Statistical Arb/Pairs trading strategy!

[medisoft]

Hi Jedster. You are missing something.

You say that 1 pip value = 100,000 * 0.0001 = $10

But you forgot to add “units”

The right way to say it is

1 pip value = US$100,000 * 0.0001 = US$10 for US pairs like EU/GU

For EG it is

1 pip value = GBP$100,000 * 0.0001 = GBP$10 because the base currency is GBP.

And that GBP$10 is not equal to US$10.

One thing is TICK SIZE, that is for 4 digits 0.0001, for 5 digits it is 0.00001. Other thing is TICK VALUE, in 4 digits is the same as PIP value, but on 5 digits it is PIP value divided by 10.

The PIP value for USD pairs is US$10, the PIP value for EURGBP is US$15.355, so 10 pips for EU/GU is only US$100.00, while 10 pips for EG is US$153.55

Actually, I worked up my own quick example:

Lets say EG, EU and GU all have the same lot size and pip value - well they do with my broker. So:

1 lot = $100,000
1 pip = 0.0001
1 pip value = 100,000 * 0.0001 = $10
so for every 1 pip move in price, your position goes up or down by $10

Lets say EU and GU diverge by 10 pips. There are a number of ways to show an example but in the most basic form:

For the synthetic:
buy 1 lot EU
sell 1 lot GU
EU goes up by 5 pips
GU goes down by 5 pips.
EU makes $50, GU makes $50 = total $100
Lets say each pair has a 1 pip spread. Spread cost = 2 * $10
Net profit = $80

For the direct trade in the same circumstances:
buy 1 lot EG
EG goes up by 10 pips
EG makes $100
Spread cost = 1 * $10
Net profit = $90.

[marijan993]

To everyone: What was longest time you had open trades? Mine was 14 hours.

[bernardpuah]

Hello all, found this wonderful thread, spent the whole endweek reading and practice howto setup and align the overlaying chart, will test it out tomorrow.
Thank you all for sharing, happy trading.

[bernardpuah]

Hi medisoft,
I got the keltonbuypair and keltonsellpair scripts, is there EA within the zip file that can help close the pairs with preset TP and SL, only can find plottraders and YingYangParCompuesto EA.
Thanks in advance.

Here it is

[medisoft]

that zip file contains the keltonvisualhelper EA

check it

Hi medisoft,
I got the keltonbuypair and keltonsellpair scripts, is there EA within the zip file that can help close the pairs with preset TP and SL, only can find plottraders and YingYangParCompuesto EA.
Thanks in advance.

[bernardpuah]

oh ya, how silly was I. Thank you. Newbie

that zip file contains the keltonvisualhelper EA

check it

[dannyg86]

how have people been getting on with this method during the UK bank holiday?

[atlee73]

Jedster, been partying much over there? Looks like a good time if you like crowds and rain…I don’t know if this is how you are doing it already but I am going to start trading only when a one hour bar closes above a band and then comes back through, if it doesnt come back through that band before hitting the next band what do you think about doubling up(2 lots) the next band and then tripling(3 lots) the next one and so on until it does finally come back down and then sell off one lot at a time using the same logic in reverse? that would seem to prevent premature buying.

[FXEZ]

@FXEZ

TalonD, I put this simple MT4 indicator together to show the spread difference between two pairs with input beta for each symbol. This should reproduce what was shown in the prior charts. Please let me know if you have any problems with this indicator.

See the documentation and updates for the Pairs Trading MT4 Indicator Pairs with Beta and to download the source and ex4.

.

It was brought to my attention that the Pairs with beta indicator wasn’t updating correctly. I’ve remedied the problem, and updated the file at the link above.

Cheers!

