+2295 Pips In 4 Days With “2PFX” Strategy 29


Salve a tutti,

so far we talked about currencies’ strength/weakness (power) and correlations. We also talked about basket trading.

Then we explained in detail two strategies that you can use to trade relying upon these concepts. We also provided you with two sets of indicators in order to help you to trade these strategies or to improve your existing trading systems.

Now it’s time to put everything together to create something new: a third strategy. It is an “in between” approach. Its name is “2PFX” as it a mixed approach between “PotenzaFX” (first P) and “PaniereFX” (second P).

In our posts we divided the 8 major currencies into 3 groups. I’m not going in depth as we already explained that. You can read my previous posts about it, here and here.

Now let’s consider the two groups that are usually inversely correlated between them: Group 1 (AUD, EUR, NZD) and Group 2 (GBP, USD, JPY). Based on what I wrote yesterday, we’ll put GBP in Group 2 for now. We won’t use Group 3 for now. We’ll work on it and with it later, probably in January as there still much to say before :)

What we want to do is to build a basket of pairs coming from the crosses between those two groups.

We have the following 9 possible pairs:

  1. GBPAUD
  2. AUDJPY
  3. AUDUSD
  4. EURGBP
  5. EURJPY
  6. EURUSD
  7. GBPNZD
  8. NZDJPY
  9. NZDUSD

You don’t have to use them all. Some of them are quite unusual and probably the spreads on your broker can be very high. Feel free to choose the ones that are best for you, but the more the better.

To trade them we have to calculate the average score of Group 1 currencies and the one of Group 2 currencies. Once we know that, we can trade the basket of 9 pairs, based on the cross between the scores.

So when Group 1 score crosses above Group 2 score you have to go:

LONG

SHORT

  • AUDJPY
  • AUDUSD
  • EURGBP
  • EURUSD
  • NZDJPY
  • NZDUSD
  • GBPAUD
  • GBPNZD

Vice versa, when Group 2 score crosses above Group 1 score you have to go:

SHORT

LONG

  • AUDJPY
  • AUDUSD
  • EURGBP
  • EURUSD
  • NZDJPY
  • NZDUSD
  • GBPAUD
  • GBPNZD

If you want you can also use a DLS (Dynamic Lot Sizing) approach by scaling in/scaling out based on the spread between the two scores.

The strategy may also be applied to trade Stock indexes ETF/Future/CFD/Options.

We know that Group 1 is usually directly correlated to the stock market, while Group 2 is usually inversely correlated to it.

Therefore the balance between the two currencies groups can give you informations about the general trend of the world stock markets.

We just developed a new indicator to help you with this novel strategy. You can see it in action on PimpMyEA.com home page along with the PotenzaFX Indicators. They are both applied to the daily (1D) timeframe.

You can see 3 histograms: a green one for the Group 1, a red one for Group 2 and a white one for Group 3. You can trade with it by following the above rules.

Do you want to know if it works for real?

Well we got an entry signal at the close of the past week coming from the cross of Group 2 above Group 1. We opened our 9 positions Sunday night at the open of the markets. Here are the results of our trades at the moment I’m writing this post:

  • AUDJPY – Opened Short at 79.26 (+213 pips)
  • AUDUSD – Opened Short at 1.02069 (+302 pips)
  • EURGBP – Opened Short at 0.85453 (+167 pips)
  • EURUSD – Opened Short at 1.33797 (+396 pips)
  • NZDJPY – Opened Short at 60.14 (+178 pips)
  • NZDUSD – Opened Short at 0.77459 (+255 pips)
  • GBPAUD – Opened Long at 1.5326 (+313 pips)
  • GBPNZD – Opened Long at 2.0198 (+471 pips)

So actually we are in gain of +2.295 pips… yes you read it well… 2.295 pips in less than 4 days. By spending 5 minutes Sunday night. That’s the power of currencies’ correlation/strength analysis with basket trading.

I also want to announce that we are also developing scripts that will automate most of the trades for each of the 3 strategies. We are testing them and as soon as they’ll be ready we’ll make them available.

I’m sure that you appreciate the fact that we decided to expose in great detail all our strategies. We developed indicators/scripts to trade them and we are releasing them week after week to the public. This is something that took us years to find out and develop.

