Correlation and Hedging Revisited

[AltosTrader 10]

Ah well, crashed and burned. A very interesting exercise and I learned quite a bit about the nature of the responses of the Stoch.

 

Found some of my problem in trying to set up the JV. The platform I was using has the primary currency indices on it and It seems that was the major problem. The platform, over the weekend and holiday could not get the indices and was slowing nearly to a standstill at times whilst trying. I even disabled my anti virus and spyware programs, that gave a small improvement but since I deleted the indexes, no further trouble. Also moving this system over to FXPro as they have much better history than Windsor.

 

I will get back to this properly when my wife goes back to work next week.

 

Do you know of Craig Stoltz and FXAW ? Craig is a newly retired NASA scientist witha passion for auto trading FX. He has come up with a system entitled "Entropy" which looks like will be his real masterpiece. I was a charter member back in 2008. FXAW is a bunch of brightsparks and coders who are up another level from Steve Hopwood. If you have any interest, have a look now as shortly it may become commercial to non members.

 

If by any chance you do join, mention my name and Steve Hopwood.

Cheers,

AltosT

[AltosTrader 10]

This may be worth your while looking at. Members rating of brokers. Big players, small players.

 

stevehopwoodforex.com • View topic - Which criminal can we use?

[AltosTrader 10]

Hi there Eric,

Have been "out of it" for a few weeks. Major problems with several PC's, backups, re-installs etc etc etc. Discarded Win 7 for the moment because of poor email capability of Win Live Mail and have come back onto my XP machine for daily use as only an email client with Public Folders is useful to me. In that I have found Pegasus but have not spent time enough to be familiar with it. Soon maybe. For the moment XP and outlook Express are more useful / friendly.

 

Happy New Year, Western and Eastern :-)

 

Coming back to trading now and trying to establish my setup. I have gone through all the Stoch Diff Pairs and reset them at 75% and 2% and setup profiles for each pair so that if say, I get an alert from the stoch on one screen for AUDCAD/AUDUSD I can pull up the profile for the AUD pairs as per the attached jpg.

 

The only thing I am missing now is a small EA or indicator which will constantly display the Diff in pips between the pairs on the screen where I have drawn them in at extreme right in this jpg.

 

Before I chase up someone to create this little blighter I thought I would ask you if it is something of use to you and/or could you easily code ? I think, like the Stoch Diff. it wants an alert - just as a built in extra. Likely not used if one has pulled up the chart because of an alert from the stoch. The colours would though, ideally, want to follow the pair colour or it could become confusing.

 

Is this something you can easily do ? I am sure someone at FF or Steve Hopwood can do it if you are not inclined. To me it is a full confirmation of an uncoupling, to view it in actual pips, on the pairs rather than via an indicator. Stochastic or Variance.

 

Whatcha think ?

Regards,

Michael.

[AltosTrader 10]

Here is another slightly different indicator which gives an alert.

 

Hedge and Correlation Strategy - Page 243 @ Forex Factory

[Eric Johnson 10]

Hmm, I will have to see how the week goes, it may be very busy for the next few, or slow and plenty of time for projects.

Here are my observations for progress on your display and layout. First it has been many months, but doesn't the variance indicator you are using rescale due to it's programed sampling of pair prices? Said another way, most of your pip difference visuals rescale. Even the stocastic is formed(bent) by the stoc settings, and the flattening. The point is, even if you had a display of actual pip difference, your historical visual pip comparison would be distorted, or rescaling.

It took me many weeks to sort through the idea of rescaling distortions and how elusive they can be. Even if you change monitors (resolution) is enough to distort the spacing of the lines. What ends up happening is that the display shows you should be in the profit, but you are losing money, due to the rescaling distortion. Also a clear lock on the top pair and bottom pair is essential , to establish the center line for comparing expansions.

In essence this is the function of the EJV, you fix the scaling, set the center line, define the top and bottom pair, and set the historical pip extremes. Also you get an undistorted view of the vertical separation speed, so you can evaluate likelihood of contraction.

