Gob Danm it!!!
Over exposed my self too much to long euro!
Just took a $100 loss! well with NFP tomorrow, i figured it was best to closed a bad position tonight,
and not have a really bad position tomorrow!
Oh well back to the screen!
Thanks everyone for all your answers! I guess I have to experiment a little bit more.
@Jedster, I have one question for you: In the posts where you explain your system you are showing screenshots with an indicator (in an indicator window) called āCorrelation Ratioā. Is there any chance you can post this indicator here or tell me where to find it?
It is very simple, it just divides the closing price of the chart symbol, by the closing price of the specified symbol to create the ratio of one to the other, and plots the standard deviation.
CorrelationRatio.zip (2.78 KB)
Hi all! I was testing the eugu and aunu pairs using eg and an as proxy.
Drawn a linear regression based on standard deviatons for 1250 days and i found that the pairs range about 750 pips from the center of the channel.
That explains very well why my entries on eugu at about 150 pip devergence finish on profit almost always and on aunu with 200 pip divergence with 400 pip stop loss.
What also seen is that this huge range is working since 2007, previosly there was very short and powerful trend and before that other long huge range.
Could that means that every 4 years or so the market adjust prices on very short period and then continue in range? Maybe that change is caused by changes in US gov.
If that is true, then we can expect 3 or 4 more stable years for this system, and after that a short period of very strong trend followed by another 4 year period.
Well what was improbable is ocurring right now. Eur and gbp lose correlation and are moving in oposite direction making a huge divergency and generating lots of stop losses on my account. Thats too bad. Iām going to pause trading with statarb until i see a return of correlation on eur and gbp pairs.
Hey Medisoft, sorry to hear about your recent results. I spent a few minutes on the FF calendar looking up dates where there were joint GBP and ECB rate decisions. I marked up a chart with red where there were joint reports (I left off the reports where there were different dates). The date range of the chart below goes January 2012 to January 2013. The GBP rate was at 1% then dropped to 0.75% on the magenta line. During the entire period the EUR rate was 0.5%. I think these rate statements can have an influence (particularly the last one on Jan 10th). Iām not sure of the reason as I donāt follow fundamentals very closely.
I placed a yellow 400 SMA on the blue 4 Hour spread chart (EU-GU). Trading only in the direction (spread-MA) would cut down on a lot of directional drawdown and may obviate the need for multiple adds. My preference has been from the beginning not to add into spread divergence because of my past experience with the Martingale and the directional risk of the spread changing levels quickly like after the January 10th rate announcement, combined with a finite account size.
Thatās a good idea 
I has been studying the behavior of eurgbp and eurusd/gbpusd.
While they are not exactly the same thing I learnt that the trend of eurgbp can help with eurusd/gbpusd. Just placing trades using the statarb rules, but only in the same trend as eurgbp can help a lot.
The spread indicator you use do the eu-gu operation? or it uses another calculations?
What you guys are seeing is a result of recent talk of the UK dropping out of the European Unionā¦ AND further expectation that the UK will provide more monetary stimulus.
The MPC meeting minutes tomorrow will provide more volatility for the GBP independent of correlated EUR movement.
And also, figures later this week are expected to show UK heading into another recession - a triple dip. Sterling has some weakness to deal with over the next few days/weeks/monthsā¦
Oh! I see, that explains a lot why the pound is traveling south.
Yes the spread indicator is just eu-gu. And agree that you can use the trend of EG for this purpose as well. A 4 hour 400 period SMA on EG should look quite similar to the spread indicator on the chart.
UK possibly dropping out of EU? That is important news and would indeed change the fundamentals of this strategy concerning EU and GU. In fact it might invalidate (or at least greatly diminish) these two pairs as a trading vehicle for stat arb because the relationship would not be as close - meaning the BoE would no longer have a reason to have the GU shadow the EU in anticipation of joining the currency.
Exactly ā¦ Obviously there have regularly been rumors about other euro countries dropping outā¦ But Iād give this one a bit more credence given UKās unique status and the talks have been coming from people within UKs government.
if anyone use this strategy for long time please tell me the latest update about this strategy will this work for long time if this
strategy work then i will make a ea on this strategy so please tell me if any one use this strategy for long time will it work or not
You need to check things that can cause a loss of correlation. Also it is almost the same to trade audnzd than audusd/nzdusd.
medisoft will you use this strategy for long time and please tell me what is the cause a loss of correlation and yes you are right it is same as trade audnzd
Iām back and want to restart this topic. I feel like there is something still here. I am starting to use my same method as I posted but with a indicator telling me how far away in standard deviations two pairs are from each otherās means.
The indicator tells how many standard deviations the two pairs are away from their average
Hi Kelton,
Whilst it is quite long, I seriously suggest you go back and read the thread in its entirety because after you stopped contributing, there were many healthy discussions and good posts; Medisoft, FXEZ and myself all posted about different ways to tackle the same problems.
If you are looking at using the standard deviations, presumably, typically you might look back in history to see how far they deviate, and determine a particular level/threshold. You would then enter a trade when they breach that threshold? If that is the case, one of the main issues that you need to consider is, if your threshold/entry point is too high, then you will rarely get trade entries. If it is too low, you will get too many which move against you. This is because the SD range differs when the instrument is ranging and trending.
I was looking at a way to trade the SD movements, but trying to take into consideration the trends at the same time. I posted some quite in-depth posts about how I was doing it. From memory, Medisoft also found that too many trades moved against him and the relative drawdown was high. So, good luck if you are going down this road again.
J
Hi Kelton,
Iām interested in doing some work on this strategy.
Could you please upload the SD indi you are using.
Thanks.