 23 mar 2005
BEP 1.3225

#6
1.3482 11 mar 2005
1.3282 18 mar 2005
1.3182 21 Mar 2005
1.3115 22 Mar 2005
1.3065 23 mar 2005
1.3025 24 Mar 2005
BEP 1.3192

..... (too lazy to count)

Is my counting correct? If it is correct, than your strategy would take an awful lot of lots. That's not including the new pair to hedge. Isn't this dangerous?

Well, maybe I've done something wrong here.

Could you give example of how you solve this problem?

Regards,

[daydreamer65]

1. Usd/Chf for the period Mar 11, 2005 until Nov 15 2005

+1802 pips. (Eur/Usd -1842)

2. Usd/Chf for the period Oct 1998 until Oct 2000

+5570 (Eur/Usd -4176)

So if your analysis showed to place an order at the exact time on
each of these pairs, in 1. Positive pips 1802 minus negative pips
1842 = loss of 40 pips.

2. 5570-4176 = a gain of +1394

But this empirocal data cannot be interpreted too much as
the interest rate differential needs also to be calculated, was
there in fact a positive differential as there is now.

The answer to your question is the pips from the positive long
trade are in the bank, which should cover any continued drawdown.

Also take a look at the thumbnail, this is a correlation table for
pairs against Eur/Usd, note that a negative correlation means the two currency pairs correlate in the opposite directions, see Usd/Chf.

So while the Usd interest rate stays low there is a postive carry
between these 2 pairs. Not a great deal, an increase in Euro interest
rates would be nice, but every little helps.

Update 29th June 2008 (3rd week)

Closed profit 1440 pips

Open DD 850 pips (Usd/Chf 4 trades, Eur/Usd 3 trades)

[Muscleboy]

Hi,

I would like to ask if anyone is still using or trying this correlation strategy ? I am new to this correlation strategy and it sounds very interesting to me.

[Muscleboy]

Hi,

I have been trying this out on my mini account and have found quite a problem on this strategy. It seems like at one point through my test for the last week. The pips between this 2 pairs went off to about 200 difference. What i mean is that for Example when EUR/USD when up by 200 pips, USD/CHF was still almost at the same spot. Is there any ways to counter this problem ? Thanks in advance for any reply.

[futureBLESS]

this helped me understand better...

A trader can use also different pip or point values for his or her advantage. Lets consider the EURUSD and USDCHF once again. They have a near-perfect negative correlation, but the value of a pip move in the EURUSD is $10 for a lot of 100,000 units while the value of a pip move in USDCHF is $8.34 for the same number of units. This implies traders can use USDCHF to hedge EURUSD exposure.

Here's how the hedge would work: say a trader had a portfolio of one short EUR/USD lot of 100,000 units and one short USD/CHF lot of 100,000 units. When the EUR/USD increases by ten pips or points, the trader would be down $100 on the position. However, since USDCHF moves opposite to the EURUSD, the short USDCHF position would be profitable, likely moving close to ten pips higher, up $83.40. This would turn the net loss of the portfolio into minus $16.60 instead of minus $100. Of course, this hedge also means smaller profits in the event of a strong EUR/USD sell-off, but in the worst-case scenario, losses become relatively lower.

Regardless of whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to be aware of the correlation between various currency pairs and their shifting trends. This is powerful knowledge for all professional traders holding more than one currency pair in their trading accounts. Such knowledge helps traders, diversify, hedge or double up on profits.

[mtandk0614]

Hello fellow traders.

I have been away from Forex for awhile and am just getting back into it. After thinking about it for a month or so, this was the "system" that I had the most fun with and the most laid back trading that actually made me some money.

I see this thread has died, so I am gona do a little CPR on it and get it going again. So.........lets get started.

Open E/U @ 1.4655
Open U/C @ 1.0310

Happy Hunting

[mtandk0614]

Woke up this morning
E/U was + 181 pips
U/C was - 124 pips
Closed both positions

Opened E/U @ 1.4839
Opened U/C @ 1.0189

Day 1 = +57 pips

[xtraction]

Is this the correlation email that just about everyone has received?