Yeah - this is what I am asking about – how do you plot the difference between EU-GU on metatrader? Thanks
U know what guys? i tried trading using Kelton’s method. Earned a 200 bucks on one demo and the other 100 bucks, using 2 brokers. But later things went awry and the correlations between the pair changed! Sorry as a newbie, I thought it would remain the same, but it changed and now im going into the negative zone at $700 loss.
My question is how do we deal with sudden change in correlations when we are half way in the trade?
EUR/USD and GBP/USD has a correlation of 7.3 now on forexticket… should I hold onto the losing trade till the correlation improves? Or would it be better if I stop the trade now…
How could I know where exactly to buy and to sell
I am assuming that this strategy did not end well for the participants? The thread is dead and all of the linked myfxbook accounts have been deleted.
NinjaTrader offers a much better solution to overlaying the charts. It is subjective rather than objective. Therefore your unrealized PnL is based solely on the spread of the instruments. If they touch and you miss it, no worries - it will happen again.
This seems like a decent trading strategy as long as you do not get greedy. But the rapid growth seen by most of the traders here was anything but sustainable. I think timehopper was on the right track in being able to sustain a 1000 pip deviation before doing any damage to his account.
Avoiding interest rate decisions is a no-brainer and I don’t know why that wasn’t practiced here. I don’t plan on using this as my main strategy but I would like to play with it and maybe revive this thread if there is interest.
Instructions to set up NinjaTrader for StatArb trading:
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Download the NinjaTrader Demo for free. It will allow you to do charting, but not live trading. I have been doing my charting in NT and then I just place trades in MT4.
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Get a data feed. I am currently using FXCM’s data feed as they are my broker. Hopefully your broker offers a NT demo data feed, if not sign up for FXCM’s.
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Go to File --> New --> Chart. Type “EURUSD” into the box and hit enter. Then type “GBPUSD” into the box and hit enter.
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Select GU and find the “Visual” options on the right. Change “Panel” to [B]1[/B] and change “Scale Justification” to [B]Left[/B]. Change the colors so you can differentiate it from EU. Hit OK and your chart should load.
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Double click on either axis. For both “Left Scale” and “Right Scale” change the “Based on” option to [B]EntireDateRangeSeriesOnly[/B].
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Hold the Alt key and press the UpArrow key until the candles won’t get any smaller. Hold the Control key and press the UpArrow key until it won’t zoom out any further.
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Drag and adjust the left scale (which should be GU) until the pip size per box matches the scale for EU on the right. For example, a box on my right scale is 1.36-1.3585 = 15 pips. So I dragged GU’s scale until I got the box as close to 15 pips as possible.
That’s it, now just look for trades.
With only 6 hours left to go before the market closes, I will not be entering any new positions today. ECB Draghi is due to speak Monday at 13:00 EST, and I am not comfortable holding a trade through that period based on how much influence he has over the Euro. The rest of next week is clear as far as I can tell when it comes to news releases. I believe avoiding high-impact news events which could shock the correlation is a key factor to success with this method. If the correlation is thrown out of whack by a large number of pips, it would be better to enter then instead of holding a drawn down position from a 20 pip spread and praying it comes back.
I had a modest gain of +0.54% this week using this method, but I have not fully developed and enacted my risk plan. I need to go through some historical data in order to determine those parameters. I believe my risk is a bit high right now, but we shall see.
I saw a 30 pip spread last night so I placed my orders and set my platform to close out after 20 pips of profit. GBP/USD had a huge move which closed the gap and then carried it further to cross over. The pair moved over 50 pips in a minute, and I guess I wasn’t able to be closed out until +40 pips rather than the 20 I was initially shooting for. Not going to complain about that.
Here’s my account results for the last week from trading this method. As it stands I would be able to handle a 1000 pip deviation before being margin called and losing my little $100 account.
It’s worth noting that I am only playing with about 1% of my total trading equity in this little experiment. I need a lot more time with it under my belt (as in several months) before I consider putting any significant amounts of money on the line. I would urge anybody else who decides to pick up this system to follow a similar path.
I’ve entered another trade long EUR/USD, short GBP/USD. There is a 70 pip spread (the largest I have seen thus far) and I am going for 60 pips net profit.
There seems to be a “balancing act” with the risk in this system. Too high and you will blow out on a normal spread. Too low and you will hit a black swan before gaining enough profit to offset the black swan.
Some questions which have still not been fully answered yet in this thread:
[ul]
[li]Is it even worthwhile to use stop losses with this type of trading? As we can never know when the black swan will occur, stopping our losses would imply that we knew the black swan was occurring then and there.
[/li][li]What is the ideal risk?
[/li][li]Does averaging down do more harm than good? I would hazard a “yes” as it seemed all of the previous posters (who we can assume failed with this method) were averaging down.
