Correlated Pairs…the new low draw-down frontier?
My next foray into hedge trading (and my continued attempt to evade discretionary trading!) I am focusing on hedge trading principles across correlated pairs. Be it positive or inverse correlation, I am not discriminating.
The tests that I am most excited about at the moment are the EURUSD & USDCHF, and on the 'Active Tests' page its called the Dodo Hedge. Look for more under the 'Dodo' pseudonym which will be variations on this theme. At the moment, I am using the inverse correlation and selling both waiting for them to de-correlate sufficiently to profit from the net profit across both positions. Hence, you will only see 'sells'.
This approach has been around for ages, my slight departure from the 'standard approach' is that I have a grid every 25 pips which can profit in it's own right. I just need to tweak the grid settings, but essentially I can make a profit by de-correlation or one side's grid meets it PT.
As my broader hedge trading strategy is having a rest due to volatile market conditions, I am focusing on approaches that will minimise draw-down. Lets see if this is possible. I think my equity growth ambitions are humbler which will no doubt help.