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This article highlights how autocorrelation and linearity for end-of-day prices can benefit your trading strategy. We’ll focus on trading and investing in the Euro ETF (symbol: FXE) with a discount trading indicator. Finally, we’ll work our way to backtest the results of the discounting strategy.
The following is a scatterplot depicting the relationship between the previous day’s Net-Asset-Value (NAV) prices for daily median prices for FXE.
Figure 1

You’ll notice there is a good linear relationship, giving a leg up for those who know how to harness the strength in NAV price information for the Euro ETF (FXE).
The following chart corresponds to the same time horizon as the scatterplot, with daily close prices of FXE:
Figure 2
Notice, there isn’t a strong indication of a trend for the entire period since 2006. This is another reason why the sentiment discount trading strategy works so well. Generally, there shouldn’t be any strong trend on the underlying instrument—up or down—for the strategy to work well.
Since we’ve asserted linearity and autocorrelation in daily median prices, a discounting strategy is a reasonable one for us to expect to be profitable. The main goal of thi…
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Sebine avatar
Sebine 25 Jan.

Good job!

pshan avatar
pshan 25 Jan.

Thank you very much Sebine!

thedoctor avatar
thedoctor 27 Jan.

good job

pshan avatar
pshan 30 Jan.

Thank you.

Lovely_bee avatar

Good luck )

orto leave comments
  • How to use the delta (cumulative delta) for the price analysis?.
    It compares the value of the momentum and correction, that is, the behavior of prices and the delta.

  • Two options are possible:

  • 1. The movement of price and the cumulative delta correlated.
    2. The movement of price and the cumulative delta do not correlate.
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isbar avatar
isbar 28 Apr.

Muy buen trabajo. Gracias

massimoscalas avatar

Very interesting....thank's!

Alexander22 avatar

неплохая статья, молодец!

TaniaS avatar
TaniaS 5 May

Nice job!

Uladzimir avatar


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After discussion in a recent webinar on the price action of the GBPUSD we stumbled across a huge aspect of the market that is barely touched upon (or even known) about from a retail perspective. That is Delta and gamma hedging in the spot FX market. Firstly we need to define these, and in the least mathematical way (to keep it simple)
Delta - the change in value of the derivative compared to the change in price of the underlying asset. Delta can be expressed in a few ways, but in the FX markets it will normally be represented as a % of the notional position. For example, if I have an option position in EURUSD worth €1,000,000 and a delta of 25% then my option increases or decreases in value at 25% of what the EURUSD moves. I.e. If the EURUSD rises 1%, then my option rises by 0.25% etc
Gamma - this is the second derivative, so this is the change of delta for a change in the underlying. Delta is not constant, and as the EURUSD rises the delta changes (this relationship is defined by gamma). Once again quoted in %. For example the same option above with a delta of 25% (€1,000,000 value) might have a gamma of 10%. This means that for a 1% change in the EURUSD the delta changes by 10%. …
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P3tr4 avatar
P3tr4 19 Feb.

well done. Solid article

mimuspolyglottos avatar

This is N. Taleb's "Dynamic Hedging" in 1:100 scale with effortless reading. Trading FX from spot trading perspective is very much like sitting on iceberg without much and proper information what is beneath waterline, and You are trying to uncover this "underworld" for us. Thank You so much. Valued.

jezz avatar
jezz 20 Feb.

This month we have some hidden treasures of Forex introduced. Hedging strategies are my cup of tea, yet I still have a lot to learn

scramble avatar
scramble 27 Feb.

well exposed concept! well done! :)

AdrianWS avatar
AdrianWS 27 Feb.

Cheers everyone! Am just trying to drill home the idea that FX options are far more important than they may originally seem.


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