Statistical Arb/Pairs trading strategy!

[marijan993]

OK, here it is.

[christinaa]

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.

Hi Marijan993 congratulations on your results
and you’re using the 1min timeframe?

[X.Oden]

How do you actually lose with this strategy? I have a friend who’s a pro trader who just released his stat arb system and is working on an EA to automate the process. I’ve tested it and there are a few on Donnaforex who are running it now, but so far, like you, I’ve been getting positive results.

I guess my big question is, do you ever see a loss and how can this occur if the trades are neutral? Also, if you’re buying one pair and shorting the other, wouldn’t the chance for the strong pair continue in its direction that you’re going against while the other remains stagnant?

I’ve just started reading up about Statistical Arbs even though I have been having success with it, but in a pickle, my fall back is to kick in the hedges…

I also read that the more pairs you play the safer…

Shrug…just trying to learn more

Hello world! My name is Kelton and this is my strategy.
It has been know by names such as statistical arbitrage and pairs trading.

Basically I find two currencies that are highly correlated. When one goes up the other follows
the same amount roughly. What I do is wait untill something upsets the two currency pairs
that makes them fall out of correlation. Then I buy the underperforming currency and short
sell the over performing currency at the same time and the same lot size. Eventually these
currencies will go back to their normal path and touch again. I then close both orders and have
now profited the distance between the two when I opened the orders. It is considered a market
nuetral position because as I am losing on one order I am roughly making the same amount on
the other order. Until they come back to eachother and I profit.
I am up 43% of my account in 13 trades. Every one has been profitable so far.

Examples of correlated currecies are- EUR/USD AND GBP/USD, NZD/CHF AND AUD/CHF…
USE FOREX TICKET TO FIND CORRELATION NUMBERS. ANYTHING ABOVE +.80 IS GOOD.
ANYTHING BELOW YOU SHOULD NOT TRADE. I USE THE 5,15,AND 30 MIN CHARTS.

PLEASE LET ME KNOW HOW YOU DO ON THIS STRATEGY IT IS VERY POWERFUL.

THANKS FOR READING.
KELTON W.

[marijan993]

Hi Marijan993 congratulations on your results
and you’re using the 1min timeframe?

Hi Christina, thank you. Yes, I’m using 1 min TF.

[marijan993]

How do you actually lose with this strategy? I have a friend who’s a pro trader who just released his stat arb system and is working on an EA to automate the process. I’ve tested it and there are a few on Donnaforex who are running it now, but so far, like you, I’ve been getting positive results.

I guess my big question is, do you ever see a loss and how can this occur if the trades are neutral? Also, if you’re buying one pair and shorting the other, wouldn’t the chance for the strong pair continue in its direction that you’re going against while the other remains stagnant?

I’ve just started reading up about Statistical Arbs even though I have been having success with it, but in a pickle, my fall back is to kick in the hedges…

I also read that the more pairs you play the safer…

Shrug…just trying to learn more

I think losses are possible. They can happen if correlation between EU/GU completely fails and pairs start to behave on their own, regardless of the movement of the other pair. This is very unlikely scenario due to cointegration of EUR and GBP, but it is still possible.

And this on donnaforex looks like a scam… I mean, why would anyone sell a system that makes billions? It seems unreal…

[christinaa]

Hi Christina, thank you. Yes, I’m using 1 min TF.

Thanks for the reply, pls keep us updated with your results of AUDUSD/NZDUSD
Kelton said his 2nd favorite combination was AUDJPY/CADJPY

[marijan993]

Thanks for the reply, pls keep us updated with your results of AUDUSD/NZDUSD
Kelton said his 2nd favorite combination was AUDJPY/CADJPY

I’m not sure if I’ll go live with AU/NU because my broker has increased spread on both pairs and now is 6 pips opposed to 3 pips on EU/GU. I never traded AUDJPY/CADJPY. Will try it, thanks.

