Statistical Arb/Pairs trading strategy!

[marijan993]

Hi there Marijan,

Well I think it shouldnt be a problem for the EA to gather the data from the same instance. Lets say you have 2 MT4 platforms. MT4A & MT4B.

We overlay MT4A & MT4B on top of each other and notice there is no gap. From there we apply the EA to MT4A. EA on MT4A places a phantom order for buy on EU and a phantom order for sell on GU on the same platform. From here Gap widens to +20 or -20 pips, that doesnt matter; all we know is there is a gap of 20 pips. EA gives us an alert (all still from MT4A) that there is a gap of 20 pips based on price. From here you could double check the gap on MT4B overlay if you want to. But actually, MT4B would only really need to be used at the start of the day/trading session to make sure the charts are aligned. Other than that - you should technically be able to trade based on the phantom orders alone (or price).

:45: I think I got it. Now, if there is someone who could create this EA…

[burningmunkey]

I trade with a basket EA. You can’t trade it with fixed SL/TP if trading the synthetic pair. If trading the combined pair (like EURGBP for EU/GU) you can use SL/TP there.

And yes, that type of EAs exists… in this thread, I made it and shared it here so check the thread for it

Only measure on one of them. I use EU as a primary pair, and do the measures on it, overlayed with vitrite.

Medisoft, mate, I’ve searched high and low on the thread but for some reason cannot find where you posted your EA for basket TP & SL… Would you be so kind as to post it again? :13:

[forexspb]

Now is a big gap EURUSD/GBPUSD about 80 pips M1 timeframe

[pogibaby1]

I had a hard time with the chart overlay. It didn’t seem right. I should have trusted my gut. So there was a large gap. But when I did the overlay again there wasn’t a gap. I was down over 100 pips, and had do a manual trades to eventually get out of it. I got out of it with positive $$ (but negative pips) It was ugly. Its not the way I like to trade. How did ya’ll do today?

[otin]

hi guys,

Excellent thread & many thanks to Kelton for sharing his setup. The rest of you guys are doing a great job exploring these ideas further.

burningmunkey: your phantom trade suggestion sounds an interesting idea.

forexspb: I am not sure if I have my setup correct because I don’t see any large gaps today. Could you possible post a pic of what you see today to help me my end.

[forexspb]

I am still in trade

[otin]

thanks forexspb,

that is helpful - I need to reread a few pages me thinks :33:

[burningmunkey]

@forexspb

I am still in trade

I too am still in the trade - still need it to move 30 pips to breakeven…

[marijan993]

I too am still in the trade - still need it to move 30 pips to breakeven…

Me too, still in a trade…

[forexspb]

Me too 30-40 to breakeven. I hope it works.

[OOPs]

Lol me also!! Pc lived this morning dies this afternoon so I got an idea of what profit should be!!!

[medisoft]

This is very simple… Just take note of the current price for EU and GU. You don’t need to place any phantom order, just maintain the price in a static variable, note pad or a sheet of paper

When you see that the divergence from the prices you wrote exceeds your limit of 20 pips, you are ready to go in the trade

Meh, tried to PM but I cant yet… I guess it wont hurt to just share it here…

Well, here goes.

On the FF thread that was loosely based on this system someone once mentioned about developing an EA that places ‘Phantom’ orders in order to determine a gap. For some reason that has stuck with me and I find myself often wondering about that concept. Right now we have to overlay 2 charts on top of each other in order to determine a gap - which has its benefits, but it has its DD’s as well eg. Eyes glued to charts, scaling problems etc.

Well, what I am proposing is the following:

To code an indicator/EA that places ‘Phantom’ trades at the moment its thrown on the chart. When do we place it on the chart? Well, we still use the overlaying method and when the gap is zero, or very close to it. The EA/indicator will place 2 phantom trades the same way we’re doing now. Once price widens between the 2 currencies by say 20 pips (externally editable) we get an alert. Now this can widen in any direction - whether the phantom trades nett -20 pips or +20 pips, regardless, there’s a gap of 20 pips either way and MT4 alerts us and we can take a trade. It would be nice if the EA/indie does draw a line on the chart to show the ‘gap’ of 20+ pips as well as numerical display to accompany it…

I’m not sure if this would even work - the logic seems sound thou. Now, instead of only relying on a visual interpretation of the gap, we are using price itself to tell us.

