Electric is very busy working on correlations and I heard him mutter out loud the word dilutions and a waste of spread... shhh.. Don't tell him I was eavesdropping... Wifey P.S. you know I love my professor, Electric....he is my darling. (we are going to the gym now and take a break. He is so dizzy when he works hard like this...he forgets stuff and you cannot have a conversation with him, when he is thinking)
Humm many things here. I don't really want to start a journal yet but i may continue to share my input here. My computer is dying and crashes every 30 minutes! So i need a system that isn't too much time consuming until i get my new beast (AMD3500+ w. SLI Nvidia and 30" LCD screen/TV and wall projector, oh yeah baby!) For the rates, i took the rates from Oanda, where they show 2 rates (bid and ask). Like AUD rate are 5.2-5.57 and JPY is -0.2-0.14. For the rate differential, i computed that way. Long AUD/JPY = bid AUD(5.2) - ask JPY (0.14). This way i found the interest rate spread of Oanda. For exemple, you long AUD/JPY you get a rate of 5.06, but if you short it's now a rate of -5.77 (a 0.71% net spread). On average there's almost a 1% rate spread for every pair, so Oanda makes lot of money that way! I then entered all pairs (with position side) that show a significant positive rate differential. There are no other available. So the goal is to balance exposure using only those pairs. The little "hedging" pairs are those with little interest payments at worst. Like short CHF/JPY is almost essential to reduce some JPY short exposure, and you don't pay too much for this hedge. Anyway my calculations seems pretty much on par with realty, i receive the same daily amount that i computed +/-1cent. My system leaves room to gambling as i try to balance my exposure for the currency i think will be strong, in hope to make some extra FX gains or at least offset some losses. Let's say i'm more trying to build a heavily leveraged portfolio. If i think CAD will be weak, i hedge long UAD/CAD. Else i do nothing, the fun thing is that the PIP value grows as the CAD gets stronger. Exotic currency takes too much capital and reduce significantly ROI to be worth it (cause of the 1:25 leverage), but at the same time it does reduce risk, and there usually no inter-continental exposure with these pairs which is the main thing i try to avoid in my system. (i.e. i want to have exposure say on EUR and GBP and JPY and AUD, but i don't want to be over-exposed on the European continent relative to Asia, i try to stay neutral.) I think it's a way to avoid correlation between positions.
Here an updated version of my spread sheet. I hope clearer. The values to play with are the zone in Gray. Nothing else. Quarter1 pairs are highest paying. Quarter2 are exotic pairs, followed but other "nod so bad" pairs. And finally hedging pair to use solely to reduce exposure (and ROI). I have a column of basic portefolio (where i use 20% of my capital). These are to stay for the long term (but still offsetting losses with gains when possible). You input the position size you want in % per portfolio, then the number of trades you open for each pairs. The other column is where i input the other 60%-80% of my capital. You use the % per Trade case if you want to put a different trade size. The 3 risks are: 1/#pairs in basic portfolio; 1/#pairs in trades; 1/(50-effective leverage); then a sum of the 3. Means nothing, just a tool to compare different strategies. The exposure thing is all computed according the the size of your different positions. Low or high numbers are insignificant, the goal is to have all exposure relatively equals (or not if you want to play for some FX gains). Think that's it. Hope it helps.
Max that almost covers everything. Your goal of utilizing more capital on the trade side is reduced which is prudent (your gambling meter seems to be about 3:1) Can you study correlation and share how you think it would effect your system? Your thoughts? (I like your continent exposure introduction) You do not need to reply, but in time your discoveries will be appreciated and stimulate this traders mind.... Also, you can explore various sliding floats and scales as you trade this, to stabalize and refine... Max you are most welcome here, and I hope you can find the time to contribute often, hopefully daily...(I simply want to encourage you, as this is a boring "steady brick by brick" technique we are using and there is much time for research) Your Computer project sounds fun and something to look forward to!(I like the wall projector and I do not understand why more traders do not use them. The configuration is wise that you used for the current "price ratio" to "clearest picture combo") What a great day this is....(are you excited? enjoy every breath, soar with the eagles, pursue the mountains that you CAN move) Michael B.
The Three P's posturing, placement, position.... I think this is what the essence of, "living on the edge of growth in trading" is. posturing Prepare your mind and open it up for the great miracles to come placement Experiment and look for the stimulus position Jump in and become efficient Wifey
Today's Trades (Sunday) Upgraded the Data Bank at the top of the spreadsheet. Improved Formula for the "Suggested Transfer" Column. Canned the experimental "suggested base" column. Website: www.ElectricSavant.com ZipFile: