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Profit on Fluctuation System: Hedged

  • #61
  • May 19, 2007 10:33pm May 19, 2007 10:33pm
"trading two highly correlated pairs" sounds identical to what we are doing.

Guess we are just reading it differently. Thanks for your opinions though.

Quoting billbss
I was responding to this part of your post-




It sounds nothing like what you are doing.
  • #62
  • May 19, 2007 11:23pm May 19, 2007 11:23pm
This is what Freedom rocks is doing: Long EURUSD + Long USDCHF (albeit not at 1 lots each but more long USDCHF..)

Buttom line of this is Long EURCHF. watch for EURCHF to go down touching the BBands and RSI <30 on the H1 to signal a long trade.

I have tried this this may and had some good pips.. but the long wait it umm LONG.

EURUSD + USDCHF use 3 currencies EUR, USD and CHF. This has advantage vs EURCHF.. On USD news, you can protect one of the positions by placing Stops...
  • #63
  • May 19, 2007 11:24pm May 19, 2007 11:24pm
Maybe it's been said already, but what about two accounts.... one always long/long and the other always short/short.

As one wins, the other loses.... and you bet the loser will return eventually for a win....


I must say I've heard too many horror stories about correlations going awry, leading to a busted account. I am not criticizing, and will be following this thread with interest in the future.

Regards.
  • #64
  • May 19, 2007 11:52pm May 19, 2007 11:52pm
Quoting mikejody
Thanks Thom, nice to hear from you. I really appreciate your comments here. Since I'm in the air 4 days a week or so I can't really wait for the market to set up and take an educated guess on direction, so I have to explore these various methods that don't require guessing on direction.
Mike i'm sort of in the same boat mentaly...even though i'm able to watch the charts about 16hours a day i'm so burnt out on doing so i'm trying to force myself into a longer time frame mentality. So i'm exploring these 'various methods' along side my fellow fxers!

Now on the 'don't require guessing on direction', one thing i did notice over the forward testing was that "direction" made a huge difference in length of trade-to-profit. IF the EuroUsd was trending up on an intraday chart, say hourly, the profitable outcome might show up sooner than later.


Quoting mikejody
I appreciate hearing from people why this won't work...
You had a fantastic week of trading this model, i applaud your effort! Keep on testing and exploring. The crazy thing that i also remember was since my tests were taking place amoungst a group of about 30 other traders our profits/losses were all over the map. Some ppl were regularly reporting profits of 1,2,3,4% per day, while others were reporting getting stuck in large negative floats during the same period. It appeared as though the old addage that give the rules to 10 traders and you'll have 10 different results was taking place before my eyes! I was at a loss, as i was one of the one's that was consistantly running with a negative float and very few profitable trades, yet entering them at nearly the same price/time as those on the team. And while i don't consider myself more than an intermediate-live trader, i do know how to read a chart without all the squiggly lines and such. Bottom Left to Upper Right? Trend is up. Seems simple enough to me. But this particular way of trading just didn't bring home the bacon for me.

Crazy stuff.

Thom
  • #65
  • May 20, 2007 3:11am May 20, 2007 3:11am
Quoting cgldsmth
Thanks for the EA BaasHarm. Could you tell us a little more about it, such as do we attach it just to one chart, TF etc...
It works on any chart of any timeframe but I would suggest to use it on one of the 2 traded pairs. If you run it on EntryMode 2 you will need to have the H1 chart of the synthetic opend at all times!
  • #66
  • May 20, 2007 3:17am May 20, 2007 3:17am
Quoting mikejody
Thank you for the EA. Do you have any stats on it? I'd like to see several months or years if you do. Also, what settings do you use, what pairs, what timeframe, etc.? Please post this information from now on when posting an EA so that you don't get all these questions afterward.

Thank you.
I do have some stats and I will not post them. I'm using the EA as a trading tool and not as a care-free money maker. Which means I change settings and switch it on and off based on market conditions/expectations hence these results won't reflect the "naked" EA performance....
  • #67
  • May 20, 2007 6:17am May 20, 2007 6:17am
Here are two daily closing price charts going back to May, 2006.

The top one is the "EUR/USD - USD/CHF "hedge".

The bottom one is the EUR/CHF.

You have to use a magnifying glass to see any difference in them.

