Statistical Arb/Pairs trading strategy!

I see that right now AU y NU is not correlated on m5, but it is correlated on 1h and on 1d, so the pair is correlated, and right now could be good time to trade the spread, isn’t it?

Also EU and GU is about 50 correlation right now, not to good, but on 1h it is 98 and on 1d it is about 80, so it is good also, and maybe it is going to be a trade in the near time.

I found that on good correlated pairs the risk is only IF the pair’s prices move apart for too long. That shouldn’t happen, because they are correlated, but there is always a possibility to have a very big move that cause the pairs get heavy unrelated and to generate big loss. It is not so probable but it is possible.

Kelton, do you ever seen this happen? that two correlated pairs like EU and GU get very unrelated that a very big visual difference exists?

Eur and Gbp are closely related. The same as Usd and Cad. The same like Aud and Nzd. Pairs like EU and Guide have been correlated for some time. And you need them to go out of correlation to profit, just because for the moment they are out of correlation does not mean u should not trade, it is probably the perfect time to trade. Because if the correlation was 99.9 % all the time there would be no opportunity to profit. Does that make sense?

I have not seen anything that would worry me in the last 2 months especially in the 1 min frame. If you are worried about something like that I would lower my leverage or trade pairs that involved JPY. some jpy pairs are ridiculously correlated.

Thanks a lot :slight_smile:

I see what you say of JPY pairs, above 90 % correlation on all time frames, that is almost perfect hedge!

I had seen this strategy with stock options and with stocks, but I only traded it with spreads with options on indexes. I had never thought that it could be possible on forex until now :slight_smile:

Yes, a lot of sense! I’m currently trading (demo account) AU and NU with 2 % maximum risk. Let see what happens :slight_smile:

How do you set your lot size? And what happens with negative swap?

My lot size depends on my leverage but at 100:1 I would be buying .1 lots. And don’t even worry about swap lol

If you have an open position, and visually they touches, but it is in loss, do you wait until it is in profit or close the trade in that moment?

If that happens you did something wrong lol u need to check your charts and see if the pairs have the same pip size

Hi Kelton
Before your 2 weeks live trading how long have you been using this system? and you’ve never lost?

oh! that’s a good point! I’m going to check how to make pip size homogeneous.

Eu and Gu have the same pip size for example. But not the case for Nzd/chf and aud/Nzd if those two were correlated.

And I’ve been researching this subject for months until I started trading. I did lose a few times but that was because my charts were off before I knew how to make everything right

Ok thanks
and after EURUSD/GBPUSD whats your personal 2nd most used pairs when using this system

How do you check if some pair has the same pip size?

with the TICKVALUE? I mean, on EU the pip value for 1 lot is US$10, and on GU is also US$10. Or is on the screen?

Medisoft your correct. The pip size is $10 for both so they have the same pip size and my 2nd most used pair is probably AUDJPY AND CADJPY

Hi, I find this system incredible easy and smart, and will try it out :smiley: Thanks for sharing!

Thanks! Took me a while to make so I hope your profitable!

May I post an indicator and you tell me if it works well?

The indicator is a modified version of an overlay chart, that let you place a line / candle chart over your normal chart.