Forex fpi indicator

FPI - Fractional Product Inefficiency: The Impeccable Hedge NeoTicker indicators. The Impeccable Hedge 0. I call the trading technique derived from this concept The Impeccable Hedge. In the text below, you will find out what is FPI, how do we calculate it and how do we trade it. General contemplation on quotes origin From the dawn of civilization, people were exchanging goods and services among themselves to satisfy their needs. The principle of exchange is at the very core of any business.

Indeed, we are making exchange-related decisions in our everyday lives. The introduction of money changed nothing on the ubiquity of this exchange principle, since money is just a medium that facilitates the exchange in a smoother way.

As we all know or do we? In other words, money can only buy you things if your business counterpart believes the money possesses some value. First you have to make him believe those slips are of some value good luck on that quest.

It says absolutely nothing about the intrinsic value of GOOG or USD in relation to other values like to the value of one hour of your work or to the value of one BMW i. This value uncertainity makes the world a perfect place for traders though As we know, the Forex quotes are the ratios between the values of the first currency in the Forex symbol the base or unit currency and the second currency in the FX symbol the quote or the price currency.

But we know what is the relation between the values though. In this example, there are three fractions FX symbols: Obviously, this is true for any n , i. We will call the set of fractions that feature the attribute of having every individual variable present exactly twice a ring since it resembles a closed ring of variables: Is it 1 as in the example above with fractions?. Complementarity For sure, as was the case with the fractions above, we can derive the price of whichever of the quotes in ring if we know the other two: Remember, this rule applies to any number of fractions quotes.

If we had a set of 20 Forex quotes and every individual currency would be present exactly twice in that set thus, they would form a ring , we would be able to devise the value of whichever of these 20 quotes based on the values of the rest of the quotes.

The fractional product almost never equals 1 Now you are probably asking what is so amazing about being able to tell the overall product of the Forex quotes fractions in ring is one? Frankly, the amazing thing about this is that: Have a look at the product of the close prices on the following 15 min chart: As you can see, the product oscillates around the ideal value of 1, but it rarely equals 1 sharp.

This fact alone disproves the Efficient Market Hypothesis which maintains that the market prices are efficient and it's not possible to take advantage of market inefficiency on a regular basis. Certainly, one of the factors contributing to the fact that the product is not exactly 1 constantly is that we are not using a mean value between Bid and Ask, but instead only a Bid price here.

But that would account only for an absolute shift from the ideally effective product of 1, not for the wild oscillation we can see on the screenshot. The value of the product oscillates moderately during the quiet market times, but the amplitude widens considerably during the times when the market is fast-moving: That's exactly what's happening here: It means that at almost any time except at the time when the product is exactly 1, which is a rare case , the market is inefficient in terms of mutual quotes between the FX symbols in ring!

It seems like nobody had noticed this almost constant inefficiency yet, or at least I was not able to find any traces about any such idea on the internet. The Impeccable Hedge I guess you have already figured out that if we open a position in the direction of the ring, i.

Some brokers even allow for opening the same symbol positions in the opposite directions on the same account. On the other hand, if you open the Impeccable Hedge position , you are getting the best of both worlds: So you can turn off your computer, go on a vacation and sleep well.

The amount of profit made by opening and closing the Impeccable Hedge position is very small. Yet — it is sure: If your broker often plays games with your market orders, forget about FPI. FPI Control Panel for NeoTicker in C. NET that hooks up to the NeoTicker trading platform chart and controls the FPI indicator externally.

The FPI Control Panel uses my NeoEventsClass object class that generates events for the rest of the application. Event-driven programming is a modern and resources-efficient way of coding. My entire code for FPI and all the supporting DLL libraries including NeoEventsClass is available for free here, so you are encouraged to use it and build upon it.

You can download the projects source files at the bottom of this article. I have implemented only several NeoTicker events for the FPI Control Panel, but based on my events library, you can easily add literally hundreds of other useful events. The FPI Control Panel connected to the NeoTicker chart looks like this: Then if you click on one of the FPI Rings displayed in the listbox, the FPI value of that particular FPI Ring is displayed on the chart in NeoTicker as the FPI indicator see above If you pick another FPI ring in the FPI Control Panel, the FPI indicator on the NeoTicker chart gets automatically recomputed.

It uses a matrix of unique currencies on the chart. AUD, CAD, CHF, DKK, EUR, GBP, JPY, MXN, NOK, NZD, SEK, USD: The key to the matrix calculations is to — well, work with the currencies in a matrix The matrix abstraction is all done by the PairsMatrixClass within the C FPI code, so you can assess by yourself how it works under the hood since I make that code available in its entirety below.

By the same token, we fill up the rest of the valid FX symbols intersections for all above 23 FX symbols that feature 12 above unique currencies: Notice the matrix is symmetric. It represents the currency intersections of all available FX symbols. FPI Rings combinations Now how do we come up with a set of valid rings with the help of the matrix? The total number of possible combinations we are testing is: By the matter of fact, converted to binary see the C code , the first combination will feature one FX symbol and the last combination will feature all FX symbols.