[/li][/ul]
My account is now up 7.18% after closing out that last trade. I messed with my charts too much so I ended up closing out for about 20 pips instead of the 60 I was initially shooting for. The scale got all wonky somehow so I decided better safe than sorry.
I had a 6% drawdown at one point, but I held on to the trade. It took 3 days to come back and touch. I was tempted to add more positions but my tiny account could not handle the margin.
Another successful week with this method.
[QUOTE=“jadd806;642992”]My account is now up 7.18% after closing out that last trade. I messed with my charts too much so I ended up closing out for about 20 pips instead of the 60 I was initially shooting for. The scale got all wonky somehow so I decided better safe than sorry. I had a 6% drawdown at one point, but I held on to the trade. It took 3 days to come back and touch. I was tempted to add more positions but my tiny account could not handle the margin. Another successful week with this method.[/QUOTE]
What’s good man, this is actually my strategy. I stopped trading it after a while because of my actual job. But reading through the thousands off post on it, it seemed to lack something to minimize the risk. I still fully believe in the concept but not sure what I was missing.
When you say subjective vs objective… What does that mean? My biggest issue was the charts repositioning themselves after a while so what looked to be a profitable position at one point turned into a negative one.
Thanks for your input. I really appreciate it. A lot of work when into finding this stuff out for myself a while back.
-Kelton.
Glad to hear that you didn’t blow up using this method! And thanks for sharing it in the first place. Would be nice to hear from the others that were using it but I guess they are not using BabyPips any longer. So I just kinda assumed everyone blew up, lol.
You didn’t have to stop because of work. I have an EA which closes all trades when a specified amount of unrealized profit is reached. So I just use the gap size in pips to calculate what my profit should be when it closes, and then I can leave MT4 running and walk away.
I think NinjaTrader fixes the subjectivity problem. Once you modify the scales, they stay the same way until you adjust them again. As compared to MT4 where it repositions the chart according to volatility.
Risk management is my main problem too. There has to be a balancing point between trading large enough that your pips are meaningful, yet not so large that you will be margin called on a normal spread between the pairs.
Ya risk management was the biggest obstacle. I believe one follower mentioning 400 pip spread between the two pairs was the largest he has seen in past years data but idk if that’s accurate especially since the charts would re adjust. I opened two demo positions now with eu and gu. And with eurjpy and usdcad. I am waiting to see how those close out.
I really like the ninja trader platform for layering the two pairs.
Also did you make the ea or find it online for closing out your positions?
Thanks for the input man!!
Also I see your from road island! I’m from dc. But I have a friend who lives up there. It’s rare to find someone on here that’s lives relatively close.
I found the EA online. It does only the one job but it does it well. Here it is:
CloseTrades_After_Account_Profit_Reached.mq4.zip (969 Bytes)
I’m also in the EU/GU trade since this morning, and it has not moved much.
I agree about the trouble with testing past data… I guess the best way to find out is just to forward test it and see what happens. I’m not too attached to my little $100 account so if it goes boom, no big deal lol.
It is nice to see someone nearby!
i like the idea 
but when to buy or sell?
[QUOTE=“jadd806;645583”] I found the EA online. It does only the one job but it does it well. Here it is: <img src=“301 Moved Permanently”/> I’m also in the EU/GU trade since this morning, and it has not moved much. I agree about the trouble with testing past data… I guess the best way to find out is just to forward test it and see what happens. I’m not too attached to my little $100 account so if it goes boom, no big deal lol. It is nice to see someone nearby![/QUOTE]
Hey I have a problem with ninja trader. I keep getting these long gaps in my charts. It’s like it’s skipping hours of data. Do you have this same problem?
[QUOTE=“troparzum;645602”]i like the idea but when to buy or sell?[/QUOTE]
Hey man! Good to see another follower. You should definitely check out the first few pages of the thread to get the concept. But after overlaying your charts you basically buy the underperforming one and sell the over performing one. Hoping that when they come back into sync with each other you will profit will very low risk.
Yeah if my PC goes into hibernate it disconnects the Internet which results in a gap. You can press F5 to refresh the chart; if that doesn’t work save the workspace and restart NT.
sounds very nice 
i will test on monday
did u use 1min chart already?
and what are the best r/r ?
i read 20tp to 200 sl that is not really good i think?
[QUOTE=“jadd806;645608”] Yeah if my PC goes into hibernate it disconnects the Internet which results in a gap. You can press F5 to refresh the chart; if that doesn’t work save the workspace and restart NT.[/QUOTE]
Sorry for the crappy picture but this is what I mean. The price you see is the current candles be way to the left where you can’t see is the last 5 days of price data.
Hi there ppl,
I found this thread a few weeks ago and was happy that it was still active but by now it seems its pretty much dead.
I did some research and work quite some time on this Correlation-topic. Also I made an Indicator to get rid of the overlay-tool; I will post the script soon.
I really hope that there are still some people trading with this strategy.