Hedge Wedge Trending System
One of the weaknesses of any trending system is that the price action has a tendency to stay to close to the actual trend. The simple premise is that prices always gravitate towards their means.
The idea behind this system is to create distance between the price action and mean thereby allowing for a longer adherence to price action during trending. This trading idea was inspired by Yezbick's work.
This is a very simple system. The rules are as follows:
1. Create a one hour chart
2. Create a 25 period weighted close moving average (WCMA) with 25 and -25 offset levels. This will create the WCMA wedge appearance.
3. Add a 50 period postive shift to the (WCMA)
4. The WCMA will appear as a Wedge on the chart.
5. Establish a spread Hedge (Long and Short simultaneous orders) whenever the price enters the Wedge. This is a neutral position.
6. Unwind the hedge (spread) whenever the price action leaves the wedge. For example, if the price is trending Long and exceeds the Long side of the wedge, remove the short side of the Hedge (spread) which will result in a Long position. If the price is trending Short and exceeds the Short side of the wedge, remove the Long side of the Hedge (spread) which will result in a Short position.
7. Once a trend has been engaged, enter an opposite side entry order to re-establish the spread should the price reverse. Do not place any stops. The opposite side hedge entry order will serve as the stop.
The attached chart illustrates the price action slicing through the Wedge that is created by the WCMA. This type of slicing action permits clean trade entry. Remember, the hedge wedge is a completely neutral zone where spreads are created which is an artifical stop...
thank you for the contribution!. Can you attach your template to this thread?. I have some difficults to add the indicators to a graph.
Thanks TK for the revised method
I think I get the fundamentals but remain unsure as to how such a system would operate in practice, though I keenly hope it works.
Surely there is a lot of ranging - even with a positive 50 shift, from within and without the hedge wedge boundary.
Such situations would lead to multiple unhedgings and rehedgings depleting your balance by spread each and every time.
I attatch a chart to explain what I mean. Perhaps I am missing something.
I think Yezbick made a good suggestion on another thread
perhaps an incremental removal of hedging as trend develops (as a sort of hedge equivalent of increasing position) is more appropriate?
tKimble does it again.
I like the looks of the new system. I'm studying the effects of this system and will post my findings and any questions, I may come across.
is the same result achievable simply by instituting a larger MA rather than an MA shift, eg 75/100
I like the concept of hedging inside the +/- levels. It makes good sense. One thing I ran across though is the following.
It seems that the shift can cause losses. I have enclosed a chart below describing the issue in question.
hedge trading using different pairs
Im interested in hedge trading useing different pairs like eur/usd and uds/chf. Does any one know how I can set these up properly?? From what I understand, I should buy or sell 2 X the amount of eur/usd then usd/chf.
I've loved alot of your past ideas TK, but I'm having alot of difficulty with the practical implementation of this method. This just seems to be too much computer time. And if I'm being a baby about it, I understand :-)
Where is Tkimble?
Where has tkimble gone to? He/she hasn't posted in FF since 4/18. I hope he is alright.
Is this thread going to continue?
Question about #7. So once the trend has been established we are either long or short. Suppose we are long. Then we open sell hedge entry order to serve as a stop. If understand correctly, this hedge order should be a limit order right? It shouldn't be an instant order right?
If so, what would determine the price of the hedge order? Which side of the wedge?
Similar concept, simpler design: http://www.forexfactory.com/showthread.php?t=40034
What are you looking for? A no loss system? zzzzzzzzzzzzzzzzzzzzzzzzzz
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