I thought about it as a Net of EUR/CHF at first…but I forgot a major point of this system.
Because of the high correlation % between the pairs, it is like having a constant hedge. If you are trading EUR/CHF and it goes down, then you are in a loss and there is nothing to help with the downdraw. But in this case if one currency is on a major downdraw the other is adding to your balance keeping your risk at a low level. Look at a horrible case.
EUR/USD goes on a massive drop from 1.5800 to 1.4600. I think we would all agree this is a massive drop. That would leave open positions at 1.5800,1.5600,1.5400,1.5200,1.5000,1.4800,1.4600.
If the 95% correlation holds true (as it has for years) then in this case the USD/CHF would have banked you 200 pips for every new open position on EUR/USD so that would be +1200 in the bank.
At this period, that 1200 is really just helping you hold all the open positions, but once we average the EUR/USD out to find our T/P for those open positions = t/p of 1.5200 we are waiting for a 600 point swing to close them at a break even point. If that were to happen, the USD/CHF is going down 600 points and has some open positions…as of right now in this idea you woudl be at:
+1200 usd/chf
+0 (break even) from eur/usd
-600 usd/chf (from the 600 point swing in eur/usd)
total = +600 pips.
sorry this is so long…this is how I looked at it to finally understand the way this system works.
PIP CHASER, Could you let me know how I am off on the averaging of positions…I though I had a grasp…but I could be wrong. I have been wrong before, and will be again LOL. Here is how I thought it worked
Open a long position every time we see a 200 pip drop, so as my example above.
Then to average the positions…just add them up (1.58+1.56+1.54+1.52+1.50+1.48+1.46) = 10.64.
I then take 10.64 and divide by the # of open positions, in this case 7.
So 10.64 / 7 = 1.52
so 1.5200 would be the take profit for all 7 open positions.
Could you please advised where I am off on this example ?
EUR/USD Up 100 = +100 in bank, new postion open
USD/CHF down 100 = do nothing.
EUR/USD UP 100 = +100 in bank (total 200), new position open
USD/CHF down another 100 = 1st position at -200, new open position.
EUR/USD UP 100 = +100 in bank (total 300), new position open
USD/CHF down 100 = 1st position -300, 2nd position -100
MARKET SWING
We have +300 in bank from closed positions
we have 1 open eur/usd
we have 2 open usd/chf (average the entry prices, to come up w/ breakeven price) (300 + 100 = 400. 400/2 = 200) so 200 upward movement breaks even.
EUR/USD goes down 100 = 1 open position at -100
USD/CHF goes up 100 = 1st position -200, 2nd position = 0
EUR/USD goes down 100 = 1st postion -200, new position open.
USD/CHF goes up 100 = 1st position -100, 2nd position = +100
CLOSE ALL POSITIONS AT THIS POINT
From before the market swing we ended w/ +300 in the bank.
EUR/USD closed 2 positions, 1st at -200, 2nd position at 0 (-200 total)
USD/CHF closed 2 position, 1st at -100, 2nd at +100 (break even)
Therefore Nett is +300 in the bank -200 closed = +100.
I actually prefer how you add a position every -200 pips. I would average all losing positions together and then subtract 200 pips for my next buy limit. Thanks for showing your example.
I am just happy that this system works with numbers rather than indicators (which can be effective, but I think are mostly enhancing a person that can already “feel” the market).
I like this idea for a longer term trading…Once I get this down I will move on to learning bar actions so I can hit a few smaller trades…so at that point I will see you in your post TYMEN1 LOL.
A bit update on the optimum setting used for those who have downloaded my EA.
KAS_CORRHGv12B
Set MinMaxKeyPeriod= 200 (Instead of default = 40)
Set ProfitToCloseAll = 100 (Instead of default = 40)
Theory : This EA works with the concept of correlation between EU and GU and it will compare how much deviation of GU vs EU. It will Sell GU and Buy EU when the KeyValue is nearing the KeyValueMax and it will Buy GU and Sell EU when the KeyValue is nearing the KeyValueMin. So far, it has minimal drawdown.
If the KeyValue is in the middle of KeyValueMax and KeyValueMin, it will not take any trade.
KAS_CorrHgV13B
Set ProfitToCloseAll = 500 (Instead of default = 100)
The rest of the setting - used Default.
The default setting is based on Daydreamer’s method. Only thing with this EA u can have the choice of setting the EA to BUYOnly = true (that will perform BUY EU and BUY UC) and also SELLOnly = true (that will perform SELL EU and SELL UC). If you set both true, it will perform both.
This EA, will also have its control drawdown by limiting the number of Pairs open to Max = 2 only. And we have to wait to see the result only after a week, because daydreamers show his result weekly. I really hope that this EA is as profitable as daydreamer’s manual trade.
so far, i have run this EA with this setting for 3 days, it has closed 250 pips and it has open drawdown of -330, so it has net pnl = -80 pip currently.
