There are 5 Simple Steps to the new “Going Home Trading Method", formerly known as the “Hedging and Correlation” Method. We are still hedging and correlating, just that the new name will help us visualize what we are wanting to accomplish in this trading system, and we have modified our entries and exits after a very long time of practicing.
Most pairs that are positively correlated above 75% "live” below the 20-25% “difference” line on our one indicator that we use (see below—thanks to SMJones for developing it!). This is their home. Sometimes they will travel a little ways away from home (like up to 50%) and occasionally they will make a long trip (over 80%). But of course “there’s no place like home” so they eventually return to under 20%, where they live most of the time. We will open trades when the pairs are away on a trip, helping them to get back home, and we will profit on the way back.
There are only 5 steps to trading this successfully:
1. Go to http://www.mataf.net/en/tools/01-01-correlation and click on “Forex Correlation” under “Tools and Charts”. Put a check on all pairs.
2. Scroll down to “Daily” and note each pair with a positive correlation of 75% or greater (I am currently monitoring 25 pairs, which is very easy to do using the indicator mentioned below).
3. Open 5M charts on your MT4 platform for all the pairs selected in the steps above. Place the “Stochastic Different Pairs 1.4b” indicator on each of the charts.
4. When a 5M bar (candle, whatever) closes above 80% differential sell the pair that is high, buy the pair that is low.
5. Close at 50%, or lower, depending on your risk tolerance.
This particular method is a short term strategy that has you in and out quickly.
Benefits:
1. No monitoring charts needed. You can set the “Stochastic Different Pairs 1b” to alert you via pop-up on the computer, or email to your cell phone.
2. “Built-in” stop-loss. This means that since we exit at 50% we are out with either a profit or a loss, therefore we do not need to put stop losses on with our trades. We will simply close out when the difference reaches 50%.
3. “Built-in” trend/sideways moving market protection. When nothing much is happening the “difference” percentage drops below 20 and we do nothing.
4. Numerous opportunities to trade throughout the day. You can trade this method anytime of the day or night. No more “first hour of the session only”, though there certainly is more activity during “session” times.