{"id":53376,"date":"2014-06-27T06:49:46","date_gmt":"2014-06-27T10:49:46","guid":{"rendered":"http:\/\/countingpips.com\/?p=53376"},"modified":"2014-06-27T06:53:49","modified_gmt":"2014-06-27T10:53:49","slug":"pci-forex-technical-analysis-june-27-2014","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/06\/pci-forex-technical-analysis-june-27-2014\/","title":{"rendered":"PCI Forex Technical Analysis June 27, 2014"},"content":{"rendered":"
June 27, 2014<\/div>
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By IFCMarkets<\/a><\/p>\n

Good afternoon, dear investors. Today we consider the example of disequilibrium spread trading<\/span>, an efficient trading method used within the Personal Composite Instruments – PCI<\/a> technology. The basis of this method is the expression of the underlying asset in units of the quoted asset, provided that both assets have a negative relation: the price growth of the underlying asset leads to a price drop of the dependent one, and vice versa.<\/p>\n

It means that a slight price deviation of any of the PCI components results in further movement in a given direction – the synthetic instrument is trend susceptible. In order to search for a \u2018reverse spread\u2019 we use the correlation coefficient indicator (r)<\/a> and the criterion: r<\/i> < -50% for this coefficient. The correlation assumes the values that range from -100% to 100%. Negative values indicate the inverse statistical relation between the two assets. Before conducting the correlation analysis it is recommended to suggest a fundamental hypothesis of the competing assets, or asset substitution.<\/p>\n

Today, as a sample of such assets we consider Coca-Cola Company stock (#S-KO<\/b>)<\/a> and orange juice futures (#C-ORANGE<\/b>)<\/a>. It is quite natural to assume that juice is an eco-friendly substitute for soft drinks, and under certain conditions we can observe the demand substitution effect. This effect appears to be more apparent at the strengthening of the healthy lifestyle micro trend, or at the opposite situation, the demand growth for fast food products, for example during the crisis situation in the country\u2019s economy. One of these trends immediately leads to the interrelation strengthening between # S-KO and # C-ORANGE.<\/p>\n

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So, let us verify our hypothesis. For this purpose we include the correlation indicator between #S-KO and #C-ORANGE in MetaTrader4. The indicator is attached to the daily stock chart of # S-KO. Let us use the statistical analysis volume: 13 days for all the indicators, respecting the analysis coherence principle. Currently the correlation value corresponds to -70%. We can see that the signal line crossed the zero level downwards together with the Donchian channel breach and the bullish trend onset # S-KO on June 17, 2014. We expect that this opportunity allows to receive the PCI rapid growth. The following chart fully confirms the assumption. The daily chart of the synthetic instrument is built in the trading platform<\/a> using the GeWorko Method. The PCI price is expressed as the ratio of the Coca-Cola stock and the orange juice commodity futures contract. The instrument trading is carried out as a standard Forex tool. We can see that on June 17 the price crossed the moving average (13 days). The moving average acts as the support line, so we can place the risk limitation level below 0.89927; moreover this level is confirmed by ParabolicSAR historical values.<\/p>\n

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We draw your attention to the fact that since the beginning of reverse arbitrage (June 17) the Coca-Cola stock price rose by 1.7%, while the PCI instrument price #S-KO\/#C-ORANGE<\/b> by 17.5%. Using a reverse spread it is possible to obtain more than tenfold yield growth. At the same time we are safe from systematic risks, such as the falling demand for food. The synthetic tool allows you to hedge the transaction, meanwhile providing instrument persistence, i.e. its trending behavior.<\/p>

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Considering the long-term trend on the weekly chart, we observe the growth continuation since the end of 2007 and the beginning of 2008. The coincidence with the start of the global financial crisis is no accident. Since the monthly and quarterly trends are increasing, then it is a great opportunity for position traders for a long position in the vicinity of the support line, for example, at the level breach of 0.92289. The general trend is confirmed by the MACD indicator: the signal line entered the green zone. We can place the risk limitation at 0.82366 and move Stop Loss every week, focusing on the ParabolicSAR indicator value, or a new fractal trough.<\/p>\n\n\n\n\n\n
Direction<\/b><\/td>\nup<\/td>\n<\/tr>\n
Position opening<\/b><\/td>\nabove 0.92289<\/td>\n<\/tr>\n
Stop loss<\/b><\/td>\nbelow 0.82366<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Creating synthetic instruments using the GeWorko Method: trader guidelines<\/a><\/i><\/p>\n

Market Analysis provided by IFCMarkets<\/a><\/p>\n

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By IFCMarkets Good afternoon, dear investors. Today we consider the example of disequilibrium spread trading, an efficient trading method used within the Personal Composite Instruments – PCI technology. The basis of this method is the expression of the underlying asset in units of the quoted asset, provided that both assets have a negative relation: the […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-53376","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/53376","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=53376"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/53376\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=53376"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=53376"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=53376"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}