You can trade all of our strategies without our indicators/scripts. They are not black boxes and won’t ever be. Because only when you understand a strategy you’re able to profit with it. Even if it’s 100% automatic. This is really what makes the difference between making money trading or not. There’s no strategy in the World that will make you rich without you dedicate some time and effort in understanding it and managing it. No “black box” will make you money in the long run if you don’t spend some time understanding it and so learn how to “adapt” it.

The PotenzaFX Groups Indicator is available here: http://pimpmyea.com/potenzafx-groups


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29 thoughts on “+2295 Pips In 4 Days With “2PFX” Strategy

  • Dan

    Great stuff Andrea. Congratulations on an amazing result.

    I’m still a bit confused with the GBP switching to the USD side – when I look at the GBPUSD compared with the EURUSD it doesnt look that different – ie both fell hundreds of pips this week.

    Will you be releasing the PotenzaFX groups as a separate indicator or just for display on the homepage? I’d love to be able to see how it goes on shorter timeframes also. And seeing as though your homepage is so hot now, what time is the daily chart updated each day?

    And of course I am interested in the automated version of this like everyone else :)

    cheers

    Dan

    • Andrea Post author

      Thanks!

      The indicator will be released probably next week.

      The GBP as well as all the other currencies is calculated based on its relative strength against all the other currencies. So if the GBP is still weaker than then the USD, probably it’s not compared to the other currencies. That’s why you see if falling like the EURUSD when compared to the GBPUSD 😉 That’s one of the most important aspects when reading the PotenzaFX indicators. What you have is a broad view of each currencies, not strictly related to just one pair.

      The automated versions are being developed as “additional modules” to the indicators. I think they’ll be available for all the 3 strategies actually described (PotenzaFX, PaniereFX and 2PFX) at the beginning of 2012.

      The chart in the home page is updated quite often. Every few minutes. But you need to reload the page.

  • Todd

    What can I say, You just keep on giving.
    Yes I have been looking at the markets differently lately thanks to you.
    I find myself having to keep going back to older post to keep it all straight.
    Many Thanks
    Pip On
    Todd

    • Paolo

      Hi Todd, thanks for your continued support and encouragement :-) Yesterday I noticed that it is time to organize all the posts we are writing about this new approach to trading based on currencies’ strength/weakness and correlation. Very soon we are writing a page containing all links to relevant posts 😉

  • Jef

    Morning Andrea and Paolo,

    After reading your post yesterday evening (European time) on the 2PF Strategy i worked out the values of group 1 and group 2. Group 1 gave me an average value of -/- 37 and group 2 gave -/- 71, which made me go long on group 1 and short on group 2. (Opposite to the trading you did on Sunday night; did it turn this week?)

    This morning i’m about 335 pips up!! Wow.

    At present group 1 would be -/-42 and group 2 -/- 67, so still long on G1. When do you close the trades and enter into opposite direction?

    So far so good! Brilliant! (I hope I’m reading your strategy properly)

    Cheers, Jef

    • Andrea Post author

      Yes we usually work on the 1D timeframe so we only need to “update” lot sizes once a day.
      About closing trades… well if you use the DLS you scale in and scale out based on the value of the spread between G1 and G2. I just added a yellow line to the indicator showing it.
      Every new bar (so at your broker midnight) you check the spread value and update the lot size of all the open trades. For example you can do 0.1 lots for each 10 points of the spread. So if the spread is 34 you’ll use 0.3 lots for all your trades. If the day after the spread increases to… 43 the you add another 0.1 lots to the ones you already have open (scale in). Otherwise, when the spread goes lower… say 0.23, you close 0.1 lots for each of the trades if you where at 0.3.
      Quite easy once you’ve done a couple of times 😉

  • Al

    Hi Andrea & Paolo,

    Thanks for sharing all this with us, I am now using Potenza & Paniere and winning pips already with minimal time in front of the charts. It is very good of you to share such excellent trading education and help others succeed.

