FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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Nicholishen
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Postby Nicholishen » Sun Nov 12, 2006 2:51 am

touche, salesman

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Postby michal.kreslik » Sun Nov 12, 2006 8:21 am

Nicholishen wrote:I think that everyone is focusing too much on the Impeccible Hedge and not enough on...

Concerning the latter usage, as we have learned above, we can determine the value of the missing fraction (FX symbol) in ring if we know all the rest of the fractions in ring. Let’s imagine we are analysing three FX symbols: EUR/USD, USD/CHF and EUR/CHF. Sure, if we know the prices of the first two, we may determine the price of the third one. But by the same token, if our analysis reveals us the direction of the first two symbols, then we can also tell what is the direction of the third one, too, despite of the fact that there might be no hint on the chart as to what is the direction of the third symbol.


Sure. This application is especially helpful in cases where there are three pairs in a ring from which one FX pair is almost not moving (EUR/USD, GBP/USD and EUR/GBP).

Michal

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Postby TheEconomist » Sun Nov 12, 2006 8:41 am

Thanks for your imput, Nicolishen...

Michal, if one pair is not moving and FPI is touching extremes because the other two movement, it may be possible that the other two to correct the missalignment and return FPI to normal values... not necesarrily that the 3rd should move and correct the missalingment by itself. However, it's still an interesting idea to play with...

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Postby michal.kreslik » Sun Nov 12, 2006 8:51 am

TheEconomist wrote:Thanks for your imput, Nicolishen...

Michal, if one pair is not moving and FPI is touching extremes because the other two movement, it may be possible that the other two to correct the missalignment and return FPI to normal values... not necesarrily that the 3rd should move and correct the missalingment by itself. However, it's still an interesting idea to play with...


Economist,

"not moving" means it's in a very tight range (like 30 pips daily range over and over). But even this tight range oscillation affects FPI a lot since FPI is a very sensitive measure.

What I was talking about one post above was that EURGBP is not moving in terms of standard GBPUSD or EURUSD movement. So the EURUSD movement and direction can be predicted if we know what the GBPUSD movement is and vice versa. This applies only if EURGBP is "not moving".

Michal

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Postby michal.kreslik » Sun Nov 12, 2006 8:54 am

Still another application of FPI might be filtering out of the bad ticks in FX pairs' data.

Michal

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Nicholishen
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dealer proof it!

Postby Nicholishen » Sun Nov 12, 2006 6:08 pm

I am not positive that dealers are running as many stops as we once thought. If there is anyone out there who knows of any MT brokers notorious for doing so, please post because I want to trade with them. Think of the implications of FPI and false market moves. I once had an interesting chat with someone in the futures market who would use orders to tease the dealer into setting himself up for a massive scalp.

There are a number of applications using fpi. Probably more widely desirable would be developing stop loss mitigation software for traders. You cannot deviate a single currency pair from the rest of the market without being able to pinpoint it - using FPI and ring networking.

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Free tick data

Postby SeattleFX » Tue Nov 14, 2006 6:26 am

Here's a resource for years of historical bid/ask tick data:

http://ratedata.gaincapital.com/

I guess you could add this to

http://kreslik.com/forums/viewtopic.php?p=434#434

Michal, if you use this, please post your resulting findings with respect to the FPI method.

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Imperfect ("Imimpeccable"?) fills

Postby SeattleFX » Tue Nov 14, 2006 6:45 am

As I understand this technique, you're relying heavily on precise fills from your broker. Now, that won't always happen, even with the best of brokers, I would think. That is, you'll get slippage or "requotes" ("That price is no longer available. The price is now X. Would you like to accept X now?") from time to time, and it will tend to be negative slippage/requotes more than positive. That can easily eat into big portions of your profit, when the profit margin is so small, right? How do you suggest to overcome this major obstacle, Michal?

Thanks a bunch,
Eric

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Re: Free tick data

Postby michal.kreslik » Tue Nov 14, 2006 8:47 am

SeattleFX wrote:Here's a resource for years of historical bid/ask tick data:

http://ratedata.gaincapital.com/

I guess you could add this to

http://kreslik.com/forums/viewtopic.php?p=434#434

Michal, if you use this, please post your resulting findings with respect to the FPI method.


Thanks for a great resource, SeattleFX!

I've added your link to the data sources list.

Anyway, GAIN capital is a "fabricated spread" type of broker. The spread posted doesn't have anything to do with the actual interbank spread, so their Bid/Ask data can't be used to backtest FPI correctly.

Michal

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Re: Imperfect ("Imimpeccable"?) fills

Postby michal.kreslik » Tue Nov 14, 2006 9:06 am

SeattleFX wrote:As I understand this technique, you're relying heavily on precise fills from your broker. Now, that won't always happen, even with the best of brokers, I would think. That is, you'll get slippage or "requotes" ("That price is no longer available. The price is now X. Would you like to accept X now?") from time to time, and it will tend to be negative slippage/requotes more than positive. That can easily eat into big portions of your profit, when the profit margin is so small, right? How do you suggest to overcome this major obstacle, Michal?

Thanks a bunch,
Eric


Eric, very easily. I overcome it with the statistics :)

If the broker indeed is not acting against you covertly, there will be a normal distribution of the "slippage". Thus, the negative and the positive outcomes will cancel each other out.

By the way, with CMS broker (the "bandit type") I was experiencing requotes and other horrible stuff all the time. But with EFX (the "non-bandit type"), I never experienced any requotes.

In fact, Forex market is so liquid that the requote can only happen if
  • your broker is working hard to fleece you
  • the price changes between the moment you send the order and the moment your broker receives your order (this happens in milliseconds, depending on the internet connection quality)
There's no chance you get requoted because of the lack of liquidity in Forex, i.e. because you have "bought out" or "sold out" the current price level. Well, unless you are George Soros and you have just broke the pound :)

Michal

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