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Fully-Balanced Hedging

  • #1
  • First Post: Jul 7, 2017 7:31pm Jul 7, 2017 7:31pm
1) Two currencies
For to currencies YYY and XXX just if you enter first 1 lot BUY then enter 1lot SELL. it will be true balanced hedging since:
1) net pip value =0
2) net margin=0

always it is a losing system (loss of spread) and there is no way to profit from hedging. mo way at all.

2) Three currencies
If there are three currencies YYY, XXX and ZZZ
and Dominating currency is DDD

M1: ,Margin for pair 1 named YYYXXX
M2: ,Margin for pair 2 named YYYZZZ
M3: ,Margin for pair 3 named XXXZZZ

P1: ,PipValue for pair 1 named YYYXXX
P2: ,PipValue for pair 2 named YYYZZZ
P3: ,PipValue for pair 3 named XXXZZZ

To get accurate balancing: the net should sum to zero.

M1+M2+M3=0
P1+P2+P3=0

we know FROM GENERAL RULES that:
P1=Lots1*XXXDDD ----- M1=C1*Lots1*YYYDDD
P2=Lots2*ZZZDDD ----- M2=C2*Lots2*YYYDDD
P3=Lots3*ZZZDDD ----- M3=C3*Lots3*XXXDDD

so e have 3 variables: Lots1, Lots2 and Lots3.

C1*Lots1*YYYDDD+C2*Lots2*YYYDDD+C3*Lots3*XXXDDD =0
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD=0
>
>if C1=C2=C3 (ALL PAIRS WITH THE SAME LEVERAGE) then:

Lots1*YYYDDD+Lots2*YYYDDD+Lots3*XXXDDD =0
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD=0
>

We have three variables but two equation.
so we have to assume one variable and solve for other two.
hence C is 100,000/Leverage
Forex Philosopher
  • #2
  • Jul 7, 2017 9:19pm Jul 7, 2017 9:19pm
Keep in mind that your hedge is fully balanced only at the time you are calculating it ... due to the dynamic pip value.
MT4/MT5 EAs/Indicators/Alerts coder
  • #3
  • Jul 7, 2017 10:22pm Jul 7, 2017 10:22pm
Any practical use?
  • #4
  • Jul 8, 2017 4:27am Jul 8, 2017 4:27am
PRACTICAL USE!!
We here ant to prove that it is always lossing system is it was balanced.
but for mt4 broker minimum lot is 0,01, through this way you can design lots less than 0.01. for example 0.003 lot. THIS IS THE ONLY ONE ADVATAGE.
Quoting FerruFx
Keep in mind that your hedge is fully balanced only at the time you are calculating it ... due to the dynamic pip value.
it is a slight change! insensible
EURUSD, AUDUSD, EURAUD
AUDUSD*EURAUD/EURUSD=|-1|
so:
if audusd=buy
then euraud=buy
eurusd=sell

eurusd + audusd always pips value constant, so there will be no effect
but euraud pip value will be the recent price of audusd. and any change in price will be insensible if converted to USD.
Forex Philosopher
  • #5
  • Jul 8, 2017 4:34am Jul 8, 2017 4:34am
Interesting
but how do you practice ?
just an example...
  • #6
  • Jul 8, 2017 6:01am Jul 8, 2017 6:01am
Quoting madscalp
Interesting but how do you practice ? just an example...
WE PROVE HERE THAT HEDGING IS VERY STUPID AND HAS NO SINGLE ADVANTAGE, if fully-balanced.
but: if you want lots less than 0.01 lot (it is sum to one position) make it slightly unbalanced.
Forex Philosopher
  • #7
  • Jul 9, 2017 7:18am Jul 9, 2017 7:18am
There is nothing fully balanced hedging. It just a erroneous trading approach that can reduce loss for instantly but ultimately it destroys valuable trading equity. I have fallen many time a great loss by hedging. I think it is better to close order instead of hedging.
  • #8
  • Jul 9, 2017 7:33am Jul 9, 2017 7:33am
Quoting Banet
There is nothing fully balanced hedging. It just a erroneous trading approach that can reduce loss for instantly but ultimately it destroys valuable trading equity. I have fallen many time a great loss by hedging. I think it is better to close order instead of hedging.
NO BROTHER
there are threee aspects: please concentrate
1)
if you hedge at the same time and it was fully balanced. it is alwyas lossing (spread++commision)

