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- INTRODUCTION

- TIME & PRICE

- CORRELATION

- FOREX RANKING

- FOREX BASKET ARBITRAGE

- FX-QUANT

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Which Trend line is correct ?

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What is the value of a 45 degree trendline when you have charts with different distances between the bars ?

What is the distance between bars anyway ?

This means the 45 degree line is not correct in most charts !

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The correct way to draw the 45 degree line.

1 step in Price and 1 step in Time

Same # steps Up/Down and to the right

Time & Price meet at that crossing point

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Width = (H-L) * Delta (for all bars)

Fixed proportion on each bar

Keep a constant Ratio for all bars. (Delta)

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Time & Price Triangle

Close outside the Triangle is a possible change in direction

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From where to start a new 45’Line ?

From a new reversal once crossed by the 45’Line

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SMA-3 in steps, 1e Up/Down is called “1e step Up/Down”

45’Line replaced when crossed partly, but not by the close

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EUR/USD daily data, normal bars

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EUR/USD daily bars with 45’Line.

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The 45’Line on normal daily bars, a difficult calculation

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A different (Renko) way to chart Time & price with 45’Line

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The 45’Line on Fixed Range Bars

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- Correlation

- Different way to trade Cross Rates

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Correlation between CME Forex contracts

>0.8 is high correlation

Example CAD against AUD is 0.927

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High correlation between Australian Dollar and

Canadian Dollar, the so called Commodity Currencies.

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Above matrix is the 5-day correlation between Forex Pairs

Example :

EUR-USD against EUR-CAD = +88

USD-JPY against AUD-USD = -93

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- Correlation to high, less profit

- Correlation to low, more risk

- Best correlation for spreads between 65 and 85 %

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Cross-Rate:EUR / USD = 1.3570USD / CHF = 1.2060Take out the two x USD andget the Cross Rate EUR/CHF 1.3570 x 1.2060 = EUR/CHF 1.6365

So 3 legs working together !1 EUR/USD2. USD/CHF3- EUR/CHF

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Ratio between EUR/USD and GBP/USD

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Difference between EUR/USD and GBP/USD(both 10.000)

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Bottom chart: Spread value, now with Candle or bars

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Bars are the OHLC of a spread between the two contractsWeekly bars (box) around daily spread bars. Trend in the spread isup when the 1e daily close is above the last weekly high (box) v.v.

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Two time frames, Boxes (weekly) and Bars (daily) Working together !! Boxes are the trigger

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Spread CME €uro/USD (top chart) against Swiss/USD (middle) At \/ sold €/$ and bought SFR/$, both $ 12,50 per point.

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Long spread signal, start Neutral with:AUD 0.7883 - NZD 0.7004 (0.7883/0.7004)You need NZD 112.550 short for AUD 100k. long

28Spread: 2 x E-NQ against 1 x E-S&P ! Use same strategy

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One more step you can add:On each new signal take a new full position, but take out each timethe 75% of the position when the average bar length is reached

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FOREX RANKINGFOREX RANKING

System for ranking Major Forex Rates

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How can we rank the major FX rates ?

- Filter each FX rate with the same type of filter

- This way we can compare FX Rates

- For easy ranking create a ranking tableand a scatter type chart

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What are we using ?

- RSI 10- EMA10 on RSI- EMA30 on RSI- Ratio EMA10 – EMA30 (> 100, <100) - Momentum on Ratio (> 100, <100)

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Symbol Last RSI RSI_Ratio Momentum

EUR/USD 1.3651 79 110 102GBP/USD 1.9979 27 108 94AUD/USD 0.8302 35 98 85NZD/USD 0.7420 40 104 92

USD/CHF 1.2052 35 87 84USD/JPY 119.34 59 101 91USD/CAD 1.1164 15 58 80USD/NOK 5.9572 54 92 98USD/SEK 6.6941 31 58 68USD/DKK 5.4580 19 77 87

EUR/GBP 0.6833 76 100 106EUR/CHF 1.6456 61 104 85EUR/JPY 162.82 61 109 90EUR/NOK 8.1313 62 103 104EUR/SEK 9.1370 25 64 72EUR/DKK 7.4655 45 91 80

GBP/JPY 238.81 65 110 100USD/SGD 1.5158 47 102 103USD/HKD 7.8216 75 103 102

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Symbol Last RSI RSI_Ratio Momentum

GBP/JPY 238.81 65 110 100EUR/USD 1.3651 79 110 102EUR/JPY 162.82 61 109 90GBP/USD 1.9979 27 108 94NZD/USD 0.7420 40 108 96EUR/CHF 1.6456 61 105 85EUR/NOK 8.1313 65 104 105USD/HKD 7.8216 75 103 102USD/SGD 1.5158 47 102 103USD/JPY 119.34 59 101 91EUR/GBP 0.6833 76 100 106AUD/USD 0.8302 35 98 85USD/NOK 5.9572 54 92 98EUR/DKK 7.4655 45 91 80USD/CHF 1.2052 35 90 89USD/DKK 5.4580 19 72 80EUR/SEK 9.1370 26 64 73USD/SEK 6.6941 30 58 68USD/CAD 1.1164 15 58 80

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Symbol Last RSI RSI_Ratio Momentum Yesterday YesterdayRSI_Ratio Momentum

