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Questions about Grid hedging

  • #1
  • First Post: Edited Jan 6, 2016 5:01am Sep 13, 2015 1:07pm | Edited Jan 6, 2016 5:01am
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  • #2
  • Sep 13, 2015 6:37pm Sep 13, 2015 6:37pm
Quoting zghnno
So the concept is simple: You choose a reference point, for example London open. Then you place N buy stop orders above the reference point and N sell stop orders below the same reference point. The distance between the orders is fixed, for example every 10 pips. The DD or max loss is fixed regardless where the price goes. Two questions come to mind: 1- What's wrong with the concept? 2- When to take profit? Regards Z
That would work like a charm if you can catch breakouts 100% of the time and avoid choppy markets, Can you do this? Of course no, and No one can...So what happens then...The market would tear your account apart ranging which leaves you openning a lot of orders in one direction and all of a sudden market reverses direction to find yourself holding several positions in the wrong direction, accumulating many losing positions simultaneously which eventually leads to a Margin Call...Regards
Simplicity is the key to brilliance.
  • #3
  • Sep 14, 2015 12:30am Sep 14, 2015 12:30am
Quoting zghnno
So the concept is simple: You choose a reference point, for example London open. Then you place N buy stop orders above the reference point and N sell stop orders below the same reference point. The distance between the orders is fixed, for example every 10 pips. The DD or max loss is fixed regardless where the price goes. Two questions come to mind: 1- What's wrong with the concept? 2- When to take profit? Regards Z
A constant pip value translates to a move of a different magnitude across different instruments. Thats something to consider.

Btw, whats grid hedging?
  • #4
  • Sep 14, 2015 1:27am Sep 14, 2015 1:27am
Quoting Inceptionist
{quote} That would work like a charm if you can catch breakouts 100% of the time and avoid choppy markets, Can you do this? Of course no, and No one can...So what happens then...The market would tear your account apart ranging which leaves you openning a lot of orders in one direction and all of a sudden market reverses direction to find yourself holding several positions in the wrong direction, accumulating many losing positions simultaneously which eventually leads to a Margin Call...Regards

Not necessarily true, if N is 3 and the distance is 10 pips, that means you'll have 3 longs and 3 shorts over 60 pips range?

How many days can a pair range over 60 pips range? very few I would say.

For a Margin Call, you wouldn't get it, since you close the grid even with a loss and start the next following day.


Regards
Z
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  • #5
  • Edited 1:39am Sep 14, 2015 1:29am | Edited 1:39am
Quoting Atokys
{quote} A constant pip value translates to a move of a different magnitude across different instruments. Thats something to consider. Btw, whats grid hedging?

It's a grid without stop losses. Rather having orders with a stop loss, you please orders on the other side. Hence you hedge the grid.


Regards
Z
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  • #6
  • Sep 14, 2015 6:26am Sep 14, 2015 6:26am
Quoting zghnno
{quote} Not necessarily true, if N is 3 and the distance is 10 pips, that means you'll have 3 longs and 3 shorts over 60 pips range? How many days can a pair range over 60 pips range? very few I would say. For a Margin Call, you wouldn't get it, since you close the grid even with a loss and start the next following day. Regards Z
I've tried this before and it doesn't work as you're thinking in real markets, wanna know why? Well we have 3 scenarios here; 2 bad scenarios and 1 good scenario.

Scenario 1 (bad): Market goes up 30 pips activating all 3 buy orders on the way up, but it doesn't go any higher, then falls back to the open of day or session.. let's say it fell 70-80 pips activating all 3 sell orders...Result of the scenario is a net loss and it could be huge because when price went back to your starting point (open of the day or session) you're already holding -30-20-10= -60 pips before the market goes down to activate your sell orders, and don't forget that those orders and their losses eat good part of your available margin too.

Scenario 2 (bad): This is the worst one, Market goes up 30 pips activating all 3 buys orders then falls back to the open of the session ( your cycle starting point), then market continue falling down activating all 3 sell orders, and finally it goes back up again and stays at your starting point or open of the session. With this scenario you'll be holding losing buy orders -30-20-10= -60 pips and losing sell orders -30-20-10= -60 pips and a total of -120pip loss.

Scenario 3 (good): This is the best one and if you catch it more often without going thru the bad scenarios (1,2) you'll do just fine...This scenario happens when the market is on break-out mode, it either goes straight up 40 or 50 pips and all of your buy orders will be in profit with no losses at all, or market falls straight down 50-60 pips activating your sell orders, and all of your sell orders will be in profit then with no losses at all

So basically you're betting against 2 bad scenarios on the hope of catching 1 good scenario...So you do the math
Simplicity is the key to brilliance.
  • #7
  • Sep 14, 2015 8:11am Sep 14, 2015 8:11am
Quoting Inceptionist
{quote} I've tried this before and it doesn't work as you're thinking in real markets, wanna know why? Well we have 3 scenarios here; 2 bad scenarios and 1 good scenario. Scenario 1 (bad): Market goes up 30 pips activating all 3 buy orders on the way up, but it doesn't go any higher, then falls back to the open of day or session.. let's say it fell 70-80 pips activating all 3 sell orders...Result of the scenario is a net loss and it could be huge because when price went back to your starting point (open of the day or session) you're already holding...

True but 100%. There are more scenarios:

1 long, 2 shorts
1 long, 3 shorts
2 long, 3 shorts
1 shorts, 2 long
1 shorts, 3 long
2 shorts, 3 long

So now you have 8 scenarios, only one is a loss: 3 shorts, 3 longs, all other 7 are a win.


Regards.
Z
Double the account
  • #8
  • Edited 9:20am Sep 14, 2015 8:19am | Edited 9:20am
Quoting zghnno
{quote} True but 100%. There are more scenarios: 1 long, 2 shorts 1 long, 3 shorts 2 long, 3 shorts 1 shorts, 2 long 1 shorts, 3 long 2 shorts, 3 long So now you have 8 scenarios, only one is a loss: 3 shorts, 3 longs, all other 7 are a win. Regards. Z
Try it on a live account and post a trade explorer, let's see what could be achieved here
Simplicity is the key to brilliance.
  • #9
  • Sep 16, 2015 4:57am Sep 16, 2015 4:57am
Hey.. i've done it last month and like what they said, its scary if your buy and sell order are all triggered. its only good if the market trend straight up or down in one direction.
  • #10
  • Last Post: Sep 22, 2015 3:44am Sep 22, 2015 3:44am
Quoting zghnno
So the concept is simple: You choose a reference point, for example London open. Then you place N buy stop orders above the reference point and N sell stop orders below the same reference point. The distance between the orders is fixed, for example every 10 pips. The DD or max loss is fixed regardless where the price goes. Two questions come to mind: 1- What's wrong with the concept? 2- When to take profit? Regards Z
maybe a bit of fine tuning is in order?

suppose you choose GBP/JPY.......what is the ATR for that day........by London open, how many pips did the pair go up or down already for the day?.......still worthwhile to trade that day or wait for tomorrow?........is the pair in a ranging cycle for the last week with losses mounting: wait for a more trendy environment?........at London open you want to be quite sure of the direction for that day: would it be better to start at +40 and -40 from open, then 2nd order +60/-60 and 3rd order +70/-70?...........what happened in the last month trading like this: backtest?...........what pair would be best for this system: backtest?........when is the better time to close the orders; strong trend: end of day - more ranging: US open: backtest?

those would be some of my thoughts
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