I am signing off on this thread. I have started futures trading and have developed a good system for the DOW. Good luck to everyone using this strategy. As far as averaging, see an example on the 1st or 2nd page for those who are asking.
Why ??? OHHHHH WHY ???
Nah, really its all cool. Thank you for everything you have done on this thread, even though you are going to do futures, we hope you come and chime in every once in a while Best of luck to you.
Update (Only to those who downloaded and test my EA)
KAS_CorrHgV13B - maxdd = - 800 for one week test - so this EA does not work.
KAS_CORRHGv12B with setting of MinMaxKeyPeriod = 200 and ProfitToCloseAll = 100, so far it has closed 100 pips in 3 days, so 1 day = 30+ pip profit. Again, do not be surprised that this EA sometime it does not take any trade.
KAS_CorrTrV2A with setting ProfitToCloseAll = 40, so far the best setting that I have tested, for this past week, it fails to close the 40 pip profit, last 2-3 weeks has shown consistent 20 pips per day (but close 40 pips every 2 days). Nonetheless, the maxdd of this EA never reach above -150. So, it is still ok.
Introducing KAS_CORRHGv12C - with this EA u can change the Symbol1 = EURJPY and Symbol2 = GBPJPY so that u can trade these pairs also, other than EURUSD and GBPUSD. It has also AutoLot features that will calculate the number of optimum lots to be traded if you set it to True.
Introducing KAS_CorrTrV2B - this EA has been updated with AutoLot features also.
Happy testing, and please post to me the result of your testing.
p/s : my favourite EA is now KAS_CORRHGv12C. Test it to see why.
I just found this thread and it got me hooked, I couldn’t stop reading it till the end of the last post when I started to read it again to make things as clear as possible in my head. The main idea I got is that you open two opposite positions and keep adjusting the losing one which allows you to break even at a lower price than the entry - allowing the winning position to score profits in the meantime. Right so it got me thinking, wouldn’t the same thing be possible on one pair? We open a long and a short position at the same time, if the price goes up, we keep adjusting the short position so we break even at a higher price than the initial entry while the long position accumulates profit, vice versa if the price goes down.
I would like to ask if anyone is still using or trying this correlation strategy ? I am new to this correlation strategy and it sounds very interesting to me.
I have been trying this out on my mini account and have found quite a problem on this strategy. It seems like at one point through my test for the last week. The pips between this 2 pairs went off to about 200 difference. What i mean is that for Example when EUR/USD when up by 200 pips, USD/CHF was still almost at the same spot. Is there any ways to counter this problem ? Thanks in advance for any reply.
A trader can use also different pip or point values for his or her advantage. Lets consider the EURUSD and USDCHF once again. They have a near-perfect negative correlation, but the value of a pip move in the EURUSD is $10 for a lot of 100,000 units while the value of a pip move in USDCHF is $8.34 for the same number of units. This implies traders can use USDCHF to hedge EURUSD exposure.
Here’s how the hedge would work: say a trader had a portfolio of one short EUR/USD lot of 100,000 units and one short USD/CHF lot of 100,000 units. When the EUR/USD increases by ten pips or points, the trader would be down $100 on the position. However, since USDCHF moves opposite to the EURUSD, the short USDCHF position would be profitable, likely moving close to ten pips higher, up $83.40. This would turn the net loss of the portfolio into minus $16.60 instead of minus $100. Of course, this hedge also means smaller profits in the event of a strong EUR/USD sell-off, but in the worst-case scenario, losses become relatively lower.
Regardless of whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to be aware of the correlation between various currency pairs and their shifting trends. This is powerful knowledge for all professional traders holding more than one currency pair in their trading accounts. Such knowledge helps traders, diversify, hedge or double up on profits.
Half of the reason you would trade a strategy like this is to take the carry from the difference in interest rates.
I believe that at the time of the start of this thread the eurozone had the highest interest rates followed by the US and then the Swiss. So, the long on the eur/usd would give you a positive carry on that trade and the long on the usd/chf would also give you a positive carry. (for more about carry trades search this forum or google it).
If you were to long and short the same pair you would cancel out the carry trade aspect of the strategy.
Now, what I would like someone to tell me is this… If there is such a strong correlation between the eur and the chf and structuring the trade by opening longs on eur/usd and usd/chf simultaneously would keep you more or less well balanced between profit and loss (eur/usd up - usd/chf down) then why bother taking profit or loss?
In other words, what is stopping you just keeping the trades open on both and booking the carry every night?
I’m sure there is a good reason why this would be just too easy but I can’t see it right now. Maybe someone can help?
Im wondering what happens when a pair goes dow for a very long time, just like in the jpg im sending.
When i buy up from point nunber 1 till point 2 i have a lot of opend positions, and im loosing money on them.
Should i realy wait for the averang take profit of all opend positions?? The price hits that level near point 3, its a long time with loosing positions.
And what if the price would continue to go down ?
Is there a risk that my account would be closed?
What should i do? Or maby im dooing something wrong ?
