Pairs Trading : Forex

Pairs Trading .Intro

Since this is a forex related site.. forex does not need much introduction,there are zillions of sites to introduce you into the forex world.I will leave it as such,since there are also thousands of other methods to skin the 'cat'. I chose pairs trading since its the easiest for me to execute and also bears the fruits of years of research.Pairs trading criteria::mean reversion, high TF trading H4 to above,high win rate to loss ratio,slow (swing) trading, non scalping, non stress, and best of all time and battle tested. I used EURUSD and GBPUSD combination ,basically EURGBP.Buy/sell one pair and sell/buy the other.I began this research since mid 2008...started live using this method since july 2010 till now.Hard to lose pips.When to correlation lowers(the gap rises) its time to open the trade.Combine it with trendlines, candlestick.divergence,higher tf to stack odds in our favor.If all three pairs are moving in the same direction the better.I will try to go in depth about this later.


Increasing efficiency

I have learned in the past few months that i cannot neglect the significanse of support and resistance.In our case the most common and useful analysis is the trend lines.It is more effective in H4 and above.I still consider 1hour TF as scalping therefore risky.Once opon a time ago i think trendlines are overrated and overused..well it works more in conjunction with our Pairs trading..as a result our trade becomes more accurate with even less drawdown.It definitely can save us pips especially in extremely trending market.The trend is not our best friend here.


A picture is worth a thousand words.A messy chart though.Note the indicator is used above (neutral overlay mq4)<< .Put it in EURUSD chart make sure GBPUSD is the subsymbol.Note that red lines is overlayed with EURGBP/EURUSD.Ill let you figure out that one.You could follow the hedge range and its threshold..its wonderful to minimize even more drawdown.I wont be trading buy EU / sell GU / buy EG now...since the blue lines(GBPUSD) is close to EURUSD.Its a unnessary trade with obvious DD....Also note the horizontal blue line marked at 29.6.2011..this reeked of selling EURGBP..wait until EURGBP is in the extreme BBands...wait for a trendline break....i assume you knew about trendline break and confirmation...you should know this even before you got here...its the very very basic.I actuallyshorted EURGBP at 4 fourth july..not a very long wait to get 30pips..why 30 pips? dont get greedy..at least for myself...if youll think the shorts actually gonna go some more.stop at the other extreme of the band...i didnt show you the EURGBP chart.. you can also figure it out/backtest/foward test as needed.This especially bode well with the current euro /greece situation.