FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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eagles
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Postby eagles » Fri Oct 27, 2006 3:33 am

Got that last post in before I headed to the airport, but as I thought about it on the way there, the lot sizes shouldn't affect FPI, because that is based on prices.

It will impact the neutrality of the trade position when placed.


Thanks for the list Michal.

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Postby Nicholishen » Fri Oct 27, 2006 3:56 am

eagles wrote:Got that last post in before I headed to the airport, but as I thought about it on the way there, the lot sizes shouldn't affect FPI, because that is based on prices.

It will impact the neutrality of the trade position when placed.


Thanks for the list Michal.


eagle,

I thought the same thing until i ran a couple of tests. consider the ring (gbpusd,usdjpy,gbpjpy) the pip values are not all equal so you would need to adjust your position size accordingly. For example the gbpusd pip is worth 10 and the usdjpy pip is <>8.45. Considering the price quotes comprise the FPI, you'll need to ensure that pip for pip the equity will remain the same. BasePipVal / Currency2PipVal = Position size

Hope that helps!

Nick

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Postby Nicholishen » Fri Oct 27, 2006 5:07 am

Has anyone looked into weekend gaps? Do they swing the fpi wildly?

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Postby watermark » Fri Oct 27, 2006 7:30 am

Excellent work michael.

In view that the fpi difference is extremely low and happens for a short period of time, it is extremely important that the MT4 data would be the same as your borker.

Thus if we assume that one has an account say with oanda, unless the data feeder is oanda (which as far as i know is not the case), it could lead to fpi possibility in mt4 but not at the broker.

Am I right? And if yes, how can this be done?

Watermark

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Postby ryan » Fri Oct 27, 2006 8:27 am

Hey Guys...

Michal: Thanks for the list of FPI rings -- fantastic. How do you determine the Buy/Sell sequence for rings of four pairs or greater?

Eagles: Terrific work on the indicator for MT4. Thanks for that. Great to see how the FPI behaves.

I'm interested to understand other applicatons for the FPI. Can anyone think of any other applications of the FPI other than trades opening orders where FPI <1 and closing when FPI>1?

For example, Michal has mentioned that we can determine from the two pairs the position of a third. Where the FPI<1 for a period of time obviously the ring in 'underweight'. Is it possible to determine which pair is underweight? Or by implication is weighting of the pairs jumping around a lot?

Say one pair (A) is underweight, it could further weaken and the FPI could drop further below 1 OR it could strengthen in which case we would close the trades.

Can this out of sync - in sync observation be used to assist trading with the hedge? ie. use the data by not apply the all hedge trades?

Thanks for everyone's contribution.

Ryan

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Postby Tragapips » Fri Oct 27, 2006 9:37 am

Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga

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Postby michal.kreslik » Fri Oct 27, 2006 10:34 am

watermark wrote:Excellent work michael.

In view that the fpi difference is extremely low and happens for a short period of time, it is extremely important that the MT4 data would be the same as your borker.

Thus if we assume that one has an account say with oanda, unless the data feeder is oanda (which as far as i know is not the case), it could lead to fpi possibility in mt4 but not at the broker.

Am I right? And if yes, how can this be done?


Sure. But this is true for any indicator - the calculations always have to be based on the brokerage data.

I guess you wouldn't be looking at the pedestrian crossing 100 yards away when making a decision when to cross the street, would you? :lol:

Michal

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Postby eagles » Fri Oct 27, 2006 3:28 pm

Michal,
I guess I would agree that the calculation result would be different if you adjusted for pip value.

I been thinking about this, and it seems to me that all the information is in prices, so the differential pip value would be 'included' in the prices used for the calculation.

However, while this is interesting from an academic viewpoint, the real question should be which method of calculation results in larger or more consistent profits.

Another academic point to be considered is that rather than using bid/ask prices, would we be better off using the midpoint of bid/ask? I think this may be a consideration, since the basis of bid/ask is the market maker's profit, and they profit on both sides of the position. Perhaps the midpoint is more representative of a 'true price'. Again, it will really come down to is calculating FPI with the midpoint result in more profitable trading.

Regards,
Jack

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Postby ryan » Fri Oct 27, 2006 4:38 pm

michal.kreslik wrote:it doesn't really matter whether the Impeccable Hedge open / close is below / above 1. The only datum that matters is the absolute difference between the FPI values at the time of open and close.


Michal, can I just clarify:

As you saying that the opening trades can be executed where the FPI is GREATER than 1 providing the FPI close is greater than the FPI open position?

ie, open: 1.0002034, close: 1.0007424

Is there a way to determine which of the currencies is pulling the FPI down? Or is this an irrelevance?

Also -- this is one of those stupid questions -- if you trade 2 lots do you receive 2x the profit in a correct FPI hedge or the same amount as if you had trades just 1 lot.

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Postby Nicholishen » Fri Oct 27, 2006 8:04 pm

In this example you should use the buy-bid if you expect FPI to rise and the opposite if you expect it to fall.

Tragapips wrote:Michal Kreslik

This topic is complex (at least for me) and i have some questions.

I can make a buy-bid ring:
Buy EUR/USD
Buy USD/CHF
Sell EUR/CHF

And i can make a sell- Ask ring
Sell EUR/USD
Sell USD/CHF
Buy EUR/CHF

Right?

If I´m right my question is: Should i use a buy ring when FPI is below 1 and a sell ring when FPI is above 1?

Or

Should i use a buy ring when dollar is loosing power and a sell ring when dollar is strength?

Maybe naive questions but as i said topic is complex to me.

Tia

Traga

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