Reverse spread - way to synthetic volatility. Trend following frame
|There is a conventional division of classic trading systems into classes: mean reversion and trend-following. In current webinar we disclose using of synthetic instruments that initially possesses trend behavior with long term memory. In this case a trader controls volatility structure with the use of technical and statistical analysis. We consider currency cross rates and some mixed instruments to reach reverse spreads. A negative correlation between underlying currencies/assets means that a basic asset growth corresponds to a quoted asset drop and vice versa. Under certain conditions these instruments are distinguished by long-term trends and short-lived flat periods. A flat movement pattern becomes unstable. We consider the trading results of a simple moving average approach filtered by correlation analysis. It has been proven that reverse spread is a perfect instrument for trend following with higher winning rate than major currency pairs
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