FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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aidan1970
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Postby aidan1970 » Fri Oct 13, 2006 4:03 pm

Fascinating study - I have a quick question - I am not a programmer so it may sound like a stupid question - is it possible to build the FPI into excel and hook it up via API to the Currenex platform (using Currenex as an example coz I know they have API feature)? Just wondering if there is way to use this if you dont have Neoticker?

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Luke
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Postby Luke » Fri Oct 13, 2006 5:06 pm

trader_hal wrote:Hi Michal,

Pardon my n00bness on this matter, but how do I run it from VS?

I have VS 2005 loaded with C# and I a pulling up the NeoFPI project. Where do I go from there?


I believe you will require VS 2005 Pro for this.

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Postby trader_hal » Fri Oct 13, 2006 5:09 pm

Hi Luke,

I have VS 2005 PRO. I can get my hands on anything MS, but if its outside my sys admin / networking world.. im out of clicks. I hope to increase my willingness to learn VS and MS coding faster than it is.

I can open it, and build it. but within the VS i dont see an option of running a project that is open.. maybe i am missing some buttons?

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Postby silverpike » Fri Oct 13, 2006 5:27 pm

Michal, thanks for sharing this. I saw a link to this article from another site, and I registered here just to make some comments.

In your FPI chart, the FPI will range from below 1 to above 1. I totally understand the theory, I have looked at this type of thing in the past. My question is : is there a specific direction to trade the ring when a top or bottom is encountered? In your EUR/USD/JPY example trade, does the direction of each trade (long or short) make a difference? I believe this is related to apfx's question.

Is it such that the ring is only opened when the FPI is low, and sold when FPI is high? Something tells me you cannot "short" the ring when FPI is high and covered when low, although I can't put my finger on the math.

I eagerly await your reply!

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Re: Calculation of Impecable Hedge

Postby silverpike » Fri Oct 13, 2006 5:30 pm

apfx wrote:If you sell short 100,000 EUR/JPY and buy 100,000 EUR/USD you have sold and bought the same ammount of EUR.

If you buy 100,000 EUR/USD and buy 100,000 USD/JPY you have sold
126,485 USD and bought 100,000 USD. There are 26,485 USD not hedged

shouldn't you buy 126,485 USD/JPY instead of 100,000?

Yes, I believe this is correct. It is probably a typo by Michal.
Last edited by silverpike on Sat Oct 14, 2006 7:48 am, edited 1 time in total.

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IMPECCABLE!!

Postby FemmeFX » Sat Oct 14, 2006 12:26 am

This is amazing, Michal!

I struggled to comprehend the basic concept when you first conceived it last September, but you have laid it out here very clearly and concisely, even though there are still a few "holes" in my own understanding as to the actual application.

What appears to be crucial to the strategy is that all trades open at the same time, in order to catch the optimum inefficiency and be in that "Impeccable Hedge." (Great name, by the way.) If the opening does not go well, then there's less opportunity to profit from the trades. I imagine you could possibly still benefit if that happens, but you'd have to search for acceptable exits for each currency pair, and there would be more risk and less likelihood of gains... plus, you would have to really "work" at the trade.

I saw part of a commercial on television the other day that immediately came to mind after reading this. There was a large group of people standing outside in a huge circle, each person facing the back of the one in front of them. On cue, every one bent their knees and "sat" on the lap of the person behind them, while at the same time becoming a seat for the person in front of them. All participants in that group were sitting on each other. They had formed their own "Impeccable Circle." (There was a hedge in the background, as I recall. Evergreen shrubs. :wink:)

Had one person not sat down at the precise moment, the circle would have been broken. Similar, it seems, to the trade entry for the FPI-TIH to work. Thus the need for that reliable broker.

But this has already been discussed. Just thought I would add a "visual" for all you right-brained people, like myself. :D

It seems the best time for entries would be quiet periods, so as to get the entry right, and the best exits would be when the price fluctuation is at its greatest--again, dependent on a reliable broker--which could be right around the release of key economic reports. (Imagine the profit potential on NFP Fridays!) Would this be the way you would approach it, Michal?

Looking forward to more input on this thread from others, and to see how much further you can perfect this seminal work.

Very impressive!

:D

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Luke
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Postby Luke » Sat Oct 14, 2006 1:49 am

trader_hal wrote:Hi Luke,

I have VS 2005 PRO. I can get my hands on anything MS, but if its outside my sys admin / networking world.. im out of clicks. I hope to increase my willingness to learn VS and MS coding faster than it is.

I can open it, and build it. but within the VS i dont see an option of running a project that is open.. maybe i am missing some buttons?


Press F5 or Main Menu->Debug-> Start Debugging
Make sure it successfully builds first though.

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hmmm...

Postby FemmeFX » Sat Oct 14, 2006 1:57 am

It seems the best time for entries would be quiet periods, so as to get the entry right, and the best exits would be when the price fluctuation is at its greatest...


Gave this some more thought and see the flaw in my logic. During quiet periods, the inefficiency would not be that great, so the profit potential would be less.

Does that mean the only way to squeeze the most out of this strategy is to enter during volatile times and exit in a similar environment?

If so, then you don't just need a reliable broker... you need one whose services are IMPECCABLE!!

:wink:

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Postby trader_hal » Sat Oct 14, 2006 4:47 am

Debug info.

Ok, so I ran it, and I think this is what I am now suppost to feast on. So I will, but any thoughts to speed up this process and send me in the right direction are appreciated. thanks.

System.InvalidOperationException was unhandled
Message="Invoke or BeginInvoke cannot be called on a control until the window handle has been created."
Source="System.Windows.Forms"
StackTrace:
at System.Windows.Forms.Control.MarshaledInvoke(Control caller, Delegate method, Object[] args, Boolean synchronous)
at System.Windows.Forms.Control.Invoke(Delegate method, Object[] args)
at NeoFPI.FPIObjectClass.CalculateRings(CalcRingsForm ParentForm)
at NeoFPI.CalcRingsForm.CalculateRingsJob()
at System.Threading.ThreadHelper.ThreadStart_Context(Object state)
at System.Threading.ExecutionContext.Run(ExecutionContext executionContext, ContextCallback callback, Object state)
at System.Threading.ThreadHelper.ThreadStart()

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Taking Advantage of FPI

Postby apfx » Sat Oct 14, 2006 11:54 am

Repeated the same trade analysis as Michal did before using the same ring
with a 2 pip spread for each of them. ( attached pics)

It results that the following Trades combinations:
1. Buy EURJPY, Sell EURUSD, Sell USDJPY.
and
2. Sell EURJPY, Buy EURUSD, Buy USDJPY.

produced profit when entering the market with FPI <0 and exiting with FPI >0 but not in equal amount.

while

both Trades combinations resulted producing loss when entering the market with FPI>0 and exiting with a FPI<0.

My questions are:

1. At least two separate cases demonstrated that it is possible to take advantage of the market inefficiency entering the market with PFI<0.
Since this strategy is not very difficult to backtest. Does anyone have any becktest results? (personally I will as soon as I figure out how)

2. How to decide which trade combination is best?

3. Since the FPI <> 0 shows that the market is inefficient there must be a way take advantage of FPI>0 too. How come no matter how we combined trades it produced loss?
Attachments
FPI.png
FPI.png (17.49 KiB) Viewed 2801 times
FPI Trades.png
FPI Trades.png (26.59 KiB) Viewed 2847 times
Last edited by apfx on Sat Oct 14, 2006 12:27 pm, edited 1 time in total.

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