GBP/JPY 238.81 65 110 100 112 104EUR/USD 1.3651 79 110 102 112 105EUR/JPY 162.82 61 109 90 104 98GBP/USD 1.9979 27 108 94 113 99NZD/USD 0.7420 40 108 96 112 102EUR/CHF 1.6456 61 105 85 107 88EUR/NOK 8.1313 65 104 105 100 99USD/HKD 7.8216 75 103 102 98 96USD/SGD 1.5158 47 102 103 97 101USD/JPY 119.34 59 101 91 99 90EUR/GBP 0.6833 76 100 106 95 101AUD/USD 0.8302 35 98 85 104 91USD/NOK 5.9572 54 92 98 86 89EUR/DKK 7.4655 45 91 80 87 75USD/CHF 1.2052 35 90 89 87 84USD/DKK 5.4580 19 72 80 71 76EUR/SEK 9.1370 26 64 73 65 70USD/SEK 6.6941 30 58 68 57 64USD/CAD 1.1164 15 58 80 60 79

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FOREX FOREX BASKET BASKET

ARBITRAGE ARBITRAGE

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RSIz shows: - negative power below the zero line- positive power above the zero line.

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Compare RSI (Strength/Weakness) of FX BasketAll Currencies quoted in USD

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In this sample:- EUR/USD- GBP/USD- AUD/USD- NZD/USD

- USD/CHF = CHF/USD- USD/JPY = JPY/USD- USD/CAD = CAD/USD

- EUR/CHF- All equal quoted in USD

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How much to use per trade ?

Total RSI value of all Currencies quoted in USD = -83 is 100% ofall currencies in the Basket

Example:EUR/USD (Red -14) means youare short in EUR/USD

JPY/USD (Purple +21) is longin JPY/USD or short in USD/JPY

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Total RSI value of all Currencies quoted in USD = -83 is 100% ofall currencies in the Basket

Your available capital to trade 100k. for all 8 currencies

Example:EUR/USD (Red -14) means youare short in EUR/USD

-14/-83 = 0.16860.1686 * 100k = short EUR/USD 16.867

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Total RSI value of all Currencies quoted in USD = -83 is 100% ofall currencies in the Basket

Your available capital to trade 100k. for all 8 currencies

Example:USD/JPY (Red +21) means youare Long in JPY/USD or ShortUSD/JPY (Spot Quotation)

+21/-83 = 0.25300.2530 * 100k = short USD/JPY 25.301

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Each currency

get equal weight

as indicated by

the RSI per currency .

Example:

USD 10K. =

EUR 7.400

but corrected by

the RSI above

it’s now € 6.986

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Adjust each currency daily

to keep the

portfolio in

Balance.

Reinvest the profits once per month to

build portfolio value.

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FXFX--QUANTQUANT

FX-Quant Trading System

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What does Arbitrage mean ?

Arbitrage is a financial operation in which currency pairs are bought and sold, either simultaneously or in minimum lapse of time, either in the same market or a different one, with the goal of obtaining a profit spread, product of the rate’s price differentials.

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What is an Arbitrage Model ?

Arbitrage models for currency/stock pairs may be designed in a variety of ways.

The important key is to have knowledge of the relationships among pairs.

This form of arbitrage relies on a strong correlation between two related securities.

The pairs trade is market-neutral, meaning the direction of the overall market does not affect its win or loss.

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What Is "Market-Neutral“ ?

A market neutral strategy is one where a trader takes a long position and a short position at the same time.

Once two markets determined to be statistically "out of alignment", a long position is taken in the market considered to be undervalued while a short position is simultaneously taken in the market considered to be overvalued relative to the first market.

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The trading strategy is based on quantitative analysis - a statistical concept.

- 50% statistical arbitrage statistical and - 50% position size management.

Unlike most trading systems, which attempt to predict market direction, this trading model reacts to price action and makes trading decisions.

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Unlike most trading systems, which attempt to predict market direction, this trading model reacts to price action.

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Diversification.

The strategy creates a complex portfolio of 10 global currencies and adjusts its components daily.

Diversification of currencies can lead to better risk-rewards for the combined portfolio.

Example, in a portfolio comprised of three currency pairs, one position can be unprofitable at the moment, but the other two can show profits to more than compensate for the losses incurred with the losing one.

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Leverage.

The leverage is carefully determined in order to avoid disastrous draw downs.

Standard risk parameters employ an average combined leverage around 2.5:1 for the entire portfolio.

The system opens positions in opposite directions. The system is USD neutral (i.e. USD bought = USD sold), although there is a long/short exposure in other currencies.

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All positions are normalized for a $10,000 opening account

NZDUSD +11988 means the system is LONG 11988 units of the base currency (NZD).

USDNOK -8496 means the system is SHORT 8496 units of the base currency (USD).

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The risk is addressed by diversification and position size management.

The system rebalances portfolio by graduallybuying/selling fractional currency lots.

When a drawdown occurs, portfolio is rebalanced and ready to recover from losses and make a new equity peak.

Potential risk for this system comes from over-leveraged trading, i.e. trading too large positions for the account size.

No need for protective stops.

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Use G-7 currency pairs:

GBPUSD, EURUSD, USDCHF, AUDUSD, USDCAD, USDJPY, plus NZDUSD USDDKK, EURSEK and USDNOK.

Example, long GBPNZD position is equivalent to long GBPUSD / short NZDUSD etc.

This way, you combine positions and reduce the bid/ask spread costs.

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Hypothetical Performance report fromStrategy back testing

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Actual Results with real Money

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Thank you

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