Innovative hopes it make you money mate
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ok @Orion80 just to be clear. Arbitrage, HFT ( High Frequency Trading ), Scalping, these trading methods are using by hedge funds and investments banks with millions / billions of capital, they have knowledge, infrastructure, and of course funds to do it properly. How you will imagine trading in this field?
Well @Profesorpips…
I’m not sure that you know what knowledge means. You just throw it in this post to make it sounds more professional.
If you want to succeed in any field, trading included, you must be aware that you can achieve all the knowledge required if you want.
I described a strategy and that’s all the knowledge required to apply it.
And i remind you that with today technology everybody can achieve High Frequency Trading from the laptop in your room.
You also mention millions of capital required in your post. Do you know the magic of trading? It is that if you can make 100 you can make 1000 thousand, if you can make 1000 you can make 10000, and so on…
If you read some biographies of successful trades, you will know that they all started small.
The way you speak of the money of the investment banks and founds make me feel you think they are the evil and that you just dream some of their money but you never took what it takes to get your slice of the pie.
My suggestion before making such out of place posts is to go and read for example “Market Wizards Books” to get some enlightenment.
I simply posted my strategy idea if you have some constructive/destruction opinion in this format:
In my opinion it may work for X/Y/Z reasons.
Or
In my opinion it may not work because didn’t consider spread. Or because the divergence wouldn’t be enough big to have a margin. Or your assumption is wrong because in my experience chart can diverge for such long time that drawdown would be too much.
I mean, any constructive critics would be accepted.
But not some word throw in air as fried air…
you know what @Orion80 ? you are right, I should comment every aspect of your trading strategy because you are written very nice post, and you are new on the forex market, I should give you every information “on the plate”, but you are so smart… you will handle with all aspects 
@Orion80, I think this is quite a clever concept to setup and try… Outside of the box thinking… Excellent!
Maybe get someone to code a Bot/Indicator that can track the movement and send notifications to you when your strategy is pushing the outer limits of elasticity, via percentage or distance from each other.
If you are confident of a retracement once your strategy has stretched. Maybe drop Stop and Limit (Pending) orders behind levels rather than open positions and guarantee drawdown. No doubt, Price will stagger looking for liquidity and possibly open these as well… But it’s just an idea.
You will struggle to put these instruments on the one chart, their prices vary too much.
@MattyMoney I believe is on the right track, Dennis’s SWA thread loosely uses this concept to formulate the strength and weakness of currencies by their distances above and below the MA200…
And I hope I have understood your theory correctly? A formula something like XAUUSD - XAGUSD / XAUUSD… say as percentage or maybe a distance (price)
var divergence = Math.Abs(XAUUSD[index] - XAGUSD[index]) / XAUUSD[index]; {0:P2}
You just have to flesh out the elasticity /arbitrage levels… And have them adjustable to cater for various instruments (pairs), volatility and time frames.
It will be pretty easy to code for MT4 (C++), maybe get some quotes… I code but not for MT4/5.
I wish you Good Luck with the strategy.
Edit: I crash coded this up to give you an idea of what it might display like…
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Sorry I left you hanging here, I’ll try to explain…
Similar to what I’m doing in my thread here and also more recently here. Trading the 2 currencies stretched furthest apart, looking for a retracement. But this is different from what you are doing because I’m not factoring in any correlation.
You can use this on any time-frame, but of course the question is when to buy and sell. If you looked at a few areas where prices separate you can probably come up with a min/max percentage/pip range that will trigger a buy/sell based on historical levels.
TradingView gives you the ability to overlay as many different instruments as you want. Here I’ve overlaid Gold and Silver/USD on the 5 min chart:
…but it’s not right, the Gold line (dark blue) has been compressed due to the difference in the price scales (I’m assuming). I like what @Trendswithbenefits did with his, that’s perfect.
I don’t know if this was of much help, but it’s good to throw ideas out and see what sticks.
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Thanks a lot for your reply! @MattyMoney
I think I understood the concept around the 200MA from the link to your second thread posted above.
