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 Hedge and Correlation Strategy

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mary



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PostSubject: Hedge and Correlation Strategy   Sat May 28, 2011 2:00 pm

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Hedge and Correlation Strategy

Going Home Trading Method!

You can skip the first 99 pages of this thread, as we have changed over
time, refining our entries and exits, and developing a much better
method. Start reading on page 100 (or even pages 95-96 if you want some
background) which is here.

There are 5 Simple Steps to the new “Going Home Trading Method",
formerly known as the “Hedging and Correlation” Method. We are still
hedging and correlating, just that the new name will help us visualize
what we are wanting to accomplish in this trading system, and we have
modified our entries and exits after a very long time of practicing.

Most pairs that are positively correlated above 75% "live”
below the 20-25% “difference” line on our one indicator that we use (see
below—thanks to SMJones for developing it!). This is their home.
Sometimes they will travel a little ways away from home (like up to 50%)
and occasionally they will make a long trip (over 80%). But of course “there’s no place like home
so they eventually return to under 20%, where they live most of the
time. We will open trades when the pairs are away on a trip, helping
them to get back home, and we will profit on the way back.

There are only 5 steps to trading this successfully:

1. Go to http://www.mataf.net/en/tools/01-01-correlation and click on “Forex Correlation” under “Tools and Charts”. Put a check on all pairs.

2. Scroll down to “Daily” and note each pair with a positive
correlation of 75% or greater (I am currently monitoring 25 pairs, which
is very easy to do using the indicator mentioned below).

3. Open 5M charts on your MT4 platform for all the pairs
selected in the steps above. Place the “Stochastic Different Pairs 1.4b”
indicator on each of the charts.

4.
When a 5M bar (candle, whatever) closes above 80% differential sell the pair that is high, buy the pair that is low.

5. Close at 50%, or lower, depending on your risk tolerance.

This particular method is a short term strategy that has you in and out quickly.

Benefits:

1. No monitoring charts needed. You can set the “Stochastic Different
Pairs 1b” to alert you via pop-up on the computer, or email to your cell
phone.

2. “Built-in” stop-loss. This means that since we exit at 50% we are out
with either a profit or a loss, therefore we do not need to put stop
losses on with our trades. We will simply close out when the difference
reaches 50%.

3. “Built-in” trend/sideways moving market protection. When nothing much
is happening the “difference” percentage drops below 20 and we do
nothing.

4. Numerous opportunities to trade throughout the day. You can trade
this method anytime of the day or night. No more “first hour of the
session only”, though there certainly is more activity during “session”
times.

This method would no doubt work for longer time frames as well, and in
this thread you can feel free to test different timeframes, different
entry/exit criteria, different anything. It would be good if you were to
report your findings (even trading negatively correlated pairs, if you
have a strong constitution). There are also EAs developed for this
method.

Enjoy!

Dreamliner
P.S. I cannot seem to attach the one indicator we use, but if you begin
reading on page 100 you will come to it. It is called "Stochastic
Different Pairs 1.4b".

P.P.S.S. Many thanks to "Roundrock" for developing an EA!
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