hope this last post of you should finally make it clear for everybody, jedster! i would write everything exactly the same way. 100% agree in every point
So far I have traded this without any stop in place. I was only able to start adding a TP when I started trading the single EG trade instead of the pair of EU/GU trades. However, you have to do some analysis to work out how much the pair could diverge, and then be comforatble with the potential drawdown.
OK Thanks
and just to let you know for what it is worth I didnt see it your way until that last post
very informative both ways can be profitable but I do like the idea of just having one pair to deal with, and use the other two for indicators, I dont know if you saw a post earlier from medisoft but the two have diverged up to 369 pips recently but rarely goes over 100 pips.
One other question do you buy multiple lots at once?
or buy more as they diverge more such as kelton suggests every 20 pips?
or just buy once and ride it out until it becomes profitable?
I know every one trades different based on style and comfort just wondering what you where doing
Thanks
Iām glad that helped. I was also using both trades until a couple of days ago. Someone asked a question on this thread and I had my ālight bulbā momentā¦
With regards to volumes, I think, I am probably somewhere inbetween. For the EU/GU, at the moment I wait until about 40-50 pips (depending on price action), and then enter again at about 90-100pips. It would be different for other instruments.
However, itāll probably take me quite a while to get a feel for this, maybe a few months, before I am comfortable to start trading live with it. I have one (relatively large) position running from a few days ago and it is heavily against me. I had the opportunity to exit the trade early for a small profit but am waiting to see how long it takes for it to eventually close as per my expected targetā¦
Jedster
I hope you are on here because you like answering questions lol
trading on the 5min chart how many trades are you seeing per day?
wouldnāt you see more on the 1min chart?
when calculating your tp do you use 1/2 the number of pips GU/EU diverged?
or the full amount? example if they diverged 50 pips and you bought in then would your target be 50 pips or 25?
still wondering what is the protection from market wide events? yesterday the fed mins happened to go the right way (pure luck). looking at where i got in and its relative position on the EG. had the dollar dropped yesterday instead of going up i would have LOST money by being in just one pair. using the EU/GU as a indicator to get in around 12:44 would have worked to get an entry I agreeā¦ but when the FED news dropped at 2pm the EU/GU converged quickly on the way down. i wonder if you can explain how i could have prevented the lost should the news had went the other way?
by the way ā¦ you seem to have a knack for thisā¦
It seems to me the only way it could move against the EG position no matter what the news was, is if the EU/GU diverged rapidly instead of converging, if thats the case then both methods fail in that situationā¦until they come back together
Surprisingly few. Waiting for a 50 pip divergence to occur and then close, doesnāt happen very often. Maybe 3 times a week. So whilst I do have the 5M open, it doesnāt really make much difference. If I was looking for a smaller divergence, then yes, I would probably stick to the 1M or 5M. For me, there is too much risk that 10pips would actually go to 100 pipsā¦
Not quite. I calculated that if a 35 pip divergence in the EU/GU closes, that equates to about a 22 pip move in the EG. I can work out my targets based upon that. Actually, I need to double check those figures, but I think that was rightā¦
Can you tell me what is that beta? is like a factor that multiplies one of the currencies to make them equal?
If Iām right, how can one calculate that beta? based on standard deviation? atr? another value?
Thanks
beta is normally something from the capital asset pricing model (capm). beta neutral means, that your position is āneutral to the marketā. if you define usd as the market, in this case the use of market neutral would be correct. what i dont understand, however, whatās the problem with trading eurgbp then? isnāt it ābeta neutralā in that case too? (yes it is, because there is no dollar involved)
Yes, I can answer that, I thinkā¦ Had the dollar dropped yesterday instead of risen, you woulnāt lose any money by being in the EG as the EG position would have remained unchanged. There is no exposure to the USD in the EURGBP.
If the dollar broadly weakens, the GU and EU would both rise. Given their high correlation we would expect them to rise together by the same magnitude. If I had a long GU and short EU position, overall I would be unaffected. Same thing with my individual EG trade, it would be unaffected.
The only reason this trade made money yesterday was because a news item affected the relation between the EUR and GBP. It caused the EUR to become undervalued compared to Sterling. That is, in light of the fed minutes clearly the markets felt that Sterling would be stronger against a strong dollar, than the euro would be. Hence, the price in the EG fell.
Perhaps what you need to do is convince yourself that the net position of a long EU and a short GU is the same as a long EG positon. Once you accept that, and accept that either position will react the same way, then things just slot into place.
Iām going to ask youā¦
If you can have a way to set take profit and stop loss trading with eu/gu, what would you prefer, trading the pairs eu/gu or trading the third EG?
Beta is a measure of how much one instrument moves in relation to another. If Instrument A has a beta of 2 against instrument B. It means Instrument A increases 2% for every 1% move in instrument B. Iām sure if you google it, it will show you the calculationsā¦
Personally, I would trade it using what ever method had the least transactional cost. For CFDās (or spreadbetting here in the UK) almost certainly that would be the single EG (rather than the pair of EU/GU) due to the spread and the long term financing.
If you were trading this with options (or futures), no way you would pay double the amount of premiums as it would just be unnecessary. Same strategy with equities is completely different since you have to buy/sell the pair, but currencies would be a no brainerā¦
Just thought I would say, I appear to have taken over this thread a little, which was totally unintentional, so apologies for thatā¦ However, the strategy has struck a chord with me somewhere which is perhaps why I appear to have taken to it with such vigor.
Iām off on holiday from tomorrow so wonāt be saying much over the next week or so. That should allow some of you other folk to have your say without getting interrupted by meā¦ 
Oh, and enjoy trading the NFP with thisā¦ :o
Hi Jedster
how long are you normally in a trade for?
Thanks
Thanks iāll try the 5min chart
how many pips do you wait for the pairs to separate by?
and how long do your trades normally take?
Wouldnāt EurGpb not be dollar neutral because Eur and Gbp do not have the same dollar value?
Do you think that for this strategy one should size their positions based on the beta?
If the beta of EU vs GU is 1.4, should I size the GU positions 1.4 times the EU ones, to get a beta neutral position?