How do you match the divergence on this overlaying chart ? I mean depending on time frame and time period you get different divergences. Is there a fixed starting point where you compare those symbols ? Otherwise it is very discretionary. And I know you do not have any stops in place... I mean depending on scale, if you look at the gap at the beginning of your chart. If that is switched bit forward so that both lines do touch, the whole divergence is gone what you are looking right now actually. So this is highly discretionary if you do not have any rules of overlay charting...so the question is what kind of rules do you have herefore ??
Are you aware that correlations between dollar yen and US yields are very high, historically? Divergences between USDJPY and bonds are then normal not an anomaly.
I have a peak-valley logic + macro market logic. Yield has dropped 40+ bps from highs while eurjpy made a new high. Yield threatens to break uptrend, so for this to continue it'll cripple jpy as well. Now it's a matter where the focus is going to be - since i dont know that, i'll trade both. PS. I could easily poke stop losses into this idea, i just have a better idea
If you paid more attention to my post you'd get it. But i do understand where you got distracted - that first sentence of my post was about the chart i attached which is yield not a bond price. So yes, i'm aware what you notoriously hoped for i wasn't. Why else would i sell BOTH?
But again the discretionary element of overlaying charts still remain BECAUSE where is your exit point of your short position then ? I get it that you would enter at some point. I understand this. You can find more of this stuff on Brent Donnelly HSBC FX Senior Trader at his book "The Art of Currency trading", http://brentdonnelly.com/books-art.html. Did you read this book ? I also was trying to do that kind of stuff 2 years earlier. But I got surprised many times by the overlaying after some time has left and it did not converge as I hoped. So maybe it is only for the longer time period and higher timeframes. I tried this kind of stuff until the 10 second charts too from 1 hour charts over 6 month going to lower timeframes for a wide range of symbols and asset classes. Also the combination did not help to trade both instruments on the overlaying charts (for me). So I have some experience in trading this kind of stuff. From time to time I got bigger to huge drawdowns so that is why I skipped/stopped this.
Sure, there is a discretionary element. And this strategy isnt for all. That divergence can grow and grow. Options also help me here. If yoy trade these on short term charts with tight stops, you'll definitely lose in this game.
I thought it could be implemented short term too but you need to take care on Price Action so you can place stops behind resistence or support areas. So in the end you always had a 2:1 or 3:1 RRR ratio on all trades. So the risk is much smaller than any possible gains here. But I did not check this strategy overall for options. It could be quite interesting with options. Do you have any longer term results, or how many years do you trade this kind of stuff with which results please ?
As RRR grows, your probability of a successful trade declines. There is no alpha in having a higher RRR alone. Positive results, many years. This is just one strategy within the ocean my strategies. It's not the main strategy at all, i just posted it as an idea should you be short of ideas. My game is mostly algo driven.
Do you then have a (very ?) similar strategy of that kind BUT fully algo driven (100%) ? Do you want to share here something ? Thanks.