The programming seems somewhat straight forward, but I can already see the complexities of it. The larger price of the 2 currencies would have to be established. The aspect that is beyond me is how to auto convert the Yen pairs (the digits are incompatible). I know in theory, but it would take time to find the script to make it compile.

The problem that I see, is that there is no "actual pip difference". If a yen pair is at 72.09 and a GBP pair is at 1.49 , there is no set difference scale if they move. You have to define the center line to display offset. If that center line is constantly changing with auto sampling, it is worthless. It needs to be set by the user, and fixed until altered. This is why I built the EJV.

It has been many months since I was inside the code of the indicators you are using, so let me know if I am missing the point.

I was a bit unnerved at the hourly correlation expansion of the EUR/USD and the NZD/USD. It ended up being way off the historical scaling norms. Fortunately, due to the slow slope of the EJV, I did not have too much money on it, but it shows that crisis euro news can throw off traditionally faithful correlation relationships.

Otherwise, nice work in progress. The 5 minute EJV is fun to trade if you choose the pairs carefully.

[AltosTrader 10]

Hi Eric,

Geez ! What a stretch for my addled brain. OK, I have this now I think. The attached was set with 12000 bars asked for but only available to about June of 2010, so is about 9000 in fact. Now reset to 4000 in the chart.

 

I am a little surprised that I had to pull the "todays" price back from ~ 1.065 to 1.035 to get reasonable fit on the chart. The jpg is with chart fully zoomed out. I notice further left than the display that the Variance is offchart but am going to assume this is not very significant to the present display and correlation.

 

Could you have a look at mine in relation to yours ?

 

I confused myself in thinking I should setup the display using the price from 12,000 bars back so I was having trouble coming to grips with it. Now clear.

 

I continue with the offchart line display as it clarifies the price action of the pairs at a glance but yes, you are probably right in that their display may not quantify the degree of decoupling and so assigning a pip value may not have value.

 

I would like to get to their mean reversion however and that can likely be quantified. I will have a chat to my son who recently completed a Masters in Quantatative Mathematics biased to finance as it was his intention to become a Fund Manager. He has been, and continues to be, a gym instructor. I think he maybe prefers that as an occupation but time will tell. He may be able to do the math and I can maybe do something from there.

 

I understand that Ninja Trader has a built in indicator for the spread of deviation but have not yet followed up on that. Trying to get this right first and then setup as I would expect to want it. Must get all the basics right first off. The FF forum has kinda degenerated into an effort to get an EA up to trade just a couple of pairs. The Luku_Ediff indicator is I think, worth having a good look at. Essentially you enter on the white dot and exit on the red. The guy has done a nice job and it will be interesting to monitor it once I am straight with the EJV.

All the best,

Altos.

[Eric Johnson 10]

Indeed, the concepts behind comparing price movement and separation are tricky to conceptualize.

A random note of importance, I see that the forex .com has changed their extensions again. I redid many of the indicators to not have the FXF extension in it, but the profiles also needed to be redone. It is a work in progress, as I want to run all of these on Oanda. The forex. com version is MT4 build 225, and it still works and has live feeds if you can get a download of it. I will post the new profiles and indicators when I get back to that project.

Referring to our charts, I can see that you are using a version of the JM variance that is different than the one I use. The important thing to consider is to look into the code and see if it auto samples the "week open" prices. In my versions (EJV) it does not, you set these fixed prices to the comparison level you want to use for that pair.

Allow me to rephrase this important concept. For me to measure pip difference expansion, I need each pair to have a fixed price that it moves from. This is the "Week Open" value in my EJV version. You can see from my JPEG that I set the value of the USDCAD to 1.22 (P1). This is not the current market price, I put the fixed price at that value to center the highs and lows of the chart for the last 3 years. For the AUDCAD I set the fixed value at 1.04 (P2).

Now I have values to use as set references for expansion and convergence. Also I can set the scale factor to keep the historical highs and lows on the chart. I can see your attachment looks different, because you are zoomed way in (scale factor). This pair has wild swings, so I am zoomed way out. I would rather see historically adjusted zoom out, than be in a trade from a zoomed in chart, and have the price expand off the chart and lose hundreds of pips. There are better pairs to trade, that when zoomed out keep better ranges and expand and contract more often.

Also you need to be careful about the upper and lower pair when trading. If you do not have a clear method as with the EJV (higher price is P1) , then you can mess up order direction. You will see with rescaling overlays (or autosampling indicators) that the lines can switch from upper to lower position by themselves (even chart indent can do this). Especially for the USDCAD and AUDCAD because they are so close in actual price.

Also I am not sure if you are aware of the measuring tool in Metatrader. Once you activate the crosshairs, if you click and drag between 2 points on a chart, it will give you a horizontal and vertical value. This can be read with some practice , due to the digits used , but it can give pips.

I attached a copy of the EJV I use. Progress is profit, thankfully so many tools are free.

''JM_Vari-BEST lookback yen 10 INVERSE positive up.zip

[Eric Johnson 10]

Today a quick and half baked post. Here is the progress on the hourly and ( 5 minute) line overlap charts. They are the same as the original ones described and previously posted for the FXF forex. com platform. The change is that they have been recoded for any normal platform like Oanda that carries so many exotic pairs.

To preserve the profiles that grouped pairs together for correlation value, I could not change the indicator name, just the code. Also when I put them on the new platform, the colors were all one default color. So I got half of the colors back to individual colors. This is a work in progress, it has been a while since I have even opened these zipped folders. I still can use the old FXF platform, but it may be hard to download this outdated platform for others.

oanda fxf profiles.zip

OANDA FXF conversion overlap.zip

[ronemshoff 10]

Hay, is Eric Johnson and Altos Trader still out there??? Still trading this system??

thnx, Ron

[AltosTrader 10]

Hay, is Eric Johnson and Altos Trader still out there??? Still trading this system??

thnx, Ron

 

Nope, I couldn't get it down to my satisfaction.

[ronemshoff 10]

Are you Eric or Altos?

I havnt tried this method, but i did devote a lot of time demo trading the FF Hedge and Correlated method using Stocastic variance as a trigger. Couldnt get consistent profits either. However i was trading every 70% daily Mataf correlation which might have been too much. I am thinking revisiting that method and tightening the screws down a bit. It just makes since that this should be a good method. Ron

[AltosTrader 10]

Are you Eric or Altos?

I havnt tried this method, but i did devote a lot of time demo trading the FF Hedge and Correlated method using Stocastic variance as a trigger. Couldnt get consistent profits either. However i was trading every 70% daily Mataf correlation which might have been too much. I am thinking revisiting that method and tightening the screws down a bit. It just makes since that this should be a good method. Ron

 

My name is to the left :-)

 

I used the Stoch Diff much as FF but used the version and tpl from here. On demo, I made good progress but when the Euro took off it was right on Xmas and being demo I could not be bothered continuing. Were I to have continued I would have hedged my way out of the DD but I never bothered to look at totals per pair. My conclusion was it was a reasonable method but since most trades were comparatively small the hedging would be a pain in the ass. I prefer a largely mechanical trade style which Eric may have got down but it was not sufficiently clear to me.

Cheers,

AltosT

[ronemshoff 10]

thnx Altos,

i am new to this site, and it didnt dawn on me to look to the left - although it should have. Funny that Eric no longer posts. Probably blew his account.

 

i will continue when i have time with corr trading as i still think it has potential.

 

it is interesting your background, i also lived in New Zealand for 20 years, visited Australia many times before deciding to move to Thailand after doing a couple of real estate projects in u.s.. Also married an asian many years my junior, and now living with a Thai angel again many times my junior. Thank goodness for viagra.

 

You interested in conferring on other systems/methods??? i would start something on FF but there are so many idiots and newbys there asking the same dumb questions over and over i just dont have the time or patience.

 

if ever you get to Thailand look me up.

my email is ronemshoff2002@yahoo.com

[4EverMaAT 10]

Still doing your correlation trading Eric?

 

When are you coming back to thailand?

 

Thanks again for the screenshot. I'll put some credit for you in the upcoming whitepaper on the APAMI indicator.