Statistical Arb/Pairs trading strategy!

[OOPs]

It's Eur/Usd and Usd Chf, 1 hour chart though,
looks good for the S&R.

[pipcompounder]

UPDATE: just closed my EU GU pairs at 25pip profit...$2500!

[OOPs]

GZ!!! What was your DD?

[guandi]

Hello pipcompounder,

are you using MT4 and using the overlay method?

best regards.

- guandi

UPDATE: just closed my EU GU pairs at 25pip profit...$2500!

[pipcompounder]

I WISH!...right now, i'm experimenting putting two identical sized charts side by side and comparing the latest price gap on an Ipad, using trade interceptor, that last trade was 10 lots on each side, just for reference sake, not using MM...this trade only went another 10 pips against me (more expansion between prices of pairs), before slowly coming together...GU was very high and then came way down, EU was low and went even a little lower. GU shows actually below the EU right now.

it would be ideal for me, if I could do the MT4 overlays like Kelton, but it's not applicable for me.

[Jedster]

UPDATE: just closed my EU GU pairs at 25pip profit...$2500!

What lot size are you trading and how does that equate to the size of your account in percentage terms.


I have an EURGBP trade running as well. Entered probably at a very similar time as you, just after the opening last night. It is currently about +1SD in profit (around 15 pips). I am just deciding whether to close out for profit now, or whether to set the SL to b/e and target another +1SD (which would see the price back at the mean, since I entered when it hit the -2SD).

[Jedster]

It's Eur/Usd and Usd Chf, 1 hour chart though,
looks good for the S&R.

I have a bit to say about this. Firstly, I love trading negative correlation. I think that those trade can often be more profitable than "normal" correlation trades. Not sure what it is about negative correlation that makes it different, but definitely something to consider.

However, there are reasons why that pair you used as an example are so highly correlated and you need to be careful trading it. If you trade EURUSD/USDCHF correlation, you are effectively trading the EURCHF. The EURCHF has very little volatility at the moment. Even from a month ago, the vol has reduced. The result is that the EURUSD/USDCHF is highly (inversely) correlated. I doubt you will ever see such a good example of negative correlation as this.

There are not many opportunities to enter at the moment, and when you do, you target will be between 5-10 pips. You might be lucky and squeeze 15 out of it. This is because of the cap on the EURCHF that is being maintained by the SNB. That said, I personally think when these trades come along they are very reliable as, providing you are on the "correct" side of the trade, there is almost zero downside. I am in a correlation trade right now, long EURCHF from the 26th April.

It won't stay like this forever. Either the SNB will intervene again, or the markets will start to take on more risk and vol will increase.

The point to remember is that, the SNB could intervene and increase their cap on the EURCHF at any time. You do not want to be long CHF when that happens. If you are, either through the synthetic, or direct EURCHF, you will literally see your account go down the pan in a few seconds (if you want to see an example, pull up a EURCHF chart from September 6th last year and work out how much you would have lost if you were long CHF).

So, word of warning. Go ahead and take net short CHF positions while trading this strategy, but if your position is net long CHF, be very careful....

[pipcompounder]

-jedster, as briefly noted, the lot size was just selected to use as reference for crunching numbers...paper trading, not actually trading with money management on this particular trade, it was 10 lots per pair, 20 total lots in...the $2500 was just for celebration, I am still trying this way of watching the charts on my Ipad, to see if it works. For 50k demo account, 1 lot on each pair would have been realistic trade.

[timehopper]

UPDATE: just closed my EU GU pairs at 25pip profit...$2500!

Congrats on another successful trade. And Thanks for telling us when you got in, at the time you did it so we could follow along.

[pipcompounder]

Since eu shows 20 pips above gu right now, i'm selling eu and buying gu....20 pips between....1 lot each....will update.

THIS IS ON 1 MIN TF, AGAIN.