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Three Pairs Hedging

  • #1,001
  • Jun 28, 2017 6:27am Jun 28, 2017 6:27am
Quoting sanyax
{quote} but in positiones you 3 times chf sell and one time buy? is true?
metacoder is doing the mistake in his example, i hope he is doing it correct in real trading, or he just will wonder why his basket wins/loss will move because of chf and usd still open with 4 positions ;-)..

as a tip: change the direction of usdchf to have chf and usd hedged, or you are with usd and chf still open 2 times each.
  • #1,002
  • Jun 28, 2017 6:54am Jun 28, 2017 6:54am
Quoting brucech
MetaCoder, Thanks. I noticed that in your other post, but just wanted to be sure about it. Is there a particular time of week and day that you have found that would be better to start a hedging cycle? Bruce
Hello Metacoder, thanks for share your ideas. Please, is important the moment to send the orders or is indifferent ?
Thanks.
  • #1,003
  • Jun 28, 2017 9:12am Jun 28, 2017 9:12am
Quoting GoldTheHun
{quote} I am glad it is useful to you. I didn't understand the question. Could you be more specific? Thanks....

yes..sorry for my english.. the equity start every new day and clears gain and loss the previous day...I wanted to ask you if it was possible an uninterrupted equity? I hope I have explained.. thanks
  • #1,004
  • Jun 28, 2017 9:16am Jun 28, 2017 9:16am
Quoting MetaCoder
There probably is brucech, but all of the pairs need to move sooner or later and it's market movement we want. I've been working with an EA and as I expected the very quiet times aren't good. I don't know how it would do during major news announcements. But profit was available now several times in a row during late afternoon and early evening, USA Pacific time. The pairs open up in no predictable order, just depends on what the market does once the anchors are set and the EA waits for the market to touch the buy and sell levels.

Thanks metacoder for your idea..
  • #1,005
  • Jun 28, 2017 12:09pm Jun 28, 2017 12:09pm
Quoting lechuzon
{quote} my yesterday's group. {image} Well.. best setup for today. 3 PAIRS.. BUY AUDUSD, BUY USDCHF SELL AUDCHF
This is not hedging, the lot sizes are wrong
  • #1,006
  • Jun 28, 2017 1:03pm Jun 28, 2017 1:03pm
Quoting sanmiguell
{quote} This is not hedging, the lot sizes are wrong
the problem is, they cant understand it, even when they use same size most cant see that there are still some position rests open, and thatswhy the basket moves. would be much easier often to buy this rest and have same result with only much more win, at least if you dont want arbitrage trading.

in this example the rest position is of course bigger then normal.
  • #1,007
  • Jun 28, 2017 1:14pm Jun 28, 2017 1:14pm
each pair have different pipDolarValue and it is about this pipDolarValue what is going on in this hedging strategy
when this value goes huge against you - you can end in nice DD with money (pipDolarValue is dynamic, depends)
truth is, you can be profitable as well as lossable, is not true, that "one time your trio goes into profit, just wait" - it is not true, it can be in loss years and loss can grow ...
  • #1,008
  • Jun 28, 2017 1:25pm Jun 28, 2017 1:25pm
Quoting miro1360
each pair have different pipDolarValue and it is about this pipDolarValue what is going on in this hedging strategy when this value goes huge against you - you can end in nice DD with money (pipDolarValue is dynamic, depends) truth is, you can be profitable as well as lossable, is not true, that "one time your trio goes into profit, just wait" - it is not true, it can be in loss years and loss can grow ...
true.it is not without a reason when you see in the hedge/arbitrage topics most of the time beginners use it. its a strategy for beginners, sounds smart but after you calculated it by math correct its easy to see the problems. most beginners cant know the math or market basics, so they fall in love to this very easy. same time they dont learn how to trade really, and hold in topics they will only lose time. in my beginning i was so too. but at least got catched before put in to much time wasted.
  • #1,009
  • Jun 28, 2017 6:12pm Jun 28, 2017 6:12pm
Quoting dukas_trader
{quote} true.it is not without a reason when you see in the hedge/arbitrage topics most of the time beginners use it. .... .
exactly, look here:
Attached Image (click to enlarge)
Click to Enlarge Name: Screenshot1.png Size: 62 KB


chart is created on period 2011-2016 and shows price behaviour from combination BBS (blue) and SSB (red)
BBS: buy eurgbp, buy gbpusd, sell eurusd -- each 1 lot size
SSB: sell eurgbp, sell gbpusd, buy eurusd -- each 1 lot size

from this chart can be seen, that in some time trades portfolio can go from 2000 to -3500, and it is drawdown -5500 USD, and this down takes longer than 1 year for reverse - and when it reversed, another one side movement happend with opposite combination and take another one year to reverse
now somebody can argue, that you can take trades only in direction for profits - ok, but when you know this direction, you can take trades without hedging with more profits (other combinations can create bigger DD, like JPY pairs, even -15000 with 1 lot size), and here are not calculated other fees like swap ...

