Does anybody out there have traded forex currency pairs in triangular manner ? I want to know how it worked. ?
Rules for trading:
Take 3 pairs which 3 currency involved. For example EURUSD, EURJPY, USDJPY.
the three currencies are EUR, USD and JPY.
Now the logic is to buy and sell all the currency at the same time as a result , two out of the three pairs will go into positive while one pairs will go into negative, as a result the overall we always have a gain.
EURUSD - sell
EURJPY - buy
EURUSD - buy
EURJPY - sell
these two combination is only possible.
Each individual currency is traded in both direction as a result, any form of news or event, do not affect the outcome.
ho to choose : take any kind of indicator which will give a signal at any point of time in all the pairs. Let say moving average. if price above moving average, we buy else we sell
And now we have three signals assigned. If the signals do not form the combination given above, we are allowed to reverse the signal on any one pair only, so that it will align with our combination. Logic behind this is, majority wins. we assume two pairs out of three are giving the correct signal, while the third pair is providing wrong signal. This technique itself allowed me to filter many wrong signals over time.
Now we just need to take all the three trades at the same time with equal amount, without any stop or target. As the pairs balance each other in events with strong move, we do not worry about account blowing.
After few candles, we will find overall trades in positive and at that point of time close with profit.
what I have observe till now that my equity rarely drops below 1% even when 3 pairs are open and running for the whole day. I even kept the trade open over night and found it to be perfectly healthy the next day. most of the time i take trades using 15 min candles analysis and close the trade after an hour or two with profit.
All these things i have done manually. So i am not sure if its a good technique for long run.
I am unable to back test it as in MT4 i am not able to back test 3 pairs at the same time using EAs.
and the next issue is, i have no idea what should be my risk to reward ratio, it needs for intense back test.
Currently i am developing an EA for this to forward test it for few months .
Guys please test this theory and let me know, so that the logic can be improved if possible.
Any kind of help regarding this topic is appreciated