Hedge trading

[garyfritz]

If I have to close my account now I stand to double my account for a period of 8 months. What I am not sure though if the profit indicated as my equity is actually what I get considering swap and spread charges.

Your equity should have already had previous swap/spread costs subtracted, Haggadah. If you closed your account you should get at worst your equity minus your open DD.

That's an impressive result. Could you explain exactly what you're doing? I'd like to see what mechanism you're actually using. As I posted earlier, I don't understand how a truly hedged position can make any profit. You must be making directional bets somehow. But it sure seems to be working for you!

[Haggadah]

Gary,

Your post is very helpful regarding swap and spread charges. Here is a screen shot of my balance/equity.

Try not to limit yourself inside the box (hedge) as there is no perfect hedge among correlated pairs.

Haggadah

[garyfritz]

Yeah, I would expect you to get $2183 when you closed the account.

So you're using not-perfect-hedge sets of pairs, and somehow making trade decisions. I'd still like to find out how you're doing that.

[Haggadah]

Yeah, I would expect you to get $2183 when you closed the account.

So you're using not-perfect-hedge sets of pairs, and somehow making trade decisions. I'd still like to find out how you're doing that.

Here are the trades I made for the month of August. Sorry, I don't want to hijack this tread but I promised this will be the last.

Haggadah

[kwanann]

Hi, please share how you did the hedging, I can't really see any hedging taking place

[Gertje]

Hi Kwan,

Interesting... What about entering hedged positions on a grid with say 10 pips distance and à fixed TP/SL of 20/10. As soon as trades are closed, replace with pendings.

One should stay fairly hedged this way, make 50% wins with a R:R of 2:1.
One of the cons will be a long(er) trend without retraced.

Time will tell the maximum lotsizes.

[garyfritz]

You'd need a strategy that delivers the 50% wins with 2:1 R:R. You can't do it with random entries. Random entries will get you 1:1 with 50% wins, or 2:1 with 33% wins -- breakeven. Then subtract your slip/spread/commission/etc and random entries are losers.

[kwanann]

Hi Kwan,

Interesting... What about entering hedged positions on a grid with say 10 pips distance and à fixed TP/SL of 20/10. As soon as trades are closed, replace with pendings.

One should stay fairly hedged this way, make 50% wins with a R:R of 2:1.
One of the cons will be a long(er) trend without retraced.

Time will tell the maximum lotsizes.

In addition to what Gary mentioned, you should know about stop hunts, so it can easily be the case that both entries get stopped out and you end up with two losing trades.

One possible way is a grid entry but even then there is some directional bias..

[Chubbly]

Hi Kwanann,

i did some backtesting regarding your hedge idea with some minor changes to the strategy. As long as the sentence : "what goes up must come down and vice versa" stands true, there is a chance to make some profit with this hedge strategy.

I used the following rules for the hedge :

1. Open a buy and a sell with limit/stop orders exactly at a round number E.G. 1.3100 -> Our first level
2. Open new buys/sells at every new touched round number. 1.2950 -> second level below, 1.2900 -> third level below... 1.3150 -> second level above, 1.3200 third level above and so on...
3. Now if price reaches a third level up or down close the trade with +100p from level one and the -50p trade from level two.
4. Now replace the closed out hedge trades of the levels one and two with limit/stop orders.
5. Now while price action is evolving keep closing the trades when they reach +100 and its -50p partner and keep reopening the limit/stop orders until price changes the direction and our account reaches the green zone. Voila we made some profit.

I have been trading something very similar to this. I call it a "scale-in with a hedge" First pick an instrument that you think is trending so create a 5 Buy Stop positions every 20 pips for example. As pre-cautionary hedge I create 5 Sell Stops also at 20 pips apart for example. All for the exact same amounts. There is No TP or SL on any entry.
Now one of a few things will happen. If it shoots up, great you have scaled in, now cancel the Sell stops and move a stop to BE and manage the position as you wish. If it goes down and and continues down, that is fine you mange the position as a short. If it goes up hits one or more entries then down and hits one or more entries then you manage it as a hedged position. No SL is needed since you have equal position size and distance from entry. Now you wait for the market to eventually make up its mind so you may end up with 5 longs and 3 shorts for example, wait till it the group of positions is in profit to close it. I spread the 5 entries over 1 ATR (+ and -) so it may take a week to finally make its move.
The worst case scenario is if it ranges and hits all 5 Buy and Sell Entries. At this point I just take the loss and try again. This is rare but does happen.

I have been testing on volatile pairs and XAU and XAG and it does well.

I am basically following this system but with multiple pairs I feel are volatile. there are some spreadsheets within the thread that validate this method and calculate the loss of a worst case scenario
http://www.forexfactory.com/showthread.php?t=78340