You calculate the distance from the closing price from the 200EMA for all pairs with JPY.
Than you pick the one with the biggest change from previous day, and place your trade.
So I can do the same for example for XAUUSD and XAGUSD and check at the closing of the candle which one of the 2 is more far away from 200MA.
And then place the 2 trades according which one is more far away and one more closer to the 200MA.
I need to perform some calculation about this to check if it may work.
Yes the problem is to understand when exactly to place the buy/sell.
And you made me come up with an idea.
But first let me tell you that few days ago I also found the ability to overlay 2 pair in trading view. And also found a free indicator on internet for MT4 to overlay 2 chart.
As you said, your chart is not right. It’s because one instrument is scaled. Basically the price of the second instrument is in the form of the first. (Note: actually in trading view you can have price of one instrument as usual on the right, and price of the other instrument on the left).
This leads to distorsion. Distorsion can be in the form like your Gold chart, or can be a distorsion with the price of the second instrument sliding up and down while you scroll left and right the chart (it can be seen in trading view when you put 2 pairs on the same % scale).
For short term trades that last few candles, like those on the 15 minute tf, this distorsion is less impacting on the outcome of the trade I think.
But let’s go back to the idea you just made come up in my mind.
You wrote “If you looked at a few areas where prices separate you can probably come up with a min/max percentage/PIP RANGE that will trigger a buy/sell based on HISTORICAL levels.”
So that I commissioned on Upwork an EA which produce an excel files with the closing price of all candles (Both Main Pair and Overlayed Pair) and when I have this excel file I’ll do the difference of all the closing prices, which is the distance/pip range.
I also have already downloaded historical data for gold/silver from 1 January till 31 June.
And in file excel I’ll see which is the most convenient distance ON AVERAGE where to place buy and sell, in order not to have excessive drawdown.
I’m expecting this distance will vary month by month, semester by semester, (HISTORICAL LEVEL), and so it will be needed to be adjusted regularly on the run.
And if the analysis make sense for Gold/Silver I’ll repeat fot the other correlated pair. Only negative side is that I think it is time consuming.
Yes, it was of a lot of help! Or at least gave me an excellent option to be explored.
Thanks!
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Hello @Trendswithbenefits
Thank you for your post!!!
I’m trying to understand the formula that you wrote:
“XAUUSD - XAGUSD / XAUUSD”
What will give me?
A parameter that is higher when the distance increase and that is smaller when the distance decrease?
About elasticity / arbitrage levels I come up with an idea which I explained in my previous post in answer to @MattyMoney
It exactly involves to identify which is the ideal distance of pips (levels) where to place the buy/sell, not to end up with to much drawdown.
But to identify them it involves a lot of manual calculation in excel, for each couple of correlated pair.
Could be your formula (XAUUSD - XAGUSD / XAUUSD) a shortcut alternative to my Manual calculation? Maybe is that thet you mean?
Sorry Guys @MattyMoney @Trendswithbenefits
I just come up with another question.
Let’s say there is an Arbitrage Divergence on Gold / Silver and I want to Sell Gold and Buy Silver.
If I sell 1 Lot of Gold, how many lots of Silver should I buy?
Which is the formula to sell/buy the same amount on 2 different pairs?
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Thanks mate!
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Interesting idea. I’ve done some analysis on the daily charts and there’s certainly possibilty here. What is very clear from the charts though is that market sentiment is the big driver in the difference. Risk off and gold is up to twice as much relative to silver as risk on markets.
What I am looking at is something interesting in using gold/silver divergence to give buy or sell signals for indexes. This looks very promising on larger time frames, but it’s a pig to code with one hand so going to take me a while. I’ll post the results here when I get somewhere
Thank you! @chesterjohn
I appreciate your feedback.
I’ll wait for your results.
I believe in sharing is caring.
I have one question. You wrote:
I’m not native English speaker and I don’t understand the sense of this sentence. Can you explain it with other words, please?