2)
if it is not fully balanced, it actually sum to one position on one pair, with only one advatage: the effect lots is less than 0.01

3) positive hedging "STOP TAKEPROFIT" = "NON-DIRECT TAKE PROFIT"
if not hedged at the same time, you enter BUY and wait two days then you see a profit of 200 pips. theN if you do not close "DIRECT TAKE PROFIT" but fully hedge open positions,
then wait until hedged position win 59 pips, then closed and wait to go up again and so on, you may profit 500 pips even though your pair does not move more than 250 pips.

i mean you do not loss sensitivity of this pair.
Forex Philosopher
  • #9
  • Jul 9, 2017 7:35am Jul 9, 2017 7:35am
assume i ask you now to get engaged in EURUSD with 0.004 lot??
how can you solve this puzzle??

absolutely through unbalanced-hedging
Forex Philosopher
  • #10
  • Jul 9, 2017 7:39am Jul 9, 2017 7:39am
Lots1*YYYDDD+Lots2*YYYDDD+Lots3*XXXDDD =0
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD=0

through these equations you can design your lots to satisfy fully-balanced-hedging.

and we prove that fully-balanced-hedging is very stupid way. no way at all to profit.
always losing system.
Forex Philosopher
  • #11
  • Jul 9, 2017 7:42am Jul 9, 2017 7:42am
3 variables and 2 equations??
so there is no unique solutions
according to mathematics there are infinite solutions

so in this case, we assume one variable to be known and solve for other two variables.
Forex Philosopher
  • #12
  • Jul 9, 2017 7:54am Jul 9, 2017 7:54am
Assume lots1 is known:

Lots1*YYYDDD+Lots2*YYYDDD+Lots3*XXXDDD =0---------------1
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD =0 --------------2
-
Lots2*YYYDDD+Lots3*XXXDDD = -Lots1*YYYDDD ---------------1
Lots2*ZZZDDD+Lots3*ZZZDDD = -Lots1*XXXDDD ---------------2
-
Lots2*ZZZDDD = - Lots1*XXXDDD - Lots3*ZZZDDD ---------------2
-
Lots2*ZZZDDD = - (Lots1*XXXDDD + Lots3*ZZZDDD) ---------------2
-
Lots2 = - (Lots1*XXXDDD + Lots3*ZZZDDD)/ZZZDDD ---------------2
-
- (Lots1*XXXDDD + Lots3*ZZZDDD)/ZZZDDD*YYYDDD+Lots3*XXXDDD = -Lots1*YYYDDD ---------------1
-
(Lots1*XXXDDD + Lots3*ZZZDDD)/ZZZDDD*YYYDDD-Lots3*XXXDDD = Lots1*YYYDDD ---------------1
-
Lots1*XXXDDD/ZZZDDD*YYYDDD+ Lots3*ZZZDDD/ZZZDDD*YYYDDD-Lots3*XXXDDD = Lots1*YYYDDD ---------------1
-
Lots3*ZZZDDD/ZZZDDD*YYYDDD-Lots3*XXXDDD = Lots1*YYYDDD - Lots1*XXXDDD/ZZZDDD*YYYDDD---------------1
-
Lots3(ZZZDDD/ZZZDDD*YYYDDD-XXXDDD) = Lots1(YYYDDD - XXXDDD/ZZZDDD*YYYDDD)---------------1
-

