How To Find Good New Duettos 3


Salve a tutti,

one of the questions we’ve been asked more frequently about the DuettoFX strategy is how do we find the “duettos”, the couples of pairs to be used for trading manually or automatically with the DuettoFX indicators/EAs.

Well, the answer is that we look at the correlation between the two pairs. We look for strong negative correlations meaning that we look for pairs that move in opposite directions.

We have a tool (an indicator) that I developed to spot them easily and that’s been private since now.

Here’s how it looks like… it’s the DuettoFX Matrix:

It is a big matrix of the 28 major currencies with the correlation score between each of them. It’s 756 crosses (28*28-28). In reality they are half that number (378) as the correlation between EURUSD and USDCHF is the same as USDCHF and EURUSD 😉

This indicator can calculate all of them, in real time or every new bar. You apply it to a timeframe (in this case a 1H chart), decide the period (120 bars as for DuettoFX strategy) and look for big numbers between square brackets “[]”. Those are the values below -80. You can set the score level for the indicator to put the value in evidence.

It also shows you the positive correlations: green values always between “[]”.

You can choose the number of crosses (up to 28) and each single cross. So if you don’t want to monitor the correlation value between 28 pairs but only between 10 pairs for example it’s very easy to do.

Looking at the picture above we can see that, at the moment I’m writing this post, there are 28 crosses that show a good (score below -80)  negative correlation score:

  1. CADJPY-AUDCAD
  2. GBPJPY-AUDCAD
  3. EURAUD-AUDCHF
  4. EURNZD-AUDCHF
  5. USDCAD-AUDJPY
  6. NZDCAD-AUDNZD
  7. NZDCHF-AUDNZD
  8. NZDUSD-AUDNZD
  9. EURCAD-CADCHF
  10. USDCAD-CADJPY
  11. NZDCHF-EURAUD
  12. GBPAUD-EURGBP
  13. GBPCAD-EURGBP
  14. GBPCHF-EURGBP
  15. GBPJPY-EURGBP
  16. GBPNZD-EURGBP
  17. GBPUSD-EURGBP
  18. NZDCHF-EURNZD
  19. NZDUSD-EURNZD
  20. USDCHF-EURUSD
  21. NZDCHF-GBPAUD
  22. NZDUSD-GBPAUD
  23. NZDCAD-GBPJPY
  24. NZDCAD-GBPNZD
  25. NZDCHF-GBPNZD
  26. NZDUSD-GBPNZD
  27. NZDCAD-GBPUSD
  28. NZDCHF-GBPUSD

A lot! That doesn’t mean that we have to trade them all with DuettoFX. What I do usually is to look at higher timeframes (4H and/or 1D) and see if the negative correlation is confirmed there as well. If so then we have a “reliable” candidate for trading with the DuettoFX.

The DuettoFX Matrix indicator will be released within very few days. I’m also working on a single currency correlation matrix like the one that is embedded in the PotenzaFX Powerlines indicator but a little more powerful and easy to read and use.

They’ll probably be the first ones to use our new “dll” protection system. So we hope to get rid of Guardian very soon for all the indicators/EAs we already published.


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3 thoughts on “How To Find Good New Duettos

  • Jim Purdy

    Hi Andrea/Paolo

    Another great tool – I am trying to keep up with your prodigous output as well as juggling with other important matters for my family.

    One of the things I am having difficulty with, is understanding why, if I am trading the best leg of a Duetto pair (say EUR/USD) using the DuettoFx Indicator, it should give better results than trading the same pair (EUR/USD) using the PotenzaFX Powerlines and Correlation indicators.
    Is there a simple answer or a Post somewhere which covers this question?

    Thanks for all the hard work you guys put in – I guess you must enjoy it!

    Regards

    Jim

    • Paolo

      Hi Jim, yes finding new ways to interpret the market is a kind of creative work which brings satisfaction for us 😉 Regarding your question, I’d say the two approaches are two different ways to have an edge on the market. Depending on different market conditions one can work better than the other or viceversa. Generally speaking in order to build a good portfolio of trading systems the aim should be incorporating systems which are “different”, and all of them “profitable” in the long run. I hope this answers your question. Good luck with your trading :-)