Thanks
If you take XAUUSD/XAGUSD, the ratio is typically about 75. In risk off ie covid and now that is about 120, in risk on, it’s about 60. That’s a very big difference and seems more based on sentiment than an opportunity to trade divergence.
I think I have just learned a new English expression 
Risk off and Risk on. It’s the first time in my life I see them…
Keep plugging away, I’m sure you’ll eventually find a solution that doesn’t involve a ton of data entry. But it sounds like you’re off to a good start.
I don’t think you’ll necessarily need to buy and sell at the same time for the most part. Chances are you’re looking for a big(ish) move on one or the other. For example, suddenly silver dips but Gold doesn’t, no need to sell Gold, just buy the Silver dip.
As far as opening positions, I don’t base my trades on position sizes, I base them on my risk factor. I don’t want to risk $1,000 on one trade, so instead of buying by the lot I buy by the unit. BP has a risk calculator for that. TradingView also does the calculations for you, but your broker has to allow it as well. For example, MT4 platform only lets you buy micro-lots, but if you use MT4 through a broker such as OANDA (I’ll use them as an example because that’s who I use), you can trade as little as 1 unit.
Here, I only want to risk $100, but my trade is going to be obsolete if price hits 1780.000. So I fill in my parameters and it tells me how many units I can open:
Here, I’m feeling confident and want to risk $1200, same SL:
But I would never risk that much because it’s way higher than 1-2% of my account.
Know your risk before you place your trade or you won’t be trading for very long.
I think there is risk in trading only 1 pair.
Let’s take your example:
Silver dips and we buy Silver.
We expect that Silver goes up again.
But instead also Gold dips and the both keeping going down.
If we trade only Silver we will have a loss on Silver.
But if we trade both, when also Gold dips we are on Sell on Gold in profit. And in Buy in loss on Silver.
When they cross each other again we have a Net position of the 2 trades in profit.
So if you trade only one pair you don’t have the “Cover”.
I though to trade this strategy without stoploss. When we are in loss on one pair, we are in profit with the other. Having this kind of Cover we can trade without stoploss.
I know trading without SL is a bad habit, but given the typology of strategy with the Cover I was thinking to trade without SL.
What your thoughts on trading this strategy without stoploss? Do you think there are chances to blow the account?
Let’s say that I analyze data for 6 months for EURUSD and GBPUSD. I will know during this 6 months which have been the maximum drawdown for the strategy, when the elastic kept enlarging even more after trades were placed, and I’ll adapt the lots in order to have this max drawdown at 2%/3% loss of the account.
But in order to adapt the lot I need to know how many lot of silver compare with one lot of gold. Which is the formula?
You mention “BP” in your post. What does it stand for?
Can I ask you a question Orion if they are guys making good profits with simple “strategies” what is the motive complicating things it’s as though the achievement s is finding a unique "method " not the profitability
I can’t remember how CFD for gold/silver works. On a spreadbetting account, it’s a bet per point, so that’s easy to work out. You might need to try opening a trade for both to work out what ratio you need.
It’s not even that simple, because although they are correlated ie the graphs look very similar, they don’t move together in the same ratio. Market sentiment drives them. For instance if you’d bought silver and sold gold in 2019/2020 because they diverged, you’d have had more than 6000 pips drawdown because gold went very far away from silver. That did of course come back eventually and is an extreme case, but I can see it over 3000 pips a few times. Probably a better strategy in a ranging market once everything has settled down
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Great example of why you need stronger risk control than relying solely on correlation.
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If you’re trading one long and one short then you’ve got some protection in the form of hedging. But there are always other factors that you don’t think of until they happen, and trust me, they WILL happen.
Figure out what your risk tolerance is and if it gets there, cut the trade off, whether it’s with an actual stop loss or a mental one. But in my experience, mental stops don’t get triggered as effectively. Once your trade goes beyond what you’re comfortable with then there’s no going back and it can quickly spiral out of control.
I would strongly suggest running this strategy through a demo account for a few weeks just to get a feel of what could and will happen. Either that or use the smallest position sizes available.
Babypips.