Lots3 = Lots1(YYYDDD - XXXDDD/ZZZDDD*YYYDDD)/(ZZZDDD/ZZZDDD*YYYDDD-XXXDDD)

to simplify:
XXXDDD/ZZZDDD=XXXZZZ ------ SECOND PAIR.
ZZZDDD/ZZZDDD = 1
Lots3 = Lots1(YYYDDD - XXXZZZ*YYYDDD)/(YYYDDD-XXXDDD)

DIVIDE ALL BY YYYDDD

Lots3 = Lots1(YYYDDD/YYYDDD - XXXZZZ*YYYDDD/YYYDDD)/(YYYDDD/YYYDDD-XXXDDD/YYYDDD)
-
Lots3 = Lots1(1 - XXXZZZ)/(1-XXXDDD/YYYDDD)

we know: XXXDDD/YYYDDD=XXXDDD

so:
Lots3 = Lots1(1 - XXXZZZ)/(1-XXXYYY) --- Final Solution
Forex Philosopher
  • #13
  • Jul 9, 2017 7:58am Jul 9, 2017 7:58am
so lot of pair#3 named XXXZZZ is Lots1 of pair#1 (pair YYYXXX)
MULTIPLIED BY:
1 minus price of pair# XXZZZ
DIVIDED BY:
1 minus reciprocal of price of pair#1 YYYXXX

XXXYYY is the reciprocal of YYYXXX
Forex Philosopher
  • #14
  • Jul 9, 2017 8:00am Jul 9, 2017 8:00am
we Know EUR.USD = 1/USD.EUR

if first currency YYY=EUR
if SECOND currency XXX=USD
if THIRD currency ZZZ=CHF

THEN:
YYYXXX = EURUSD
YYYZZZ = EURCHF
XXXZZZ= USDCHF
Forex Philosopher
  • #15
  • Jul 9, 2017 8:02am Jul 9, 2017 8:02am
AND FOLLOWING THE SAME PROCEDURES E CAN SOLVE FOR VARIABLE Lots2
Forex Philosopher
  • #16
  • Jul 9, 2017 12:52pm Jul 9, 2017 12:52pm
Assume lots1 is known:

Lots1*YYYDDD+Lots2*YYYDDD+Lots3*XXXDDD =0---------------1
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD =0 --------------2
-
Lots2*YYYDDD+Lots3*XXXDDD = -Lots1*YYYDDD ---------------1
Lots2*ZZZDDD+Lots3*ZZZDDD = -Lots1*XXXDDD ---------------2
-
Lots2*ZZZDDD/ZZZDDD+Lots3*ZZZDDD/ZZZDDD = -Lots1*XXXDDD/ZZZDDD ---------------2
-
Lots2 + Lots3 = -Lots1*XXXZZZ ---------------2
-
Lots2 = -Lots1*XXXZZZ- Lots3---------------2
-
Lots2 = -Lots1*XXXZZZ- Lots1(1 - XXXZZZ)/(1-XXXYYY)---------------2
-
Lots2 = -Lots1(XXXZZZ+ (1 - XXXZZZ)/(1-XXXYYY)) ---------- 2
-
Lots2 = -Lots1((XXXZZZ(1-XXXYYY)+ 1 - XXXZZZ)/(1-XXXYYY)) ---------- 2

Lots2 = -Lots1(XXXZZZ-XXXYYY*XXXZZZ+ 1 - XXXZZZ)/(1-XXXYYY) ---------- 2
Lots2 = -Lots1(1-XXXYYY*XXXZZZ)/(1-XXXYYY) ---------- 2

