basket trading

[ParryL1]

This doesn't make sense to me from a risk perspective. Rather than hedging it sounds like you are increasing your trading costs, mis-matching risk. I would rather stick to trading a single FX pair

 

[fty2099]

I hate to disagree with you, but you are wrong. This is a VERY good strategy when you understand the method better. I thought that I would add a comment for explaining why this works for those who believe that you can trade 1 pair and get the same result or for those who think the spreads will just eat the trade. This is from a post I made on another site...


If 3 pair triangular trading doesn't work, then explain this account --> https://www.myfxbook.com/members/bestdarngood/fxcm-5000-d1/1822431


You guys are only ever thinking Instantaneous trading (Looking at a snapshot of the market at a specific point in time). What you fail to realize is that you need to look at a longer time period and realize that all pairs don't move equally and cancel each other out.

For example, take whatever the current price of 3 pairs such as AUDUSD, EURUSD, and EURAUD and notice how at the specific instance you look at, there is a relative bias towards one pair. Then think if all pairs were priced at parity 1:1:1, there would be no bias. Or look at a different point in time, I recommend pick a long time period to compare such as 1 year apart. Notice that there is a difference in the relative value and bias of the pairs. That difference in value/bias is how you can make money along with market inefficiencies. The pairs tend to gravitate towards each other so that if you were to trade a full circle, you would end up with what you started (minus fees of course). But if you trade when the market gets off a little, you can safely make profit like I show in the account I posted above.

There is the proof, just look at the history of the trades done.

Also I would just like to state that banning someone from the site for a week just because you don't understand how an EA works since you can't open your mind or look at the history (which does matter) is pretty childish and unprofessional.

I can see that the bias(exposure) changes over time, as he said, if you consider the 3 pairs priced at parity for an example where all 3 pairs are equal and you have no exposure in any one direction (I understand that you probably won't get those prices of equality, but it is a valid point that they could get at). Then if you consider the prices as they currently are, there is more exposure towards one pair (or currency) over the others.

At all times in history, the exposure you have will fluctuate, you can see that by just looking at the exposure tab. Back when the AUD was stronger than the USD currency, the exposure was drastically different than it is today when the AUD is weaker than the USD. Just like a pip is a fraction of the price and can make or lose money, I can also see how the smallest changing of your exposure can turn the value of the trade one way or the other. Something to be considered.

It is true that paying 3 spreads is not what anyone wants to do, so in order for this to work well, the spreads would have to be small or the exposure change would have to be significant which is probably why the history shows some trades lasting many days in order to get enough change in the exposure to make this system work. I'm very intrigued to say the least and it is nice to see the link showing many trades that are profitable indeed.

 

[Enivid]

I can see that the bias(exposure) changes over time, as he said, if you consider the 3 pairs priced at parity for an example where all 3 pairs are equal and you have no exposure in any one direction (I understand that you probably won't get those prices of equality, but it is a valid point that they could get at). Then if you consider the prices as they currently are, there is more exposure towards one pair (or currency) over the others.

The exposure depends on the open prices. The current prices do not affect your exposure as the amount of each currency you have does not change until you close a trade or a open a new one.

At all times in history, the exposure you have will fluctuate, you can see that by just looking at the exposure tab.

No, it won't, unless you mean exposure in USD terms, which does not really matter here. Please show some examples "at the exposure tab."

 

[hayseed]

I would rather stick to trading a single FX pair

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hey parry..... many would agree...... although, sometimes shootin into a pile of geese pays out pretty good..... course, the hard part is talkin them into piling up.....

some you will miss..... some you will get..... you'll never kill'em all..... but seldom go home empty handed......

the first picture below was made a couple weeks ago of a basket trading ea based on bill williams chaos system...... or at least what i can figure out of the system..... i do not have the study guide or videos..... so the finer points are not known to me..... 2nd picture is today.....

even without that important 'finer' information we could clearly see which way the geese are flying..... shoot into the middle of'em......h
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todays screenshot
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[fty2099]

The exposure depends on the open prices. The current prices do not affect your exposure as the amount of each currency you have does not change until you close a trade or a open a new one.



No, it won't, unless you mean exposure in USD terms, which does not really matter here. Please show some examples "at the exposure tab."

Let me first start by asking you two questions.
1) What is the Exposure if all 3 pairs were at parity with each other?
2) Now would that Exposure be the same when all 3 pairs at not at parity? (Like they normally are)

I'm not saying that your exposure on the exposure tab will change for a trade while a trade is open, I am trying to say that it isn't always the same because the prices are constantly fluctuating and along with that change. So opening a trade at one price compared to another will result in different exposure levels. Can you agree with that?

 

[Enivid]

1) What is the Exposure if all 3 pairs were at parity with each other?

Zero.

2) Now would that Exposure be the same when all 3 pairs at not at parity? (Like they normally are)

If position is opened at those non-parity prices - yes, the exposure will be different from what it would have been if opened at parity.

I am trying to say that it isn't always the same because the prices are constantly fluctuating and along with that change. So opening a trade at one price compared to another will result in different exposure levels. Can you agree with that?

Of course, I agree that different open prices will result in different exposure levels in such a set of locked positions. However, it is obvious and does not explain the necessity open such trades at all.

 

[fty2099]

Zero.

If position is opened at those non-parity prices - yes, the exposure will be different from what it would have been if opened at parity.

