Statistical Arb/Pairs trading strategy!

[Kelton]

Hello world! My name is Kelton and this is my strategy.
It has been know by names such as statistical arbitrage and pairs trading.

Basically I find two currencies that are highly correlated. When one goes up the other follows
the same amount roughly. What I do is wait untill something upsets the two currency pairs
that makes them fall out of correlation. Then I buy the underperforming currency and short
sell the over performing currency at the same time and the same lot size. Eventually these
currencies will go back to their normal path and touch again. I then close both orders and have
now profited the distance between the two when I opened the orders. It is considered a market
nuetral position because as I am losing on one order I am roughly making the same amount on
the other order. Until they come back to eachother and I profit.
I am up 43% of my account in 13 trades. Every one has been profitable so far.

Examples of correlated currecies are- EUR/USD AND GBP/USD, NZD/CHF AND AUD/CHF...
USE FOREX TICKET TO FIND CORRELATION NUMBERS. ANYTHING ABOVE +.80 IS GOOD.
ANYTHING BELOW YOU SHOULD NOT TRADE. I USE THE 5,15,AND 30 MIN CHARTS.

PLEASE LET ME KNOW HOW YOU DO ON THIS STRATEGY IT IS VERY POWERFUL.

THANKS FOR READING.
KELTON W.

[sufiansaid]

Very interesting. Any chance to see any trade/chart examples?

[TalonD]

I've done similar with eur/usd and gbp/usd with some success. But in that case you're actually trading the eur/gbp pair

[Goodyman]

Can you give more examples of co-related pairs?

[LiveForexTrading]

I've seen this traded successfully with stocks, however I'm sceptical it will work with forex. Talon D is right, you are basically just trading a combination of the pairs.

[Kelton]

I have traded it successfully. I do not use a correlation indicator like
I used to because it rescales itself and throws everything off. But am so far positive 14% in two weeks.
I trade EUR/USED and GBP/USD because of the low spread. But AUD/CHF and NZD/CHF is a good one
Too as well as EUR/JPY and CHF/JPY. But you need a pair of currencies that is
Not too correlated or you will never beat the spread. A lot of jpy currencies
are extremely correlated. Ill upload what my chart looks like in a bit,

[LiveForexTrading]

Hi Kelton,

That's interesting. Do you do it manually, or have you got an automated system?

[kidninja]

I use statarb myself too. So far, made 16% roe in just 3 weeks and using 2 pairs. I wonder are you using countegration to determine that the pair is out of sync? And you mention 18 trades you have done, what time frame are you talking about? I ask because i am still optimizing my system

[Kelton]

I do it manually I dont trust automated systems personally. And as for kidninja I do not use like a typical standard deviation
to signal a order, i overlay the two currency charts not using an indicator though, I use my own method but when the pairs lets say on EUR/USD AND GBP/USD are roughly 20 pips apart on my chart I open an order and if they hit 40 pips apart I open
another order and the same for 60 pips apart so I would have a total of 3 orders and 6 open positions. I would then close all
positions when the two charts come back together and touch. I use the 1 min time frame which can get about 2-9 orders in a
day and then monitor the charts every once and a while untill they come back in sync. And make sure on the 1 min time frame you are totally zoomed out in mt4. because different time frames will distort the graphs and make it worthless. Its taken me a long time to develop this strategy I hope it helps everyone be profitable. The picture below is what I look at.

[Kelton]

I do not use any other time frame besides 1 min zoomed all the way out. The other ones do not work well.