Lots2 = -Lots1(YYYXXX-XXXZZZ)/(YYYXXX-1) ---------- 2
Forex Philosopher
  • #17
  • Jul 9, 2017 12:57pm Jul 9, 2017 12:57pm
Quoting Master-Mind
{quote} NO BROTHER there are threee aspects: please concentrate 1) if you hedge at the same time and it was fully balanced. it is alwyas lossing (spread++commision) 2) if it is not fully balanced, it actually sum to one position on one pair, with only one advatage: the effect lots is less than 0.01 3) positive hedging "STOP TAKEPROFIT" = "NON-DIRECT TAKE PROFIT" if not hedged at the same time, you enter BUY and wait two days then you see a profit of 200 pips. theN if you do not close "DIRECT TAKE PROFIT" but fully hedge open positions, then wait...
Very good reply with exact description. Thank you very much for your nice post. got some new in sequence that never known .
  • #18
  • Jul 9, 2017 12:58pm Jul 9, 2017 12:58pm
Lots3 = Lots1(1 - XXXZZZ)/(1-XXXYYY) --- Final Solution
Lots2 = -Lots1(YYYXXX-XXXZZZ)/(YYYXXX-1) --- Final Solution
Forex Philosopher
  • #19
  • Jul 9, 2017 3:21pm Jul 9, 2017 3:21pm
Double Check:

Lots1*YYYDDD+Lots2*YYYDDD+Lots3*XXXDDD =0---------------1
Lots1*XXXDDD+Lots2*ZZZDDD+Lots3*ZZZDDD =0 --------------2
--
Lots2*YYYDDD+Lots3*XXXDDD = - Lots1*YYYDDD ---------------1
Lots2*ZZZDDD+Lots3*ZZZDDD = - Lots1*XXXDDD ---------------2
-
Lots2*YYYDDD+Lots3*XXXDDD = - Lots1*YYYDDD ---------------1
Lots3 = (- Lots1*XXXDDD - Lots2*ZZZDDD)/ZZZDDD ---------------2
-
Lots2*YYYDDD+Lots3*XXXDDD = - Lots1*YYYDDD ---------------1
Lots3 = - Lots1*XXXDDD/ZZZDDD - Lots2 ---------------2
-
Lots2*YYYDDD+Lots3*XXXDDD = - Lots1*YYYDDD ---------------1
Lots3 = - Lots1*XXXZZZ - Lots2 ---------------2
--
--
--
Lots2*YYYDDD+Lots3*XXXDDD = - Lots1*YYYDDD ---------------1
Lots2*YYYDDD+(- Lots1*XXXZZZ - Lots2)*XXXDDD = - Lots1*YYYDDD ---------------1

Lots2*YYYDDD - Lots1*XXXZZZ*XXXDDD - Lots2*XXXDDD = - Lots1*YYYDDD ---------------1

Lots2*YYYDDD - Lots2*XXXDDD = Lots1*XXXZZZ*XXXDDD - Lots1*YYYDDD ---------------1


Lots2(YYYDDD - XXXDDD) = Lots1(XXXZZZ*XXXDDD - YYYDDD) ---------------1

Lots2 = Lots1(XXXZZZ*XXXDDD - YYYDDD)/(YYYDDD - XXXDDD) ---------------1




Lots2 = Lots1(XXXZZZ - YYYXXX)/(YYYXXX - 1) ---------------1

= -Lots1(YYYXXX-XXXZZZ)/(YYYXXX-1) --- Final Solution


SO it is correct,
Forex Philosopher
  • #20
  • Jul 9, 2017 3:23pm Jul 9, 2017 3:23pm
again
YYYXXX is a price
YYYZZZ is a price
XXXZZZ is a price
------------
Assume three currencied are: EUR, AUD, USD
SO:
Lot1=1.00 lot (assumed)
so:
Lots2 = Lots1(XXXZZZ - YYYXXX)/(YYYXXX - 1)
Lots3 = Lots1(1 - XXXZZZ)/(1-XXXYYY)

=

Lots2 = 1.00*(AUDUSD- EURAUD)/(EURAUD- 1)
Lots3 = 1.00*(1 - AUDUSD)/(1-AUDEUR) = 1.00*(1 - AUDUSD)/(1-1/EURAUD)

AUDEUR=1/EURAUD

it cab be programmed or calculated using pen and paper!
Forex Philosopher
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