Of course, I agree that different open prices will result in different exposure levels in such a set of locked positions. However, it is obvious and does not explain the necessity open such trades at all.

Forgive me since I am trying to figure out the strategy and how it works so I don't have all of the answers, but I believe the exposure is relevant and want to throw out another thought.

For example, let's say you have a USD based account like bestdarntootingood shows trading the 3 pairs that they trade. The per pip win/loss or value of both AUDUSD and EURUSD is always the same no matter what the price since they are USD based pairs. The per pip value of the EURAUD on the otherhand changes as the price changes so if you were to open two trades at different prices, the pip value would be different between these two trades. BUT the pip value does not change for the opened trade and is instead based on the price that the trade was opened at.

I think then because the trade moves many pips, that somehow this exposure and pip value being different for EURAUD from Trade Open to Trade Close causes the profit/loss regardless of the spreads eating profit, and creates the profit shown in their account because the pips/value of the pips get out of line with each other between the pairs or something. As I said, I don't know exactly what is happening, but I am trying to determine why the system seems to give profit that they are using. Maybe someone can expand on this a bit or provide a contrary opinion as to why the system is profitable. It is a very interesting strategy.

I know you (Enivid) said that this was just basically trading AUDUSD in the opposite direction at a certain lot size, but that doesn't quite hold water in all cases.

Look at the trade that opened on September 9th (See attached that I took a screenshot of). Using your idea with the AUDUSD, then this basket should be an equivalent of I believe about 0.145 lots as a Long Position (correct me if I am wrong). The Overall Gain shown by all 3 pairs here is $76.08, but if you then would calculate the profit of AUDUSD with a rough 2 pip spread at 0.145 lots, I come up with almost double at a gain of $138.33 when I would expect closer to the $76. Can someone explain that?

 

[Enivid]

The per pip value of the EURAUD on the otherhand changes as the price changes so if you were to open two trades at different prices, the pip value would be different between these two trades.

The USD pip value change for EUR/AUD does not matter because it is always compensated by AUD/USD rate changes. Going long EUR/USD and short EUR/AUD is the same as opening an AUD/USD position (the size depends on the rates at the time of entry). That's a mathematical fact. Until you understand, you will get confused by these sorts of locked trades.

somehow this exposure and pip value being different for EURAUD from Trade Open to Trade Close

No, the exposure of the EUR/AUD short trade does not change from the moment of trade entry to its close. What changes is its pip value, which depends on AUD/USD.

I don't know exactly what is happening,

But I do, and I have explained it in one of the first posts here.

Maybe someone can expand on this a bit or provide a contrary opinion as to why the system is profitable.

The system was profitable because it managed to open AUD/USD trades profitably enough to compensate for the additional spread/swap losses. Had it used normal AUD/USD positions, it would have been even more profitable.

I know you (Enivid) said that this was just basically trading AUDUSD in the opposite direction at a certain lot size, but that doesn't quite hold water in all cases.

Actually, it does - as I have shown in this thread twice already and since no proof of opposite has been presented.

Look at the trade that opened on September 9th (See attached that I took a screenshot of). Using your idea with the AUDUSD, then this basket should be an equivalent of I believe about 0.145 lots as a Long Position (correct me if I am wrong). The Overall Gain shown by all 3 pairs here is $76.08, but if you then would calculate the profit of AUDUSD with a rough 2 pip spread at 0.145 lots, I come up with almost double at a gain of $138.33 when I would expect closer to the $76. Can someone explain that?

I could not find any September 9 trades on the screenshot, so I provide calculations on the September 21 trades instead:

Short 0.43 lots of EUR/USD @ 1.11543 = selling 43,000 EUR for 47,963.49 USD.

Long 0.43 lots of EUR/AUD @ 1.47192 = selling 43,000 EUR for 63,292.56 AUD.

At this point, you do not have any EUR exposure. What you have is long exposure to USD (47,963.49) and short exposure to AUD (63,292.56), which is a short AUD/USD position of 0.6329256 lots with an open price of 0.75781 (47963.49 / 63292.56).

Now, you add a Long 0.43 lots of AUD/USD @ 0.75792 to it.

This effectively hedges 0.43 lots part of the Short AUD/USD position (locking 1.1 pips of loss, by the way).

The remaining unhedged part of the short AUD/USD = 0.6329256 - 0.43 = 0.2029256 lots.

Now, however EUR/USD and EUR/AUD move, the profit/loss depends only on the move of AUD/USD. Your EUR exposure is completely eliminated by your EUR/USD and EUR/AUD hedge.

At the Close time, the AUD/USD Bid rate was 0.75223. Let's assume that Ask was at 0.75243 (2 pips spread). The resulting profit should have been:

(0.75781 - 0.75223) x 0.2029256 lots = $113.23

With 1.1 pip loss locked in a hedge, you have to subtract $4.73 from it. So, it's $108.5.

The actual cumulative profit of the trades was: $542.66 - $244.67 - $192.13 = $105.86.

The difference is attributed to paying two additional spreads for unwinding this 3-side hedge - the spread on EUR/USD and the spread on EUR/AUD.

By the way, the calculations above are valid only if you enter and exit the trades at the same (or nearly the same) time. Myfxbook does not list seconds for time, so I cannot check if this is actually a case.

 

[Ary Barroso]

Wow; I have never seen, this type of tool before! It looks quite interesting! what’s your current status? Till are playing with this tool.