Unfortunately, on the blog, we have not yet dealt with the topic of statistical arbitration. But an interesting topic. Moreover, not only our compatriots, but also many well-known western traders work successfully on this strategy (it is also called the pair trade, or the spread trade). Therefore, we first take a look at a simple example for clarity, and then consider in practice an expert adviser who implements this tactic.
Here is a simple example of this tactic. Without further ado, we take charts of two different types of oil carriers, for example, Brent or Crude OIL, and West Texas-based WTI. Next, we combine two charts (under MT4, this can be done with the help of indicators, or use MetaStock tools), and look at the resulting picture. A pattern immediately catches the eye: two instruments are strongly correlated, that is, they periodically converge, diverge over time.
I think you already guessed how this can be used. Namely: we are waiting for the moment when one type of oil becomes as expensive as possible with respect to another, and then we sell the first type, at the same time buying the second one with the same volumes. That is, we create a kind of lock, which is called the neutral market position. It is neutral because it does not depend on the direction of movement of oil rates. The value of profit / loss depends only on the width of the corridor between the charts of the two correlating instruments. Also a big plus of this trading method: you can apply averaging. If the situation continues to develop in an undesirable direction (this approach works well in statistical arbitration, as opposed to trading in a single financial instrument). Thus, we can create additional entry points to the market.
As a logical result, we wait for the situation to unfold, and close positions in the black.
In addition to oil instruments, you can also use funds, for example, CHEVRON / TEXACO, COCA COLA / PEPSI, currencies, and so on.
Now for the adviser. Recently, we received a copy of GenStarb V2 from the authors. Generally speaking, statistical arbitrage is just the strategy that is best suited for trading “hands”, so we don’t expect any expert to make the mountains of gold. There is no Bektest – mt4 does not support multicurrency testing for stories (in the future we will try mt5), but this code is already set for the forward.
Any comments and comments are welcome both on the strategy in general and on the adviser to Generic Statistical Arbitrage in particular.