Yep, makes sense, I am also only trading this strategy in demo (although I am doing it apparently in a totally different way to everyone else, as explained in an earlier post), and will only move live when I am happy with the way I trade it.
Are you using a demo account that is identical (or close) in size to your live account? If not, you need to work out what your margin is if you are potentially leaving the trade to go up to 130 pips against you. However, if you have sized your position based around the the 130 pip loss, then obviously that is not necessaryā¦
Nice to see more people are chiming in on this. I have not entered a trade yet since I set the charts to scale to fix. Looks like the asian session provices a spreading out period when I set the charts this way. The lines come back together in the European session and in the NY session.
I have just downloaded FXCMās system but it looks like the overlay function automatically realigns the two currencies which would cause major issues when having open trades.
It does realign but on the same scale thatās the beauty of chart. At any given point of time it keeps same pips on the scale for both the pairs. Start playing with it and you will notice advantages.
If you are trading the short timeframes, then that can be useful. If the pair have diverged by a relatively large amount, and the 2 currencies remain separated, you canāt see any more opportunities. By re-aligning the pair, you can then continue to take trades. However if you are trading on the larger timeframe, then this larger divergence is exactly what you are trading, so you donāt want it to re-alignā¦
Thanks. No more posts from the bar whilst drinking beer Iām afraidā¦
Yesterday I would have gone long had I been trading. Would have given about 30-50 pips depending on the entry/exit.
Today nothing really. On 2 occasions price has hit 1 std dev and each trade would have returned about 10 pips, but I prefer to wait for price to diverge by 2 std devs as I consider that less risky.
on my chart it shows them 40 pips apart right now
I had a big draw down yesterday glad I am ok with that since it was finally profitable, but i was short just had to buy in 4 different times.
This problem, when the pairs seems to diverge is only a visual trick. I mean, if you use EQUAL lot sizes, then, yes, they are diverging, because, like you can see on the charts of this post, one goes down faster than the other. But if you adjust the size of your positions using the previous knowledge about that they tend to move faster or slower, you could compensate that difference and had only a small divergence in dollars. A REAL divergence could be when one is going down, and the other going up. But in these charts, they both are going down, but at different speeds.
I think that shows one of the problems with this. Well, it isnāt really a problem, it is just that since there are several ways of showing the divergence, what one person thinks is 40 pips, another might think is 20, and another might think is 60. They are all correct since they are all relative. We are simply saying that the pairs have diverged x pips since point y in the past. Unless everyone uses the same āzero pointā at point y, the divergences will appear different.
For me right now, I am seeing a relative divergence of just less than 1 SD. That equates to a target of about 8 pips if I were to enter a trade, and that is too little for the risk (in my opinion).
I started by doing that, the further the positions moved apart the more positions I entered as I knew they would come back. However if they stay diverged or diverge further (as they did) , you end up with positions that are against you, for potentially a long time. I know the theory says that they will come back together eventually, but if they stay apart for long periods of time (weeks) am I happy to hold them open. The answer for me was no. Letting a trade move 150 pips against me, for a target of just 10-15 pips is not appealing to me. Thatās why Iām still trading this on demo, I am finding out what I am comfortable with for this strategyā¦
Yeah! I made about 8 % profits on my live account from Sunday (well, Monday open of FX market) to the close hehehehe. At this time it is about 13 %, only 2 trading days, I think it is very amazing, isnāt it?
On my demo account, with US$100,000.00 virtual money, with the right position sizing, I have a drawdown of 2 %.
I have two techniques for money management with this strategy. I require that the pairs have a starting 20 pip divergence AND that they both are exceeding 1 Standard Deviation. That is for the first trade. Then I have a 30 pip step for the next divergence, so the next entry would be when they are 20+30 pips apart, and both are exceeding 2 standard deviations.
I measured the max deviation from the mean of both on 5M, and then I doubled it and that is my max risk. Then for the total risk of the position, I calculate the number of pips that each trade needs to move to get to the 2max deviation, let say that 2max deviation is 100 pips, then, for example, the 20 pip entry needs to move 80 pips to reach that 100, the 50 pip entry needs to move 50 pips, and the 80 pip entry needs only 20 pips. That is an accumulated loss of pips of 80+50+20=150 pips.
Then, I establish the amount I wish to win on a maximum size trade, for example 5 % of the account. So that is my max risk, and I calculate that 150 pips loss must be less than or equal to 5 % of the account.
That defines my position size. I also consider the weight of each pair, right now using ATR, but Iām also testing other methods to see which one creates more balanced positions with less draw down.
Do you have a 100,000 USD live trading account? If not, trading a demo account of that size is not going to be very realistic for when you trade live. Psychologically having a demo account the same (or similar) size to the live account allows one to treat it more seriously, plus, margin is more realistic to the live environment.
How does each trade weigh in on your overall risk? That is, assuming you take all 3 trades, and you are risking 6% overall (just for this example) is each trade calculated to risk 2%, or would the first trade risk 3%, the 2nd 2% and the last 1%. Or, the other way round (1st trade 1%, 2nd 2%, 3rd 3%)?
Nop, I have a ten bucks live account hehehehe. I think there is not going to be problems with psychology on my trading, because Iām making an EA. That should take emotions away. And because when I reach the 100,000 live account I will be more wise and knowledge than now, and will have confidence on my system, then my psychology will be also in synchronicity with the account size.
I have a Liteforex account, and just opened an Oanda account. But I want to know of good brokers on various countries to not put all the eggs on the same place.
GKFX and Alpari. However Iām in the UK so use spreadbetting accounts (so that I donāt pay tax). Both brokers appear to be ok but I couldnāt really comment on them from a CFD account perspective as I donāt have a CFD accountā¦
GREAT WORK EVERYONE!!! I knew that once we started to share our successes we would see that we are not alone. IMO this is a very safe and non complicated way of trading. Some of us are not even having failuresā¦AWESOME I knew I was not the only oneā¦ If this doesnāt win system of the month I donāt know what will. Itās about as close to the true holy grail (pure arb) that you can get in FX. Again awesome job everyone donāt change a thing and reach your dreamsā¦
now if youāll excuse me I have some accounts that need to be drained ( the people who take the other side of my positions)
