Scaling Currencies Relative To Each Other On Chart

Posted By: TankWolf

Scaling Currencies Relative To Each Other On Chart - 12/18/13 03:09

Hi All,

Was wondering if anyone knows how to scale 2 currencies together on the one chart so they overlay. I can plot both currencies on the same chart but I cant seem to work out a way to calculate a scaling ratio to compare 2 currencies to exploit possible arbitrage scenarios that may arise. Any suggestions would be helpful.

Originally Posted By: "Code"

function run() {
BarPeriod = 60;
StartDate = 2008;
EndDate = 2013;
LookBack = 200;
ColorUp = 0; ColorDn = 0;
set(PLOTNOW);

asset("GBP/USD");
vars PoundPrice = series(price());

asset("EUR/USD");
vars EuroPrice = series(price());

vars Correlation100 = series(Correlation(PoundPrice,EuroPrice,100));

plot("PoundPrice",PoundPrice[0],0,RED);
plot("EuroPrice",EuroPrice[0],0,BLUE);
plot("Correlation100",Correlation100[0],NEW,BLACK);
}

Posted By: swingtraderkk

Re: Scaling Currencies Relative To Each Other On Chart - 12/18/13 11:00

have you tried plotting the bar changes of each as pips, % , or % ATR?

I'm not sure there are arbitrage opportunities available for exploitation by the retail trader, you need no spreads, great speed and great execution, if you have those we'd all be very grateful if you could share the broker ;-)

However, this would be useful for pairs trading or relative strength analysis.

Posted By: dusktrader

Re: Scaling Currencies Relative To Each Other On Chart - 12/18/13 11:13

This sounds like a neat idea, one I would like to explore as well. I might be over-simplifying, but I think what you want is to create a synthetic currency based on the movement of 1 active currency as the core (say EURUSD). All synthetic currencies would start from the same value as your core so that when plotted, they would all start from the same point and then diverge accordingly.

In that way, each synthetic currency could be based on the percentage moves of its actual currency, but applied to the synthetic currency, which is based on your core.

Like this:
EURUSD 1.3749 --> 1% move up = 1.3886 --> 2% move down = 1.3608
sGBPUSD 1.3749 --> 2% move up = 1.4024 --> 1% move up = 1.4164

That would allow you to to see divergences, and know to what degree. You might need some sort of special handling in place for JPY currencies I think.

There are some examples of building synthetic currencies in the manual (search synthetic)