I just wanted to thank everyone for their patience with me as I try to get myself sorted out with this method as well as
Forex Trading in general.
As I am sure some of you successful traders can appreciate, when your new to the world of Forex and have really put the time in learning about it (i.e completing the babypips.com school) introduction at least, your brain is literally in "information overload", in my case anyway, I have been confusing myself rather easily and that is currently where I am at with a few things.
What I have done below is written out my current understanding of this method and how to properly execute it from start to finish. I would appreciate it if someone could correct me anywhere there is a mistake and perhaps graciously suggest the remedy to my error(s).
I would like to have the "nuts and bolts" of this method down soon so I can begin to demo trade it for a couple of months before even considering putting real money into this method.
I should note, the only pairs I am looking at are the EU/USD and GDP/USD, I know you guys are tearing it up with other pairs
but until I figure this out, I am going to stick to these pairs, so my focus of my post will be exclusively on that basket.
Proper Execution of the Stat/Arb Method
This is how I would start to trade this method based on my limited understanding (please note I plan on reading this thread in it's entirety, once my brain recovers over the abuse of the last couple of weeks regarding information overload).
$5,000 Starting Capital
1.0% risk per trade = $50 per trade
400 Pip Stop Loss
$0.125 pip value for the GU/EU basket.
I. The Set Up
- Wake up and check charts
- By checking charts I should state that I have two MT4s running (Oanda) and have used vitrite to be able to few both currencies pairs on the same chart.
- Everything is lined up perfectly and sized the same on both MT4s.
Now as of this writing the GDP/USD is above the EUR/USD on my chart, the line graph is higher. However, the value of GDP is 1.6288 and the value of EUR/USD is 1.3029.
However, I only used the 1.6288 number (last close) on the 1 min chart and use the cross tool and then move it down to where it hits the EUR/USD Last Close and its still measuring the GDP/USD chart "pips" (the 1.6xx numbers)and it hits the EURO Line at 1.6277 (In GDP/USD PIPS) so clearly this isn't as a valid entry as the EUR/USD would need to be around the 1.6257 area to make this a valid entry.
At which time, hypothetically if that was the numbers we had here instead of the current numbers, I would sell GDP and buy EUR, sit back and watch them come back together eventually.
If they widen to 40 pips apart, I enter a 1% trade of $5000 order and if they widen to 60 pips apart I would again enter a 1% trade of $5000 order and then if they come back together I close all positions. If the divergence didn't go past 20 pips, as soon as it closes we would close our first position....
You guys refer to the 1hr chart just to confirm that they are temporarily uncorrelated?
Am I remotely on the right track?