FPI - Fractional Product Inefficiency: The Impeccable Hedge

NeoTicker indicators

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BlackJack
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Postby BlackJack » Sun Oct 15, 2006 10:19 am

Hi aspTrader,

I think that Aiba et all make it clear that the transactions they are talking about are round-robin – exchange 1 yen to x amount of dollars - exchange those dollars to x amount of euro – and exchange those euros back to yen. The exchange is complete – yen to dollars – dollars to euros – euros back to yen. I believe what they are saying is literally do the exchange.

Even thought they state “instantly at time t” the action implies a sequential series of events. If I start out with 1 yen I can’t exchange the euros, that I don’t have yet, back to yen.

What Aiba et all don’t make clear is if this arbitrage can be done by merely executing three currency contracts simultaneously – in this case - jpy/usd, eur/usd, and eur/jpy. Which is what Michal is trying to do when the FPI shows what may be an imbalance in the cross rates – then hold those positions until the FPI goes the other way and then exit the positions – which is way different then what Aiba et all are talking about.

I’m waiting for this trading week to run tests as I normally don’t collect the cross rate data – I’ve been hoping that someone that does collect the cross rate data would have run some tests by now – but I haven’t seen any here.

BJ

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BlackJack
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Postby BlackJack » Sun Oct 15, 2006 10:19 am

Hi aspTrader,

I think that Aiba et all make it clear that the transactions they are talking about are round-robin – exchange 1 yen to x amount of dollars - exchange those dollars to x amount of euro – and exchange those euros back to yen. The exchange is complete – yen to dollars – dollars to euros – euros back to yen. I believe what they are saying is literally do the exchange.

Even thought they state “instantly at time t” the action implies a sequential series of events. If I start out with 1 yen I can’t exchange the euros, that I don’t have yet, back to yen.

What Aiba et all don’t make clear is if this arbitrage can be done by merely executing three currency contracts simultaneously – in this case - jpy/usd, eur/usd, and eur/jpy. Which is what Michal is trying to do when the FPI shows what may be an imbalance in the cross rates – then hold those positions until the FPI goes the other way and then exit the positions – which is way different then what Aiba et all are talking about.

I’m waiting for this trading week to run tests as I normally don’t collect the cross rate data – I’ve been hoping that someone that does collect the cross rate data would have run some tests by now – but I haven’t seen any here.

BJ

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eagles
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Postby eagles » Sun Oct 15, 2006 2:59 pm

Here is an attempt to create a Metatrader indicator, based on Michal's work.

Thanks to Michal for working on this idea, and providing the information!

This implementation will only handle 3 symbol sets.
Enter the 3 Symbols as inputs.
Enter Long or Short as appropriate for each symbol.
Enter the SignalLen as an integer value -- This indicator draws a moving average of the FPI indicator -- This was an attempt to look for a trading signal.
This indicator plots the FPI as a histogram, rather than a line as in Michal's work.
The value of the indicator is (FPI-1), so the histogram oscillates around zero, rather than 1 as in Michal's work.
The indicator adjusts automatically for a regular or mini account, so you don't need to enter the symbols with the 'm' for mini accounts.

Regards,
Jack
Attachments
FPI-3 indicators.zip
Place in the expertsindicators folder.

Included mq4 &amp; ex4 files.
(4.23 KiB) Downloaded 928 times

davidf
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Postby davidf » Sun Oct 15, 2006 4:32 pm

Hi,

here is a second Metatrader indicator, based on Michal's FPI. Indicator is for EUR/USD/CHF.

DavidF
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DavidF_Hedge.zip
(749 Bytes) Downloaded 657 times

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michal.kreslik
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Postby michal.kreslik » Sun Oct 15, 2006 9:18 pm

Hello, friends,

thanks much for all your feedback.

I'm now busy with something else for a couple of days, so when I'm done, I'll review this thread and answer your questions.

I've got several new ideas regarding FPI, I'll post it here soon.

Have a great time meditating about FPI :)

Michal

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apfx
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How many pips are on the table and how to collect them.

Postby apfx » Sun Oct 15, 2006 11:30 pm

How many pips are there on the table

Lets start where Michal started:

a/b * b/c * c/a =1
JPY/EUR * EUR/USD* USD/JPY = 1
EUR/USD*USD/JPY = EUR/JPY

In order to see a little bit more clearly into that I built a chart of EURUSD*USDJPY overlayed it on top of EURJPY chart and also built another version of FPI showing the diference between the two arrays in pips that I called FPI Histogram.

Just like the FPI, the overlayed charts and the FPI Histogram showed that the market offers a lot of arbitrage opportunities and not as I was previously led to believe that these opportunities are rare. As pointed out previously Its just the spread and execution that kills most of them.
I must take an instance here to thank Michal for puting the FPI concept in so clear terms.

However, the trade mechanism to take advantage of the market inefficience is still unclear to me and its becoming frustrating not to be able to figure out how to properly use the FPI.

How to collect the pips?

I analysed two cases as previously Michal and myself did before. Since my scope was to analyse the trade mechanism I did not include the spread in the calculations .

I Used the same ring: EUR-JPY-USD
I Entered the market both times with FPI<1 and exited with FPI>1
But the unclear issue to me still remains which trade model to use based on FPI reading:

1. Buy, Sell, Sell
or
2. Sell, Buy, Buy
or
3. ?????

Since both model1 and model2 failed to be profitable in one of cases where FPI conditions were similar, I fear that there must be another element that I missed or that I still do not know that must be taken into consideration.

What is that?
Attachments
FPI Test.png
FPI Test.png (21.3 KiB) Viewed 2798 times
FPI Trades.png
FPI Trades.png (23.1 KiB) Viewed 2799 times

trevman
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Postby trevman » Mon Oct 16, 2006 12:03 pm

if this can be brought into metatrader successfully then surely it can be programmed to auto trade. however something i looked into a while ago was to open trades in order to offset each other such as

BUY GBP/JPY
SELL GBP/USD
SELL USD/JPY

i tried to do this manually but found i was left exposed on the JPY, i don't know if it would be possible to do this without any exposure or not but the idea is to do it in order to recieve positive total interest on the open positions.

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watzdorf
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Postby watzdorf » Mon Oct 16, 2006 8:24 pm

I am having problems loading the FPI. Any idea what I am doing wrong?
Attachments
fpi.gif
FPI loading... forever...
fpi.gif (53.02 KiB) Viewed 2720 times

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trader_hal
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Issues with FPI

Postby trader_hal » Mon Oct 16, 2006 8:31 pm

watzdorf

PostPosted: Mon Oct 16, 2006 9:24 pm Post subject:
I am having problems loading the FPI. Any idea what I am doing wrong?


____________________

Hi watzdorf, read my posts on the 1st, 2nd page.. i have discussed this issue with michal. I am stumped for now.. on this.

but i have created a cheap version of this.. for 3 symbols only.. and is all internal.

.FOR is attached.

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trader_hal
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FPI Internal

Postby trader_hal » Mon Oct 16, 2006 8:35 pm

it didnt attach last time because its .FOR.

Unzip and put into your program files\tickquest\neoticker\indicator\
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FPI-Internal.zip
FPI Internal.
(626 Bytes) Downloaded 253 times

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