    Al

  • Leyenda

    Hi,

    First of all, trading multiple pairs is new to me, as is trading on D1, as I’ve always been a scalper on M1/M5, but getting rather annoyed by the unpredictability. In scalping, things like SL and TP are crucial in building a winning strategy. The TP part I understand: exposure is based on the spread value. But what about SL? If at midnight, signals tell you to go long on group 1, and the market moves in the other direction? What kind of drawdown can we expect? Or am I seeing this all wrong?

    Thanks!

    • Andrea Post author

      Most of my strategies don’t have a fixed TP and SL. That is because I work long term and not using a fixed TP may let you ride a strong trend for weeks and months. On the other hand I rely on the strategy capacity to spot a reversal for the “stop loss” that in general means reverse the positions. So I can’t tell you what I can expect on both sides :)
      Keep lots low as pyramiding will build up the profits. It may take some time but it will.

  • Leyenda

    Hi,

    I started this strategy after purchasing the amazing PotenzaFX Groups indicator last night. The indicator was ‘group 2 over group 1′, so I went short on group 1 and long on group 2. However, looking at the current results, I do not see the correlation I expected. Can you help me explain this? Current results:

    sell audjpy / +242 pips
    sell audusd / -212 pips (JPY and USD are correlated, so why are these two opposite?)
    sell eurgbp / +138 pips
    sell eurusd / +150 pips
    sell nzdjpy / +140 pips
    sell nzdusd / -170 pips (again, opposite results on …JPY and …USD?)
    buy gbpnzd / -286 pips (group 2, should have gone in other direction?)
    buy gbpaud / -211 pips (group 2, should have gone in other direction?)

    One more question, if correlation changes (e.g. GBP moves back to group 1), do we change positions on these pairs from short to long overnight? or do we close these positions?

    • Paolo

      Hi Kim, a strong correlation does not mean currency pairs move always in the same direction as suggested by their historical correlation. Otherwise everybody would be making lots of pips easily. On the contrary they can an do go “off track” from time to time, before the correlation is re-established. The fact of moving GBP from one group to another is something that we decide over a period of months, not from one day to the other. Ciao, Paolo

  • Leyenda

    Hi,

    Starting this week, I’m trading this strategy on my live account. So far, it’s going very well (+726 pips). But I have one question that I’d like to share with you.

    Sunday – spread = 20, so I bought/sold 0.1 lot on the pairs I chose.
    Monday – spread = 40, so I bought/sold another 0.1 lot on all pairs (except one that didn’t follow correlation and is still in a loosing position).
    Tuesday – just now, spread was 52, so I bought/sold another 0.06 lots.

    Now if tomorrow spread goes down, and I’m going to close part of my position on these pairs, does it matter which position I (partly) close. The one from Sunday, or the one from today?
    I can’t really make up my mind about the logic. If a pair is going to move in the other direction, my last position is the first one to go into loss, so it makes sense to close this one first. However, the pair may still recover and continue in the same direction for a short while, so closing the last position at a small loss may not be the right thing to do. In that case, closing part of the oldest position at a profit might be better.

    What’s your experience on this?

    Thanks!

    • Paolo

      Hi Kim, it does not matter which trades you close first. From a mathematical point of view it’s just the same. The end result (Profit & Loss) is the same. We usually close trades with a FIFO (First In First Out) logic, that is older trades are considered first when it is time to reduce some positions. The “DLS Trader” EAs for PotenzaFX and DuettoFX implement this logic.

    • Leyenda

      Hi,

      I just wanted to share my experiences after trading this strategy live for exactly one week. To me, +2295 in 4 days sounded incredible already. I have just closed the remaining trades before the weekend, because I never feel too comfortable leaving trades open over the weekend.

      My result this week: +7106 pips.

      I made a few small tweaks to the original strategy. I picked my pairs using a correlation matrix and went long on GBPAUD and GBPNZD, and short on EURGBP, AUDUSD, NZDUSD, NZDJPY and AUDJPY because they had the best correlation scores out of the possible 9 pairs.
      Also, the best time to adjust my position turned out to be half way during Tokyo hours. That seemed the daily low point. Also, around the close of London seemed to be the daily high point, so I decreased my position around close of London, and increased it again during Tokyo hours. So, I didn’t strictly follow the DLS system, and also looked at the individual pairs volatility to determine the best position size for each pair. I didn’t do the math, so maybe I would have been as well off if I just kept the original trade, but I’m very happy with my results so far. I’m curious what next week will bring…

      • Paolo

        Hi Kim, thanks a lot for your feedback :-) and congratulations for this amazing result 😉 Actually we are now testing a new strategy based on the same “Paniere” concept but with a totally different approach (naked grid trading) and also in this case the profit potential is really good.