as you said, a lot of people/traders falls into this systems for years and are holding positions for years, are multiplicating positions for small profits and are hoping, that those small profits cover losses - maybe, but as result a lot of work from huge drawdowns (because they are often multiplicated) ...

so people, dont be greedy into this strategy
  • #1,010
  • Edited 7:10pm Jun 28, 2017 6:28pm | Edited 7:10pm
@Miro1360,

This is exactly what I found when backtesting numerous triangular "hedges"... You could/would be stuck for years in a significant drawdown... and the small gains never covered the much larger losses due to the disproportionate pip moves between the three currencies. It is true that there were periods of profit taking, but more often than not, a large directional move by one of the three pairs would blow the "hedge" causing significant loss.
  • #1,011
  • Jun 28, 2017 6:34pm Jun 28, 2017 6:34pm
thats normal, and by math its the normal result. you have much spread paid, and you have still 2 positions (rest parts overlapping) always open at minimum, and this 2 positions will show if you have win or loss on the end. of course swap and extra spread will give a a bad chance, and always when you won other will laugh about you because you could have same wins with less risk and cost much more easy by just open the unhedge position part.

its always good to help starters with math and market basics, but what they do with the basics and math, we cant decide. some like metacoder are so extrem catched in their mind , they dont have a chance to accept the reality. already some people tried to warn him about his mistakes, but he will ignore it (some he was even attacking) and even start blocking you. but such extrem beginners you will always see here, we cant help all starters. some need to learn on the hard way when dont know basics, dont know math and dont accept truth.
  • #1,012
  • Jun 28, 2017 6:35pm Jun 28, 2017 6:35pm
Quoting miro1360
{quote} exactly, look here: {image} chart is created on period 2011-2016 and shows price behaviour from combination BBS (blue) and SSB (red) BBS: buy eurgbp, buy gbpusd, sell eurusd -- each 1 lot size SSB: sell eurgbp, sell gbpusd, buy eurusd -- each 1 lot size from this chart can be seen, that in some time trades portfolio can go from 2000 to -3500, and it is drawdown -5500 USD, and this down takes longer than 1 year for reverse - and when it reversed, another one side movement happend with opposite combination and take another one year to reverse...
His point was that it's a waste of time because if you completely and correctly hedge all units in the ring - you will only ever lose since the net swaps are always negative (didn't used to be that way) and the only way you are seeing any movement at all is because you aren't properly calculating lot sizes. This means you are x units long one currency and x units short another; effectively wasting capital paying for pointless swaps and tying up margin money for absolutely no reason. This is a terrible strategy for those reasons.
  • #1,013
  • Jun 28, 2017 6:41pm Jun 28, 2017 6:41pm
Quoting Nicholishen
{quote} His point was that it's a waste of time because if you completely and correctly hedge all units in the ring - you will only ever lose since the net swaps are always negative (didn't used to be that way) and the only way you are seeing any movement at all is because you aren't properly calculating lot sizes. This means you are x units long one currency and x units short another; effectively wasting capital paying for pointless swaps and tying up margin money for absolutely no reason. This is a terrible strategy for those reasons.
the problem is, its total impossible to hedge it completely. you can hedge most parts, but small parts will still be open all the time. and this parts decide often the wins or loss.
  • #1,014
  • Jun 28, 2017 7:26pm Jun 28, 2017 7:26pm
there is no way for something as "correctly hedge by calculating lot size" ... result from my tests in MT5 from multipair EAs based on these triangulars was, that 1:1:1 lot sizes are best for long term hedge/alive when you start with calculating for different lot sizes with artifical formulas, you always move from hedge ring (for bigger profit or bigger loss) ...
  • #1,015
  • Jun 30, 2017 9:07am Jun 30, 2017 9:07am
Quoting arkan1976
{quote} Hello Metacoder, thanks for share your ideas. Please, is important the moment to send the orders or is indifferent ? Thanks.
After a few round trips on demo accounts with the 10-pair basket I've been discussing, it became clear a good strategy needs to be employed beyond simply opening trades when the targets are hit.

It's fine to recognize the connected triangles, but one shouldn't enter all available trades without some logical criteria.

