Thank you for the question, and it IS one that I am constantly testing!
This was the original answer that I wrote in the post that you referenced; I highlighted the most pertinent comments to your question:
BUT, wait a minute!!! What if multiple EURAUD hedge sell positions are opened and the market starts to oscillate??? (a.k.a. Oh crap what do I do now??)
AHH!! This is where it can get a bit complicated and as of yet I don’t have a completely satisfactory answer and hence why I shut down my original Grid-Hedge account in December 2015. Remember that the goal [Risk Abatement] of this entire hedge process is to balance P/L positive EURAUD hedge positions with the P/L negative EURCAD position 1 and EURCAD position 0. Once this is achieved ALL positions are closed. What I don't want is a P/L positive EURAUD hedge trade becoming P/L negative...and so what I've done in the past is to immediately close a EURAUD hedge position when its P/L = $0. If the market continues to climb, then the remaining EURAUD hedge position 1 is balanced by EURCAD buy position 0 as described in "Closing the EURAUD hedge". However, if the market oscillates in a price range where EURAUD hedge positions are constantly being opened and closed, then that's what I've been doing. So… as I stated above, I will work out this dilemma in real time and also back-test various "what-if" scenarios to come up with a satisfactory answer.
I still don't have a "bullet-proof" answer to that dilemma- and it does happen frequently when there are wide swings in the market. As of right now, for the EURCAD and EURAUD scenario that you mentioned in your post, if the market turned down- and continues to move down, I would open EURAUD Sell trades at 100-pip intervals with no TP; no buy/sell trades in the basket would be closed until the net P/L of the basket = $0. The crux of this issue is that every time the market swings 100 pips to the upside of the first EURAUD hedge sell position, then both a EURCAD buy trade and EURAUD sell trade would be opened, but any price move beyond that first 100-pip upside swing, only EURCAD buy trades would be opened at 100-pip intervals. Opening buy and sell trades each time that the market swings 100-pips up/down around the first EURAUD Hedge position could go on at-nauseum until the market begins to trend in one direction or another - hence the need to keep position sizes small relative to your bank roll. Also, it can take quite a while for the basket P/L to reach $0. So, I'm not completely satisfied with this method of risk control.
Also see: Whats wrong with following twist to the grid or and Martingale? | Forex Factory, post #13, and subsequent posts thereafter.
DislikedBesides high currency correlation, can we consider to use ADR * pipValue (Daily range in currency) of two pairs and their ratio to calculate to different lot size for each pair in trading. Is it give us more chance to get net P/L=0 ?Ignored
Hope this helps.
Best,
Dave
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