[marijan993]

And this on donnaforex looks like a scam… I mean, why would anyone sell a system that makes billions? It seems unreal…

First of all, I sincerely apologize for trash talk before I even read the thread. Secondly, I left some trades open over the weekend of the Greek elections. Now that will be a true test to see what size of stupidity will this system tolerate…

[christinaa]

I’m not sure if I’ll go live with AU/NU because my broker has increased spread on both pairs and now is 6 pips opposed to 3 pips on EU/GU. I never traded AUDJPY/CADJPY. Will try it, thanks.

thats ok, i cant keep EU/GU trades open with this system because im trading EURUSD on another system, and i dont think i can hedge, so i might just try the AUDJPY/CADJPY for this system. When you’re in a trade with EU/GU how often do you check the computer?

[marijan993]

thats ok, i cant keep EU/GU trades open with this system because im trading EURUSD on another system, and i dont think i can hedge, so i might just try the AUDJPY/CADJPY for this system. When you’re in a trade with EU/GU how often do you check the computer?

I don’t have a straight answer to your question… I guess I check my computer whenever I can. Sometimes not at all, other times I stare at the charts as much as I can trying to upgrade the system. But, I’m not running to the computer just to see what is happening. I hope this helps.

[timehopper]

Nice to see that more people are using this system and having nothing but winners. Keep up the good work.

cheers

[christinaa]

I don’t have a straight answer to your question… I guess I check my computer whenever I can. Sometimes not at all, other times I stare at the charts as much as I can trying to upgrade the system. But, I’m not running to the computer just to see what is happening. I hope this helps.

It has been said that if your playing the 1 minute time frame, and you miss your opportunity to close the trades because the prices have touched but you werent watching and you didnt close the trade then they may not touch again

[dannyg86]

I’m testing GBPCHF/USDCHF, they are also correlated pairs. I’m trading it on European time, I’m going to test it for at least 100 trades, and will post the results.

In addition I’m testing EU/GU, AUDUSD/NZDUSD, AUDJPY/NZDJPY and CADJPY/AUDJPY

The same, I will post the results after 100 trades :).

The only one I had tested on real live account is EU/GU with pretty good results :), so I recommend to continue with it with Kelton’s method, it works and works pretty good

Medisoft you mentioned you were going to post results after 100 trades. Did you have any joy in the end?

[marijan993]

It has been said that if your playing the 1 minute time frame, and you miss your opportunity to close the trades because the prices have touched but you werent watching and you didnt close the trade then they may not touch again

That’s why I have my TP set

[PippinPips]

I m trading this on 15m TF. (DEMO) Din know where to close the trades…Any guides on WHEN to close trades? I always run into situation whereby one is in profit, another is in loss…

[medisoft]

Medisoft you mentioned you were going to post results after 100 trades. Did you have any joy in the end?

Nop, I’m with 64 trades :), need some more time to reach the 100th trade

[medisoft]

First of all, I sincerely apologize for trash talk before I even read the thread. Secondly, I left some trades open over the weekend of the Greek elections. Now that will be a true test to see what size of stupidity will this system tolerate…

can you tell us what was the result of this trade? I don’t leave trades open on the weekend, so I don’t know what happened

[christinaa]

That’s why I have my TP set

so you have like an EA that closes all open trades when a set level of profit is reached?

[christinaa]

Nop, I’m with 64 trades :), need some more time to reach the 100th trade

im really excited to hear the end results medisoft

[sezor]

Just for interest, a pic of OverLayChart (top) and
OverLayChart-MAwally2 at work.
It’s a eurusd chart. OverLayChart puts its second pair on
the main window, OverLayChart-MAwally2 in a separate one.
(Here, the latter has been added twice.)
Such display differences seem to be permanent. (They were
actually greater on the original chart than on this
screenshot - at one point OverLayChart had gbp (red) above
eu (blue) when OverLayChart-MAwally2 had it below it.)
OverLayChart-MAwally2 seems to exaggerate GU’s excursions.
And if one slides the window, you can see OverLayChart-
MAwally2 altering its point of origin dynamically while
OverLayChart keeps the same one.
Great thread !!