I haven’t looked at this strategy for some time but get the occasional PM about it. Here’s a PDF that may help you understand spread trading with correlated markets that I am currently working on.
SP500_DJIA_Spreads_Final.pdf (647 KB)
Hello fellow traders.
I have been away from Forex for awhile and am just getting back into it. After thinking about it for a month or so, this was the “system” that I had the most fun with and the most laid back trading that actually made me some money.
I see this thread has died, so I am gona do a little CPR on it and get it going again. So…lets get started.
Open E/U @ 1.4655
Open U/C @ 1.0310
Happy Hunting 
Woke up this morning
E/U was + 181 pips
U/C was - 124 pips
Closed both positions
Opened E/U @ 1.4839
Opened U/C @ 1.0189
Day 1 = +57 pips
Is this the correlation email that just about everyone has received?
I havent recieved one…so I am not sure what it is…
I did this system over a year ago, and kept doing it on and off for awhile. I have just decided to start doing it again now that I am back into forex and will post my results.
Looks interesting
I remember reading this correlation thing some months ago. I did some searching again and I found that “Big Pippin” (somehow goes by another name on another forum but when you check the codes, it says property of “Big Pippin”) did an ea on this… said he was new at programming in that thread. I dunno what happened to it( how profitable it is) since there is no more continued threads or any ea manual to show how the ea actually work.
Google it and you will probably find it.
And I hope Big Pippin in this forum is actually him and if he is, he could shed some light onto this.
Woke up this morning, checked my trades.
E/U is + 45 pips
U/C is - 34 pips
I am going to leave both positions open
and see if we get a breakout of either currency, I could close for +11 pips today, but I prefer to wait for at least a 30 + pip spread before I close my positions…lets see what the day provides
Same positions as yesterday…right now they are
E/U is + 29 pips
U/C is - 27 pips
Still going to keep these open. No reason to close them as-is. Market is moving very slow right now but thats OK, we will show some patience and see what happens
I don’t quite get it. If they move in opposite directions and cancel out then where does your profit come from ?
Here is the example I gave earlier in the Thread:
ah, Ok, now I get it.
Did you buy or sell E/U & U/C…?
Therefore Nett is +300 in the bank -200 closed = +100.
Hope that helps a bit.
It does not help one little bit if you only disclose pip results per trade and pair traded respectively.
You are keeping PA opaque by not disclosing entry, exit points and the direction of your orders aka Buy/Sell.
If I am getting it right and from the first post which simply says do a long trade, seems like short trades are not done? However I think the concept is simply to trade the same direction on both pair. Since they move in opposite directions you are basically doing a hedge, where a buy on one cancels out a buy on the other. so a sell on both at the same time would be just as valid.
Also it seems PA is irrelevant since they cancel each other out. You just enter wherever price happens to be.
So you are getting your profit as long as price bounces up and down in a range.
The trouble with this is when it takes off on an extended trend.
I think in one of the past posts it was suggested to take a look at long time history of these pairs to see how far they go in trends and size your lots so that you can handle the eventual trend when it comes, without getting margined out?
Well that’s the basic concept as I read it. Am I right or wrong?
My understanding of this is all orders are a buy entry is at any price exit is a set number of pips from entry, based on the rules at the beginning of this thread.
I still don’t have a clear understanding of how this works. I can follow the example posted but I would like to see an example that shows a losing scenario with some significant drawdown. I might try this on a demo to try and figure it out.
Really…? 
Well…I recommend a look @ this…
And after that I would overlay the charts…let’s start with EURUSD & USDCAD pairs.
I don’t mean to say that I think PA is irrelevant, just that the strategy as posted here in the thread seems to adopt that premise as far as where to enter, that is.
EUR/USD and USD/CHF the only 2 pairs used in this strat.
Looks like reverse correlation to me I still have a hard time understanding how you can make money with this as it looks like any move would be canceled by the other pair. I will have to try this next week so I can see how it works.
Shr1k I look forward to hearing your results.
I get what it’s doing. But too much going on so I’ll wait and see how it works out when you do it.
How do you do the superimposed chart with both pair?
This looks like an interesting idea:
The Giant Flaw In Correlation Trading (UPDATE) : MarketClub Trader’s Blog
Lot of information on the last few posts…best thing I could advise is to start from the first post and read. If you do that, then my prior example will be of some help. Starting at the begining will answer a lot of the questions … I am happy to give a very simple break down.
This is how I trade the correlation, people do it differently, as you will see when you read the prior posts Pip Chaser and myself do a few different things but the basic idea holds true
- Price does not matter, Simply buy EUR/USD and USD/CHF at the same time.
- Monitor the trades, you will see a very strong hedging effect.
3A. IF one price does an upward break out while the other stays about the same or lags on its downward movement you will have a seperation in the hedge. If you are happy with the seperation and it equals a positive overall return, I suggest closing all positions and starting again.
3B. IF one price does a downward break out, while the other stays about the same or lags behind, find a comfortable place to open another long position on your loosing pair (I like 200 pips, but its up to you) then average the losing position w/ your new position to determine a break even point.
Best thing I could suggest is to give this a try on a demo account. I am trading it on a live account and will continue to update my results.