Advanced Forex Strategies Part 1 - Tug of War
TOW's signals are usually given by proprietary spread/arbitrage trading systems that can utilize multiple time-frames including intra-day, daily and weekly price bars. Stop loss orders and targets can be executed intra-day on a 24 hour a day basis. A closer inspection of price spread comparison charts should indicate the existence of short to medium-term price trends that fluctuate around either side of their historical average price relationship-which may also be trending on a longer term basis.
Trades can be based on an expected price move toward a calculated average price relationship (mean reversion), or trades may be taken in expectation of a potential move away from a calculated mean price and toward an extreme price relationship level (mean aversion).
TOW is market-neutral, meaning the direction of the overall market does not affect its win or loss. The goal is to match two currencies that are highly correlated, trading one long and the other short when the pairs' price ratio diverges "x" number of standard deviation - "x" is optimized using historical data. If the currency pair reverts to it mean trend, a profit is made on one or both of the positions.
Related Tags: trading, forex, strategy, arbitrage, hedge, hedging, cross hedging, pair trading, double opposition
Damon Catania
http://www.FxInsiders.com
Forex DayTrading Systems
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