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.
You are right @MattyMoney
I performed a back test and in few occasion drawdown exeeded 100 pips and in one case over 200 (using 15 min candles).
A stop loss is mandatory.
I’m going to crete a post about the system I found wich allows me to pinpoint the triggering of the trades and falling in smaller drowdown as consequence.
Backtest result is positive, but I tested only one month, for the correlation EURUSD/GBPUSD, so not so that reliable yet, but at least I can start to be a little optimistic about the strategy.
Manual back test took almost 2 hours, definitely I’ll look for a developer to code me an EA that can perform the back test for me.
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I found a system to decide when to open trades trying to spot the optimal level in order to get smaller drawdown.
It is by using the Deviation Standard (1.5)
Let’s say we want to test the strategy with AUDUSD and NZDUSD on 15 min timeframe.
Their Ratio is: (AUDUSD/NZDUSD)
I calculated 1.5 Deviation Standard with Period 20.
Everytime the Ratio close above 1.5 Deviation Standards we:
SELL AUDUSD and BUY NZDUSD.
Everytime the Ratio close below 1.5 Deviation Standards we:
BUY AUDUSD and SELL NZDUSD.
When we close the trades?
Everytime the Ratio cross the Ratio AVG.
We also set Stop Loss in around 50 pips max distance between the 2 Pairs. It would be good to place the SL in $amount for the 2 position i.e. -50$.
If the NET position of the 2 pair reaches -50$, the 2 trades will be closed.
I back tested only 1 month for now, as the manual backtesting (I’m performing it manually in excel with historical data downloaded from internet) is very time consuming. It took almost 2 hours to get 1 month worth back test.
Definitely I’m going to find a developer who will code it for me, as this one month back test gave a profitable result, and make me feel optimistic. With around 50/100 trades opportunities triggered (so, as they pairs go in couple, it is 100/200 trades for 50/100 opportunity triggered).
With all rules set in place the EA can run 24/7.
I’m eager to have results from all correlated pairs, to see which one is more profitable.
Please let me know what you think of this solution.
I always thought math would have not helped me in buying bread, but now it is showing herself very useful! 