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In the market map, Forex is an archipelago.
PROXIMITY CONSTANT
At a quick glance we can see that the islands are related by proximity. This is evident, for example, for the pairs that share a base currency: EURUSD, EURGBP... As a result, movement in one of the islands affect the movement of the adjacent: the move of EURSD affect to EURGBP, EURJPY...
This relationship is mathematically explicit by a simple equation:
EURUSD = x * EURGBP
Where x is something that explains the relationship between EURUSD and EURGBP; in this case x = GBPUSD
That is, the price of a pair can be deduced through the product of the proximate pairs. This algebraic equality can be expressed geometrically:

This equality is a constant that is deducted from the first axiom of the market: the no-arbitrage. Or, likewise: it’s impossible to obtain profitability without risk.
The above equality is what is known as a triangular position, but we can create all sorts of positions; for example, a square position:
EURJPY = EURGBP * GBPUSD * USDJPY
These algebraic equalities are much easier to see if we replace the name of the currency with a number:
EUR = 1
USD = 2
GBP = 3
JPY = 4
As a result of this replacement, the abo…
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Andrew_Ryan avatar

The problem to perform the strategy is, principally, how tuning properly the time to avoid excesive drawdown and swap. Think that they are long-term operations. Operation costs make the difference between an extremely profitable strategy with a good risk-benefit ratio and an extremely unprofitable strategy with a terrible risk-benefit ratio. Morover, it's necesary to have a good computing power to avoid slippage. Think that all the information of the tradestation must pass through R or Matlab where is processed and, few minutes later, return to the tradestation to launch the operation.

Daytrader21 avatar

Nice job!

Elani avatar
Elani 29 Apr.

Liked it!

Omela avatar
Omela 8 May

Отличная статья!)

Omela avatar
Omela 8 May

Хорошая статья!

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I have been discovering many ways how to measure potential of trading strategies for last few years and I would like to say there is no a best way. During my discovering I found few methods which are able to quantify potential of trading strategy and I would like to introduce one of them. MAE & MFE is probably one of the simplest methods how to measure potential of trading system. I found this method as a first method and I like this most. MAE & MFE is analysis mostly used by directional algorithmic traders. Beauty of this method is in simplicity.
Maximum Favorable Excursion (MFE)– is a maximal unrealized profit during the period.
Maximum Adverse Excursion (MAE)– is a maximal unrealized loss during the period.
You can find lot of definition of MAE & MFE on the internet. Some of them use term during the open trade. This specification can be right but during the trade means that you already have an and you want to close trade on SL or PT. By hitting one of these closing orders you can get stats but those stats are automatically corrupted and you will never get a potential of the strategy in time scale out of it. If you want to get real and pure stats out of the testing, you need to…
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Metal_Mind avatar
Metal_Mind 26 Mar.

You ve done an excelent job with the article. I  and think so many others will appreciate it. I  also never heard of this method. It is good to learn new things. PS . It a real shame that we can t see properly the images with the data that you worked to  present here. I observed this problem on other articles to. I hope dukas wil find a solution to display the images in  magnified or fullscreen if possible. If not maybe an atachment section to download images would be welcome. Nice job with the article. Keep it up !!

Metal_Mind avatar
Metal_Mind 26 Mar.

Sorry about  this (nbsp).....my keybord has some problems.

Airmike avatar
Airmike 26 Mar.

next time I will make a tests and I can post a print screen with result of the test. This article should be some introduction for those who want to try new model of analysis.

Convallium avatar
Convallium 29 Mar.

Airmike, good luck! Interesting thoughts)

Nick_T avatar
Nick_T 17 Apr.

Airmike , good job.

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