Now how do we assess the currently tested combination of FX symbols is a valid FPI ring? In this definition, a variable is the FX currency and the fraction is the FX symbol. So this time, we will mark the corresponding intersections in the matrix as used in the tested ring.

Now we will check whether our chosen combination of FX symbols complies with the above rule. Actually, we can check these sums in columns as well. Zero occurences of the currency in a matrix row means this currency is not present in any FX symbol in the ring we are testing for validity as is the case for JPY, for example: Two occurences mean the currency is present exactly twice which complies with the ring creation requirements, as is the case for EUR here: Any other sum i.

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We may skip this entire combination test and continue on to the next combination test because we know that all rows must be valid. To declare the currently tested FPI ring as valid: At the end of each ring combination test that yields a valid FPI ring we also need to determine in which direction the particular set of FX symbols will be used in the ring.

Since the matrix is symmetric, it tells us nothing about the direction buy or sell of the FX symbols used in the ring. It only provides us with a set of currency pairs used in ring.

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As stated above, the FX symbols used in the opposite direction are shown in parenthesis in the FPI rings list on the FPI Control Panel: You have two choices: Simply because we never know when high or low occurred during the bar. Open and close prices are time-precise — we always can tell that the open or close prices across the various FX symbols on chart did occur at the very same time. Sure, if we know the prices of the first two, we may determine the price of the third one.

But by the same token, if our analysis reveals us the direction of the first two symbols , then we can also tell what is the direction of the third one, too, despite of the fact that there might be no hint on the chart as to what is the direction of the third symbol. Conclusion As exaplained, the Impeccable Hedge takes advantage of the mutual inefficiencies of FX quotes.

We can use the FPI indicator to display the current state of the mutual inefficiency. The Impeccable Hedge trade makes very small amount of profit, but this profit is sure.

Thanks for your interest in FPI. Have a very nice day all, Michal Kreslik note: Last edited by michal. Thank you for your support. Very interesting idea you have setup here. My only question now is how exactly is one to know what the "extreme" of the FPI is at the time that it occurs?

I understand the gains are small with this system, so is there a certain threshold in the FPI that must be broken on either side of 1 before the trade is profitable? It depends on the set of FX symbols you use in the ring. Obviously, the more FX symbols in a ring, the higher the total spread and the bigger the FPI deviation from 1 must be to cover these costs.

The goal is to find the set of FX symbols that form a ring, do have a small spread in sum and their FPI wiggles a lot. I'll bet this is one of the closely guarded secrets of many institutions. Michal, this is very impressive. I believe one of these years well open up Forbes and read about you on there international billionaire list.

Is there a way to set up the ring so you can maximize the interest earned at rollover for the fx pairs in the ring?

Your Impeccable Hedge could be the Impeccable interest machine. Again , this is very impressive and thank you for sharing your work with us. Michal, Can you extract the list of , and provide that list in a text file, or some type of delimited file format? With regard to the effectiveness of this type of trading can it be concluded that the smaller the number of pairs involved 3 , the easier to profit because of processing the trades in sequence?

Your charts of FPI appear to be on a 15 minute interval. Have you looked at longer time frames? It seems that the differential would exist on all time frames.

The higher number of pairs might be easier to trade on the longer time frames, where order processing time would be less critical. Hi Michal, Very interesting analysis. It seems to me that it would be necessary to exclude periods during which currency pair exchange values were fluctuating wildly.

My bet would be that during those periods you would find there to be FPI extremes that could NOT actually be traded and so would need to be excluded as possibilities.

Of course, you correctly note that "FPI relies on your broker not being a bandit". Seems to me that this point is not a trivial one and still another argument, if one were needed, to focus on CME Currency Futures rather than Forex per se. Price and Size Depth of Market Quote Reliability and Transparency, Fast Fills, Extremely high positive correlation with InterBankFX, Insured Funds, Historical Data Availability, Increasing Liquidity through greater institutional use I still don't really get how any factor including the "leverage argument factor" can overcome these benefits.

Having said all this Also, I wanted to praise the purity of event-driven programming. Once the NeoEventsClass is in place, everything in this rather complex FPI indicator is done via events generated by this events class. Let's feast our eyes on the cleanness of the IDL indicator code itself: That's the "whole" FPI indicator!

All the rest is done thru events. I got a question about how does such an FPI trade look like. Let's use a commonplace FPI ring: They are fixed to: The FPI extremes of this magnitude happen every day. There are many times bigger differences sometimes. But let's settle for this "everyday" sample magnitude for now. Input information for the Impeccable Hedge open considering Oanda spreads as described above: You may say it's nothing to write home about, but it's sure 6.

You see, we were FLAT all the time and still were able to make a profit. Take a deep breath before I tell you! You don't gain, you don't lose. The wonderful thing is FPI always wiggles up and down, so sooner or later, you'll be able to exit with a small profit Now isn't life beautiful? To give you an even better idea of how FPI works, let's have a look at this common-or-garden sine wave I created in excel: You see, the sine has got its extreme points at the crests and then always returns back.

It cannot get alarmed and go out of the boundaries. The same is with FPI. It's like a somewhat crippled sine wave. Sooner or later, the crest will appear.