joy_mitali said:
hi Nautilus,
Grt to hear from u----Ur words---and ur experiences in trading are truely amazing---Already I have started my studies on Pair Trading---If u can give a detailed description on the 3D matrix u have developed--or some sources----I will try to simulate it---
I have recently started the work of isolating datas of all scrips ---on the basis of diff indicators---Its 80% complete---Its the work for developing a trading system---
Maybe---a few yrs hence-(or maybe much before)---I will try to incorporate all the tricks ---I m learning from u and WasteJ--My hats down to u both---as well as to Ivan Boresky for many an interesting threads in this forum--
Regards,
joy_mitali
Hi Joy:
Its good to hear that you have started work on pair trading and making good progress. I think you may achieve it much quicker than I did ( I started work on the old IBM 8086 PC which was very slow (8bit) and it would take ages - then I progressed to faster processors and the work got faster and finally when Sun Solaris work station became available I moved on to it and the work simply flew! - Thats another story.
Coming back to your question on 3-D matrix, I have tried to describe it in as great a detail as possible, and simplified it so that interested members of the forum may be able to learn and improve upon the concept and eventually teach me further. At the risk of being boring I have made the explanation as detailed as possible and in some cases slightly repetitive - and I apologise for that.
I have created a simple 2-D currency matrix as below with some numbers incorporated into (it is these numbers that changes it into a 3-D matrix):
3-D ACTIVE CURRENCY MATRIX
USD GBP EUR CHF JPY NOK SEK CAD AUD NZD SGD
USD 0 2 3 4 5 2 4 5 6 7 2
GBP 0 2 4 7 3 3 5 5 5 2
EUR 0 1 8 3 2 6 6 7 2
CHF 0 7 2 2 5 5 5 1
JPY 0 5 6 3 2 2 3
NOK 0 2 5 4 4 2
SEK 0 4 3 3 2
CAD 0 2 2 4
AUD 0 1 3
NZD 0 2
SGD 0
Lets analyse the first row of this matrix labelled USD and let me explain what these numbers mean. You would notice these numbers are different for different currency pairs and for some pairs they are similar.
For Gbp/Usd the number is 2
For Eur/Usd the number is 3
For Usd/Chf the number is 4
For Usd/Jpy the number is 5
For Usd/Nok the number is 2
For Usd/Sek the number is 4
For Usd/Cad the number is 5
For Usd/Aud the number is 6
For Usd/Nzd the number is 7
For Usd/Sgd the number is 2
These numbers represent the risk reward ratios that I have talked about and explained in one of my previous postings under FX titled "FX Trading Recommendation".
These numbers represent these risk reward ratios and they tell us the top three pairs for trading in this matrix against Usd will be Nzd (7) Aud (6) and Jpy or Cad both with the r/r of (5).
I have copied part of this particular thread for ease of reference below.
2) Risk Analysis: I choose a logical stop-loss based on Hourly charts. This involves studying 1 and 2 hourly charts and looking for "inside and narrow" (I&N) bar patterns. If I see a compression of bars which are also I&N then I look for the high of the largest bar and determine my "Risk" ie. stop-loss. In the case of Eur/Usd I had determined a risk of 0.0060 basis points based on above analysis so the stop-loss was placed at 1.2580 and my entry point was determined as 1.2520.
3) Reward Analysis: I look for the most recent swing's "highest high" in the EUR/USD case it occured on 2/9/05 at 1.2589 and I look for that swing's "lowest low" again in case of EUR/USD it occured on 19/8/05 at 1.2126.
Calculation of reward: (1.2589-1.2126)x 0.75 = 0.0347
Reward objective = (1.2589 - 0.0347) = 1.2242 ( I have rounded it off to 1.2250 on the higher side) this is also my objective.
Reward = 1.2520 - 1.2250 = 0.0270 basis points.
When you go long you perform the reverse calculation and add the 75% of the (high-low) to the low.
4)
Calculation of risk (0.0060) reward (0.0270) ratio = 0.0270/0.0060 = 4.5
This idea was then applied to different stocks/ sectors and indices as refered to in my previous post.
Hope this helps.
Regards
Nautilus
Ps: Sorry the numbers are not evenly spaced in the matrix - but I am sure you can figure it out. For a visual presentation try and put these numbers in Excel and create a 3-D graphical presentation and you would get a visual representation of what I am trying to say - may be you can post it on this forum (use different colours for different currencies)!