Statistical Arb/Pairs trading strategy!

[medisoft]

I do that also I use harmonic patterns for trading, and after reading this thread of statarb I started looking for correlated pairs trend, and also for deviations from the mean to increase the probability of the trades.

I did a little job on harmonic, because I'm fully dedicated to statarb, but the results for the small trades I did were very good

On a slightly related note, trading the correlation, and the general disacussion on this thread has really improved my general inter-currency awareness.

I've just taken a long AUDNZD position, not based on correlation, based on completely different setup. I also took a short AUDUSD position, again with different targets and based upon a different setup. However, those two together combine to create a synthetic short NZDUSD. I was comfortable taking these two trades because, when looking at the NZDUSD chart it has been broadly trending down since the end of April (although it has retraced a little recently), but I am happy with that.

My point is, I was aware of the synthetic position (as a result of trading the correlation) and used that information in my analysis which eventually gave me the decision to take the trade. I was simply not considering this type of analysis a year ago, and even if I'm not actually trading this strategy, the knowledge can still be used whilst taking other trading decisions.

I guess that's a very wordy way of saying, the ideas presented here are always worth considering when taking several different positions...

[medisoft]

Someone with good knowledge of statistics here?

If I want to determine the TP and SL of my trades using a sample of trades, measuring from the open time to the max time I permit the trades to be open all the moves, marking the peaks and valleys of profit and loss (peaks are when the profit was at a max value and returns to zero, valleys when the price is when the price was at a min value and then returns to zero).

What I want to know is if is correct to calculate the average profits and loss separately using all the positive results for the median value of the profit and the negative results for the median value of the loss, and then use the same values for the standard deviations, or I should be using all the data including all the peaks and valleys to calculate the median and then get the standard deviation on that set of data.

Thanks.

[FXEZ]

What I want to know is if is correct to calculate the average profits and loss separately using all the positive results for the median value of the profit and the negative results for the median value of the loss, and then use the same values for the standard deviations, or I should be using all the data including all the peaks and valleys to calculate the median and then get the standard deviation on that set of data.

Thanks.

If you're attempting to determine the median open time for profits and losses separately then you'll have to calculate them separately. If you want to determine total median open time, then you'll combine the two and just calculate a single number for all open times. It sounds like you're looking to do the first of these.

[christinaa]

Thanks Medisoft for the thorough response. Your new TP of 7 pips. Does that include the spreads?

[medisoft]

yes, 7 pips of net profit after the spreads. I limit the spread to 4 pips for each pair. Of course, less is better.

Thanks Medisoft for the thorough response. Your new TP of 7 pips. Does that include the spreads?

[pogibaby1]

I am currently using the trading pairs GBP and AUD. I was trying to avoid the EUR. What pairs are ya'll using? Is there a pair that is better to use then others. I did check the correlation tables.

Thanks

[OOPs]

I have been avoiding eur too, as well as chf

Anyone notice that everything seems to be really correlated today? as in not many opportunities ?

[marijan993]

I've been trading EU/GU constantly. Had no problems, all trades ended in profits. Today I traded only late NY session, I've been busy earlier, but I still made 7 pips.

[forexspb]

I have been avoiding eur too, as well as chf

Anyone notice that everything seems to be really correlated today? as in not many opportunities ?

Yes it is.

[christinaa]

AAAAAHH my brain is on fire...oh, man! this thread is like fertilizer for my brain! I can't stop coming up with stuff....

anyway, so can any and everybody tell me if they have had more than a 200 pips of drawdown against them with this strategy, ever? what I'm saying is I'm with you Timehopper, as far as no stoploss, because correlation should always eventually come back, at least enough for profit, so I'm thinking no stoploss at all, too, and if 200 pip is max DD ever known, then if I had $1000 account, I could trade just less than 0.4 lots at 1:200, $200 in, with $800 left which at 200 pip DD would hit $0, blown account...of course I wouldn't risk this much, but maybe half?
0.2 lotsX20 pipsX2 trades a day=$80, which is 8% profit total, 4% each trade, each trade could have had 899 pips DD and then come back up to profit...am I getting somewhere?

Pipcompounder did you end up trying that out?