[pogibaby1]

I has out of town all last week and didn’t have a chance to trade. How has it been going for everyone?
Are ya’ll doing well? Profitable?
I would love to hear about your experiences.
Thanks

[marijan993]

I has out of town all last week and didn’t have a chance to trade. How has it been going for everyone?
Are ya’ll doing well? Profitable?
I would love to hear about your experiences.
Thanks

Hi, I’ve been doing well. I’ve traded EU/GU only, and all have been winners. I started trading live on June 1, and I’ve increased my account by 50,7 %. Today I closed some trades that were open on Monday. They were open so long because EU/GU correlation seem to been falling apart. Though this made many trading opportunities, I’m thinking of switching to AU/NU pairs. I traded these pairs demo and had also all winners. I’m thinking of switching because correlation between them is stronger, and though there are less pips to be earned, all trades can be closed at the end of the day. Hope this helps.

[pogibaby1]

Hi, I’ve been doing well. I’ve traded EU/GU only, and all have been winners. I started trading live on June 1, and I’ve increased my account by 50,7 %. Today I closed some trades that were open on Monday. They were open so long because EU/GU correlation seem to been falling apart. Though this made many trading opportunities, I’m thinking of switching to AU/NU pairs. I traded these pairs demo and had also all winners. I’m thinking of switching because correlation between them is stronger, and though there are less pips to be earned, all trades can be closed at the end of the day. Hope this helps.

Wow congrats! Are you doing anything different from Keltons set up?

[marijan993]

Wow congrats! Are you doing anything different from Keltons set up?

No, I’m following original rules.

[marijan993]

No, I’m following original rules.

Just closed two more trades, now up 54,37 %.

[forexspb]

No, I’m following original rules.

Hi. Fixed scale or not? How do you fix this Problem? Because Kelton didnt say nothing about fix your scale people.

[marijan993]

Hi. Fixed scale or not? How do you fix this Problem? Because Kelton didnt say nothing about fix your scale people.

Hi. I don’t use fixed scale. I open my trades when I see a gap on normal charts.

[dannyg86]

Hi. I don’t use fixed scale. I open my trades when I see a gap on normal charts.

Hi Marijan993. Great to see you are making such a success with Kelton’s method! Would you be able to explain how you are using it? Do you only trade certain times of the day? What is your TP and SL? A full overview of your rules would be very useful if not too much to ask.

Would love to replicate your success and try it on a few more pairs and pool our results.

[marijan993]

Hi Marijan993. Great to see you are making such a success with Kelton’s method! Would you be able to explain how you are using it? Do you only trade certain times of the day? What is your TP and SL? A full overview of your rules would be very useful if not too much to ask.

Would love to replicate your success and try it on a few more pairs and pool our results.

No problem. Here it goes:

1. I open my trades when I see 20 pips gap regardless of the time of day.
2. I don’t use fixed scale. I look at charts just for the first trades open.
3. I look at my account balance: if it goes -20 pips after I opened first trades, I open second trades. (minus 20 pips on account balance is equal to 40 pips gap)
4. No stop loss.
5. I set my TP on 12 pips for the first trades ( that is 20 pips gap minus spread minus additional 5 pips since the gap is based on visual pips)

That would be my rules. Now, I’ve increased my account balance by 54,37 %. Out of that 45 % I’ve done last week. As you can see, this week is not so good due to fail in correlation between EU/GU. That is why I’m thinking of moving to AU/NU pairs. Correlation is a lot stronger, trades won’t last for days, gaps are smaller, less pips per trades but more trades, more consistency in trading.
I hope this will be helpful to you. Good luck.

[dannyg86]

Thanks marijan for your explanation!

Have you had to close any losing positions? From your earlier reply it sounds like you haven’t. Which sounds too good to be true!

[marijan993]

Thanks marijan for your explanation!

Have you had to close any losing positions? From your earlier reply it sounds like you haven’t. Which sounds too good to be true!

Well, if you look at a single trade as a combination of two (EU/GU) than no, I haven’t had a loss. There is one great thing about this system: It allows you to make cardinal mistakes without punishment. I entered wrong lot sizes, wrong number of trades, even wrong pairs and still made profit. I’ll try to upload my account statement…