After the first trade opens because the target was hit, I suggest excluding certain other trades from opening. For example, if the first trade is a GBPJPY sell, then do not open another trade that sells GBP and buys JPY until some hedging is in place. I could be much more specific because I worked out and implemented the exact logic for all 20 possible trades, but I'm going to keep this to myself for now.
Open to new approaches.
  • #1,016
  • Jun 30, 2017 9:10am Jun 30, 2017 9:10am
Quoting miro1360
there is no way for something as "correctly hedge by calculating lot size" ... result from my tests in MT5 from multipair EAs based on these triangulars was, that 1:1:1 lot sizes are best for long term hedge/alive when you start with calculating for different lot sizes with artifical formulas, you always move from hedge ring (for bigger profit or bigger loss) ...
"Correct" lot sizes are only important if trying to hold the equity as steady as possible. I thought for a time that this was important, but in the several years I was away from developing EAs, I realized it doesn't make sense if the goal is to make money . With the strategy I've been working on, equal lot sizes on all pairs is the way to go.
Open to new approaches.
  • #1,017
  • Jun 30, 2017 9:15am Jun 30, 2017 9:15am
Quoting MetaCoder
{quote} After a few round trips on demo accounts with the 10-pair basket I've been discussing, it became clear a good strategy needs to be employed beyond simply opening trades when the targets are hit. It's fine to recognize the connected triangles, but one shouldn't enter all available trades without some logical criteria. After the first trade opens because the target was hit, I suggest excluding certain other trades from opening. For example, if the first trade is a GBPJPY sell, then do not open another trade that sells GBP and buys JPY until...
at least use a cent account or little real account, demo is just for testing code, testing strategy is complete useless, special arbitrage and hedging shows useless results.
just to help you save some month :-).

by the way: there are no secrets in hedging, all was done before in 1000 times better way. math is math. you can calculate the result of 2+2 as 10+20-26. but will this help.
  • #1,018
  • Jun 30, 2017 9:22am Jun 30, 2017 9:22am
Meditate on the mantra below. Pretend you are one of the possible 20 trades in the 10-pair super triangle I illustrated. You are a CHFJPY long. Or maybe you are a GBPCHF short. Doesn't matter which one you are, there are exactly six trades you don't want to see opened if you are not yet hedged.

Here is the mantra: "If I am not hedged in one of the four ways I can be hedged, then don't let any of these six trades open unless they would complete a hedge."

And you need to know for certain which six trades should not be opened depending on what trade you are. And you need to keep them from opening until you are hedged.

This is what I have worked out and implemented.
Open to new approaches.
  • #1,019
  • Jun 30, 2017 1:33pm Jun 30, 2017 1:33pm
Quoting miro1360
there is no way for something as "correctly hedge by calculating lot size" ... result from my tests in MT5 from multipair EAs based on these triangulars was, that 1:1:1 lot sizes are best for long term hedge/alive when you start with calculating for different lot sizes with artifical formulas, you always move from hedge ring (for bigger profit or bigger loss) ...
This demonstrates a complete breakdown in the understanding of how forex works. Hedging in forex means that you are long and short an equal amount of units on each currency. So if you were to go long 1 std lot of EURUSD you'd have:

Inserted Code
100,000 units long EUR and ~114,000 short USD.
In order to hedge the EUR you'd need to go short EURGBP with 1 std lot to have:
Inserted Code
100,000 units short EUR and ~87,800 long GBP.

Therefore, in order to hedge the GBP/USD you would need to
Inserted Code
short 87,800 units of GBPUSD, Which means you would automatically be long 114,000 units of USD.

What you are doing when you are not properly calculating lots sizes is NOT hedging. What you are doing is creating a synthetic position that ignores logic and creates a situation where you pay more to hold that trade.

In the above example, if you have a 1:1:1 lot like you suggest, you have a net position of
Inserted Code
12,200 long GBP and 16,000 short USD

This is the literal equivalent of taking a single long trade of GBPUSD @ 0.12 lots.

 

  1. Trader A: takes a synthetic position of 1:1:1 EURUSD,EURGBP,GBPUSD for a net position of 0.12 lots GBPUSD which cost (3 lots commission) + (3 lots* spread) + (3 lots * swap)+(3 lots * margin)
  2. Trader B: takes a 0.12 lot GBPUSD trade (same net position as trader A) which costs (0.12 lots commission) + (0.12 lots* spread) + (0.12 lots * swap)+(0.12 lots * margin)


Which is the smarter trader?

  • #1,020
  • Edited 2:30pm Jun 30, 2017 2:16pm | Edited 2:30pm
Quoting miro1360
{quote} exactly, look here: {image} chart is created on period 2011-2016 and shows price behaviour from combination BBS (blue) and SSB (red) BBS: buy eurgbp, buy gbpusd, sell eurusd -- each 1 lot size SSB: sell eurgbp, sell gbpusd, buy eurusd
To further illustrate the point here is an overlay of GBPUSD during that same period. My scaling is a bit off (I'm no photoshop master)
Attached Image

As you can see the correlation is 100%, and thus I assert: The aforementioned "1:1:1 lot hedge" is the exact equivalent to 0.12 lot GBPUSD trade (*at today's current market pricing) .
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