deepleo wrote:Nicholishen wrote: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
But as Per Michal it should be as followed:
-------------------------------------------------------
Simple:
* use Ask price for FX symbol that is Bought
* use Bid price for FX symbol that is SoldShort
Michal
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?????
Thanks
DeepLeo
Yes, obviously we are going to be buying at the Ask and selling at the Bid, but the question at hand is which direction do we trade the ring (buy,sell,ell OR sel,buy,buy)? Lets do a quick experiment. Say we have a perfect world and the FPI of the above meantion ring starts at one (or closest to 1 when Normalizing the price quotes). The scenario is the USDCHF breaks out 50 pips, leaving the market in the dust. The market then catches up to maintain it's equalibrium, as represented in the following illustrations.
eurusd 1.2734 1.2734 sub
usdchf 1.2648 1.2698 sub
eurchf 1.6106 1.6106 alpha
FPI 0.9999 1.0039
buy sell
eurusd 1.2734 1.2764 sub 30 -30
usdchf 1.2698 1.2678 sub -20 20
eurchf 1.6106 1.6183 alpha -77 77
FPI 1.0039 0.9999 -67 67
Now, as you can see there is an obvious right way, and an obvious wrong way to trade this ring. There is only one direction to take. That is, unless, you like loosing money
. Which brings us to the second point.
The market jumped 50 pips yet once the market moved back to the perfect FPI of 1, the net pips moved 67. Where did the extra 17 pips come from? Herein lies the problem with the hedge because unless you can dynamically control positioning (which i have developed an algorithm to prove it can be done) it will be impossible to maintain a flat equity curve. Does anyone know where to trade with zero spread? If so we might have an opportunity to make the hedge a viable option...