See what I meant about the DD. I never bother to watch the whole thing and don’t bother to figure it out afterwards. Doesn’t matter if you win.
I’m going to pursue this, yes, this way…I spent the last 3 days mowing thru different other forums about pairs\statarb\hedging, and they get very hung up on EA’s and indicators, their complaining about scaling all the time and tweeking this and that…simplicity works when your staring at reality…real overlays…my charts are side by side, but have identical sizes, so it’s working for me…thinking about one order of two pairs at 20 pips, another at 45, and another at 90, then that’s it and wait to come back…we’ll see.
Great stuff, keep us posted how it goes!!
congratulations! this is a very good way to trade, non directional trades 
a way to obtain steady profits without thinking about market direction
I was looking at the daily results on percent variations on various pairs.
Look at this chart:
Light are EU and bright are GU.
you can see that when EU is up and GU is down, you can sell EU and buy GU and get a profitable trade
or if EU is down and GU is up, you can buy EU and sell GU and get a profitable trade.
could this mean that day the pair was out of correlation? I’m going to check 4hours and smaller timeframes to see if it is the same effect on them.
Well, yes, but also no, this is perfectly perfectly normal behaviour.
Here is a snapshot from a few days ago.
(direct link http://i.imgur.com/mLXRS.png)
EU is bright, GU is light. The highlighted area shows the GU above the EU, they cross over and then go back again. Looking down at the ratio, you can see the ratio moves from the -1SD line, crosses through the mean and goes to about +0.5 SD, before going back again.
I would say this is perfectly normal in the life of two correlated instruments. They diverge slightly over short periods of time and that is exactly what you are seeing here (and in your example).
Someone else mentioned in an earlier post that when they revert, they can in fact cross and if you hold onto your trade, this is where both positions (if trading the synthetic) could end up being closed for profit (instead of the normal 1 win 1 loss). This is a good example…
I have been lurking on this thread for a while, and just been looking at some charts for the corralations
USD/CHF & GBP/CHF (Edit weekly chart 100 periods 96% correlation )
I just thought this was interesting! 1 day chart though
Ignor the lines I have done, they have been there a while
Quick Edit as an after thought,
Can correlated pairs use each others S&R? would be an extra dimension to trade with!
Hi, welcome to the thread…
I love negative correlation and that screenshot looks great, very tradable… What pairs where they, I can’t quite see. It looks like USDCHF and something?
Ok guys…market just opened with about 25 pip gap using EU price, between EU and GU…bought Eu, sold equal lot size of GU, will update when closed…this is on 1 min. TF.
It’s Eur/Usd and Usd Chf, 1 hour chart though,
looks good for the S&R.
UPDATE: just closed my EU GU pairs at 25pip profit…$2500!
GZ!!! What was your DD?
Hello pipcompounder,
are you using MT4 and using the overlay method?
best regards.
- guandi
I WISH!..right now, i’m experimenting putting two identical sized charts side by side and comparing the latest price gap on an Ipad, using trade interceptor, that last trade was 10 lots on each side, just for reference sake, not using MM…this trade only went another 10 pips against me (more expansion between prices of pairs), before slowly coming together…GU was very high and then came way down, EU was low and went even a little lower. GU shows actually below the EU right now.
it would be ideal for me, if I could do the MT4 overlays like Kelton, but it’s not applicable for me.
What lot size are you trading and how does that equate to the size of your account in percentage terms.
I have an EURGBP trade running as well. Entered probably at a very similar time as you, just after the opening last night. It is currently about +1SD in profit (around 15 pips). I am just deciding whether to close out for profit now, or whether to set the SL to b/e and target another +1SD (which would see the price back at the mean, since I entered when it hit the -2SD).
I have a bit to say about this. Firstly, I love trading negative correlation. I think that those trade can often be more profitable than “normal” correlation trades. Not sure what it is about negative correlation that makes it different, but definitely something to consider.
However, there are reasons why that pair you used as an example are so highly correlated and you need to be careful trading it. If you trade EURUSD/USDCHF correlation, you are effectively trading the EURCHF. The EURCHF has very little volatility at the moment. Even from a month ago, the vol has reduced. The result is that the EURUSD/USDCHF is highly (inversely) correlated. I doubt you will ever see such a good example of negative correlation as this.
There are not many opportunities to enter at the moment, and when you do, you target will be between 5-10 pips. You might be lucky and squeeze 15 out of it. This is because of the cap on the EURCHF that is being maintained by the SNB. That said, I personally think when these trades come along they are very reliable as, providing you are on the “correct” side of the trade, there is almost zero downside. I am in a correlation trade right now, long EURCHF from the 26th April.
It won’t stay like this forever. Either the SNB will intervene again, or the markets will start to take on more risk and vol will increase.
The point to remember is that, the SNB could intervene and increase their cap on the EURCHF at any time. You do not want to be long CHF when that happens. If you are, either through the synthetic, or direct EURCHF, you will literally see your account go down the pan in a few seconds (if you want to see an example, pull up a EURCHF chart from September 6th last year and work out how much you would have lost if you were long CHF).
So, word of warning. Go ahead and take net short CHF positions while trading this strategy, but if your position is net long CHF, be very careful…
-jedster, as briefly noted, the lot size was just selected to use as reference for crunching numbers…paper trading, not actually trading with money management on this particular trade, it was 10 lots per pair, 20 total lots in…the $2500 was just for celebration, I am still trying this way of watching the charts on my Ipad, to see if it works. For 50k demo account, 1 lot on each pair would have been realistic trade.
Congrats on another successful trade. And Thanks for telling us when you got in, at the time you did it so we could follow along.
Since eu shows 20 pips above gu right now, i’m selling eu and buying gu…20 pips between…1 lot each…will update.
THIS IS ON 1 MIN TF, AGAIN.