Asymmetrical hedging (Algo FX)

Hi

i'm opening a thread to discuss about asymmetrical hedging as presented by Algo FX firm (https://www.algofxsystems.com/)
The author talks about two different systems that are hedged : one can buy EU while the other system will sell it on another timeframe

here is a video that explains the concept.


there is one thing i don't understand, though...
If a trade is made (let's say a buy) on EU on the first system, and another trade is made at the same time on the other system but in the other direction, then there is no way that both system are profitable at the same time of course. So one has to close earlier and the other has to let the trade run longer to make profit.

Now.
let's suppose we want to implement a safe hedged way of trading (which seems to be a not so bad idea), let's take 3 simple pairs:
EURUSD
GBPUSD
EURGBP
now, we want to be safe if EUR, GBP or USD goes awry suddently, and the liquidity is too low to trigger the SL.
one way to do so, is to
BUY EURUSD
SELL GBPUSD
SELL EURGBP
or
SELL EURUSD
BUY GBPUSD
BUY EURGBP

and we see that EUR is bought on one pair but sold on the other. the same for the other currencies. So this is the perfect hedge.
Let's suppose (for the sake of the example) that we have the ability to detect perfect reversals and we want to trade the system (so directionality is not a problem, which won't happen of course) : to get the safest trading possible, we need to open and close the orders on the three pairs at the same exact time : if we close one pair earlier, then the hedge is broken and we are open to a flash crash.

So i don't understand how the strategy can work using different timeframes and with different open and close times depending on the pair, while keeping a global sum of zero hedge to prevent risk.

if two pairs have to close and we're let with EU alone, then we can try to find another triangle hedge, (for instance EURUSD, EURCAD, USDCAD) then the hedge is restored, but how can we be sure to find another setup that would work at that exact time ? I mean there are only 7 currencies in total (without exotics), so...One could close everything and wait for another setup, and the guy clearly talked about different timeframes, but i don't fully understand the strategy.

let's brainstorm this guys.


Jeff

Hi Jeff,

Hedging math basics are well explained by FF member 'mathematician' in this thread. Perfect circular hedging — which delivers nil result minus any costs — requires maintaining correctly balanced position sizes across all of the pairs involved, and adjusting these continuously as ratios fluctuate, including any price spikes. Barring some kind of triangular arbitrage, I can't see past the point that in order to profit, a system must occasionally depart from this state of equibrium, leaving a net exposure in one or more instruments; then to whatever extent price subsequently moves favorably, it wins; unfavorably, it loses. Hence such a system would ultimately stand or fall on the quality of its predictive analysis, and the accuracy of its timing, which of course is the exact same problem that every trader faces, hedged or otherwise.

This, and the other videos on his YouTube channel, are several months old, and there have been no recent updates. He also has two websites (here is the other one).

In one video he states that one of the accounts is traded directionally, while the other is hedged. Curiously, the myfxbook curves tend to mirror, rather than offset, each other, which seems odd if the approaches are uncorrelated, and intended to provide diversification. Both the directional and hedged equity curves tend to support his claims of a near 100% win rate (assuming that myfxbook is trustworthy).

I see some potential anomalies and red flags in both the videos and the website material, but imo there's not enough info to reach a definite conclusion. If you're interested, you could try emailing him and asking for up-to-date, third party audited performance (i.e. beyond myfxbook), and a client prospectus. If he's a serious fund manager — he claims that he trades for institutional clients — this type of data should be readily available.

If anybody does know how to replicate his method, and achieve a similar result, it wouldn't be in their best interests to share their IP publicly, for obvious reasons. I would instead start by Googling something like "asymmetrical hedging", and performing my own research.

Just my 2c fwiw.

Good luck,
David

i can't find the MyFxBook link, which may be another red flag

https://www.myfxbook.com/search/fgs%201

do you got links to documentations ? i cannot find almost anything on "asymmetrical heging"

I would pay attention what's said in the video about hedging USDCAD with OIL rather than focusing on currency triangular relationships. It's not as easy as triangular arbitrage (which is anyway impossible in retail world).
I suppose that the portfolio model is much more complex so that each portfolio consists not only of currency CFDs but also other type of CFDs (like stock indexes, energies, commodities and metals). To made up and test such models one requires statistical computation tools like in Python or R and perform a lot of hypothesis testing performed over a lot of time series data i.e. it's very time consuming with uncertain result.


Just fyi there is another thread over here on FF also in commercial section, which brought up swap (interest rates) arbitrage to public attention recently which IMO is being reproducible much better than sophisticated portfolio models.

i agree swap arbitrage is the ultimate hedging tool, but it's hard to find two compatible brokers... and if there are,i don't think it will stay that way for a long time