What do you think? The EA/Indi would probably need to be reset after every trade/once a day - not sure yet, will need to test it. But I really do think that something like this could work as an alternate method of determining gaps (and probably more accurate too…)

Anyhow, fire away, could this work?

Kind regards,

[medisoft]

@burningmunkey

Medisoft, mate, I’ve searched high and low on the thread but for some reason cannot find where you posted your EA for basket TP & SL… Would you be so kind as to post it again? :13:

Here it is

kelton.zip (28.8 KB)

[medisoft]

Just remember to lock your charts when you are starting your trading day.

What I do every day at my starting time is this:

Open EU and GU, lock the charts so the current BID price is on the center, and adding +/- 2 ATRs or for easy setting, +/- 300 PIPS on 1 minute view. The same on the two charts. So, if EU is at 1.3000 and GU is at 1.6000, I lock the charts (fix scale) from max of 1.3300 to min of 1.2700 for EU and 1.6300 to 1.5700 for GU. That way you have both charts at the center of your screen.

Then, wait for the price to diverge the 20 pips, using EU as the primary pair with GU in the back using the vitrite technique.

When the price is diverging 20 pips, I place a trade. I don’t wait until the prices are touching again, but I take early profits, let say, for an entry with 20 pips divergence, I take profit when they are 10 pips in profit (suggested on the forum, and works better, more trades, more pips, less probability of a forever diverging trade)

After my trading day finish, I reset the charts and remove the fix.

Rinse and repeat

I had a hard time with the chart overlay. It didn’t seem right. I should have trusted my gut. So there was a large gap. But when I did the overlay again there wasn’t a gap. I was down over 100 pips, and had do a manual trades to eventually get out of it. I got out of it with positive $$ (but negative pips) It was ugly. Its not the way I like to trade. How did ya’ll do today?

[medisoft]

Just remember that the screen resolution affects the size of the gaps, and can also cause that someone is looking for a short trade and other one for a long trade…

hi guys,

Excellent thread & many thanks to Kelton for sharing his setup. The rest of you guys are doing a great job exploring these ideas further.

burningmunkey: your phantom trade suggestion sounds an interesting idea.

forexspb: I am not sure if I have my setup correct because I don’t see any large gaps today. Could you possible post a pic of what you see today to help me my end.

[medisoft]

I can suggest you all to trade EU/GU only on European time. On other times the price diverge a lot and sometimes it takes so long to return to a profit, that’s the reason I’m limiting my trading to that time frame, from 0:00 to 6:00 CST hehehe

[burningmunkey]

This is very simple… Just take note of the current price for EU and GU. You don’t need to place any phantom order, just maintain the price in a static variable, note pad or a sheet of paper

When you see that the divergence from the prices you wrote exceeds your limit of 20 pips, you are ready to go in the trade

Morning Medisoft,

Great to see you back online! Thank you for your response mate - yes, I did give that some thought and most certainly, a pencil and paper method will work just fine. But then you need to be watching your charts - all the time. The method I’m suggesting means you can apply it to your chart and walk away - MT4 alerts you to the trade and youre good to go. Also, you could easily apply it to many converging pairs at once if you wanted to without the need to flip through all the charts every couple of minutes to monitor price.

Further, from here the EA could be developed to actually take the trades when the gap reaches the acquired size for you - making the system automated. Again, a basket TP & SL can be set.

Anyhow, thses are just ideas and whether they will work or not is still to be seen.

Thank you for supplying your basket TP + SL EA! I will most certainly start using it - yesterday would actually have been a great day to have it lol!

You mentioned that you’re waiting for a gap of 10 pips before you enter, with a TP of 7 and a SL of 28 pips. How is this ratio working for you? Do you hit a loss often?

Kind regards

[Jedster]

This is very simple… Just take note of the current price for EU and GU. You don’t need to place any phantom order, just maintain the price in a static variable, note pad or a sheet of paper

When you see that the divergence from the prices you wrote exceeds your limit of 20 pips, you are ready to go in the trade

This is a good post.

If you are struggling to get the overlay/vitrite/whatever mechanism to work, and you don’t like the alternative way I trade it, do it this way instead. This is such a straight forward way to determine when to enter a trade, you literally can’t get any simpler or easier than this…

KISS…

[otin]

Just remember to lock your charts when you are starting your trading day.

Thanks medisoft for giving clear step by step instructions on this matter. I was struggling with this but can now restart demoing :35:

otin

[marijan993]

Great day! Made 12 % today!!!