Synthetic Trading Pairs Forecast: GBP will outperform JPY
Supporting Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs GBPUSD vs. USDJPY which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process. This trading strategy is market neutral: its returns are uncorrelated with market movements.
Cointegration (left chart): look at the divergence between pairs that have moved away from each other and then back together in a regular pattern:
1. There is a gap in the last days.
2. I will trade GBPJPY, GBPUSD, USDJPY assuming will return to their correlated path
Correlation
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that all currency historically tend to move together with similar price trajectories, because generally they are traded in the same market, so the same factors impact them.
Technical Analysis (right chart):
GBPUSD move together very closely and has a maximal correlation with USDJPY. This means GBPJPY it's profitable when the relative value between the assets is perturbed from equilibrium, I can take a contrarian position and profit from the synthetic trading as the prices revert back to their long-run mean.
Supporting Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs GBPUSD vs. USDJPY which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process. This trading strategy is market neutral: its returns are uncorrelated with market movements.
Cointegration (left chart): look at the divergence between pairs that have moved away from each other and then back together in a regular pattern:
1. There is a gap in the last days.
2. I will trade GBPJPY, GBPUSD, USDJPY assuming will return to their correlated path
Correlation
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that all currency historically tend to move together with similar price trajectories, because generally they are traded in the same market, so the same factors impact them.
Technical Analysis (right chart):
GBPUSD move together very closely and has a maximal correlation with USDJPY. This means GBPJPY it's profitable when the relative value between the assets is perturbed from equilibrium, I can take a contrarian position and profit from the synthetic trading as the prices revert back to their long-run mean.