        • Leyenda

          Hi Paolo, how is that ‘naked grid trading’ strategy going? I’m curious to read more about it. Do you know by now when it will be released? Thanks, Kim

          • Andrea Post author

            Ciao Kim,
            the strategy is performing very well and in line with what we expected. In the next days we’ll start publishing some results.
            We’ll probably be able to release it before then end of May.
            Thanks for your interest.
            Andrea

        • Leyenda

          Hi Micke,

          I used one on the Internet showing the correlations between pairs, because to me, that’s easier than reading correlation scores for individual currencies (like the indicators available here as well). However, I just read the post that the PotenzaFX Correlation indicator will be available shortly, so that might be helpful too. Regards, Kim

          • Leyenda

            Correction, that should be the DuettoFX Correlation Matrix, not the Potenza one, because that last one DOES show inidividual currencies instead of pairs like the Duetto one.

  • Leyenda

    Hi,

    Sorry to be asking so many questions, but I just read somewhere else on your site about the DLS, and it was mentioned that you might also check/adjust your position on other intervals, like every 4/6/12 hours. Although I think the beauty of this strategy is the fact that it only requires your attention once a day, if adjusting at smaller time intervals improves the results, it’s worth considering. I will of course be testing this on a new demo account, but if you have already tested this, that will help.

    Thanks again…!

    • Paolo

      Hi Kim, we have not complete backtest results on this. Our experience is that checking on a smaller timeframe (like 6 hours if you work on a daily chart) can improve performances. We are in the process of improving the JForex code we use for running this kind of backtest, so that we can run them much faster and give exact answers to questions like yours :-)

      • Leyenda

        Hi Paolo,

        Thank you for your answer. Today seems to be ‘general retracing day’ anyway, with 3 out of 7 pairs moving a bit in the wrong direction. However, for the first time this week, EURGBP is finally behaving like it should :), so checking 4/6/12 hours today does not really matter… I’ll keep comparing results, and of course eager to hear from you once you get any backtest results on it. Too bad you can’t do any multi-pair backtesting on MT4, otherwise I would have already done it myself :(

  • Leyenda

    This week, after buying the other Potenza indicators, I started to combine the two. So a few changes to the applied strategy:

    – Picking pairs to go into (or take out of) the basket is now based on a combination of the Duetto Matrix (start of the week) and the Potenza Powerlines (daily) for the individual pairs. On the appropiate pairs, I use the improved (early entry/exit) version of reading the Powerlines, instead of the crosses.

    – Lot sizing is now done per pair based on the Potenza DLS, instead of just the Potenza Groups spread score for all pairs. This gives me a more well balanced basket.

    – Determining the right time to enter and exit during the day is also done by using Potenza Powerlines, but on a much smaller timeframe (M15-M30). It’s not an exact science, but because I roughly know at what times the daily high/low occurs, I just wait for a Powerline cross on M15/M30 around that time to determine the best moment. It might not be a true cross, but by now, I know what to look for. Because I can do this on each pair, I can be more accurate than before.

    For me, the focus will be on automating this into my own EA, because that daily low at 2.00 – 2.30 AM local time is ruining my sleep. However, due to the amount of ‘fuzzy logic’ involved, it may prove quite hard.

    I hope anyone might benefit from my experiences so far. If I find out more to improve on this, I’ll post an update.

    • Andrea Post author

      Ciao Kim,
      thanks for sharing!
      Your strategy is very interesting. Probably hard to convert into an EA but maybe something like a “semi-automatic” EA. Something that you start when a previous analysis has been made. Personally I like that kind of approach.
      I’m preparing a surprice for you an people like you that use our indicators and EAs to develop their own strategy. Stay tuned! 😉
      Andrea