The hedge has a slightly negative SWAPS.

The hedge costs two spreads in commission.

The EUR/CHF collects around $4 a day in SWAPS.

It costs one spread.

What is the point of this hedge?

If you're bullish on EUR/CHF, why not just open a long position on EUR/CHF?
Attached Image (click to enlarge)
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  • #68
  • May 20, 2007 7:25am May 20, 2007 7:25am
In answer to your question, the point of the hedge is to profit on the fluctuation. I thought I mentioned that in the beginning.

Quoting billbss
Here are two daily closing price charts going back to May, 2006.

The top one is the "EUR/USD - USD/CHF "hedge".

The bottom one is the EUR/CHF.

You have to use a magnifying glass to see any difference in them.

The hedge has a slightly negative SWAPS.

The hedge costs two spreads in commission.

The EUR/CHF collects around $4 a day in SWAPS.

It costs one spread.

What is the point of this hedge?

If you're bullish on EUR/CHF, why not just open a long position on EUR/CHF?
  • #69
  • May 20, 2007 7:46am May 20, 2007 7:46am
You mentioned it then and it did not make any sense and it still doesn't.

There are no more fluctuations in this hedge than there are in a straight EUR/CHF position.

There is nothing about this hedge that will capture profits that a EUR/CHF position won't capture.

There are things about the hedge that will cost profits-

You are paying more spread and there is no SWAPS to accumulate.
  • #70
  • May 20, 2007 7:49am May 20, 2007 7:49am
Probably all true, but I'm still having fun doing it. If you can't have fun trading then quit. Meanwhile, it's all on a demo account, and all for fun. No need to go into lengthy explanations as to why it won't work, that's probably just a waste of time, just as I don't go into lengthy explanations as to why it is working.

Quoting billbss
You mentioned it then and it did not make any sense and it still doesn't.

There are no more fluctuations in this hedge than there are in a straight EUR/CHF position.

There is nothing about this hedge that will capture profits that a EUR/CHF position won't capture.

There are things about the hedge that will cost profits-

You are paying more spread and there is no SWAPS to accumulate.
  • #71
  • May 20, 2007 8:23am May 20, 2007 8:23am
Quoting mikejody
Probably all true, but I'm still having fun doing it. If you can't have fun trading then quit. Meanwhile, it's all on a demo account, and all for fun. No need to go into lengthy explanations as to why it won't work, that's probably just a waste of time, just as I don't go into lengthy explanations as to why it is working.
I would like very much to hear a lengthy explanation of why you think this works- even a short explanation.
I think that would be a lot of fun to hear.
  • #72
  • May 20, 2007 8:26am May 20, 2007 8:26am
Sure, it works on the fluctuation between the two currencies. For instance, EUR/USD goes up 10 pips, USD/CHF goes down 10 pips, but sometimes it doesn't go down as fast. There's your profit. 10% last week isn't bad. I know, I know, wait until EUR/CHF drops. That's what I'm doing. I'm not spending a lot of time with this system, just having some fun in a demo account.

Quoting billbss
I would like very much to hear a lengthy explanation of why you think this works- even a short explanation.
I think that would be a lot of fun to hear.
  • #73
  • May 20, 2007 8:58am May 20, 2007 8:58am
Quoting mikejody
Sure, it works on the fluctuation between the two currencies. For instance, EUR/USD goes up 10 pips, USD/CHF goes down 10 pips, but sometimes it doesn't go down as fast. There's your profit. 10% last week isn't bad. I know, I know, wait until EUR/CHF drops. That's what I'm doing. I'm not spending a lot of time with this system, just having some fun in a demo account.

As I've said, the hedge you're doing isn't any different that a simple long position on EUR/CHF except you're losing out on SWAPS and paying more commission than you would on a straight EUR/CHF.

Let me show you a spread that has a reason for being.

Long GBP/JPY
Short CHF/JPY

These two pairs have over a 80% positive correlation.

The long GBP/JPY pays $34.91 daily in SWAPS.
The short CHF/JPY costs $7.798 daily SWAPS

Net SWAPS = + $27.12 a day.

I'm basing this on Oanda's SWAPS rate.
Many brokers pay much more- FXDD for example.

Close out the hedge at $200 profit and open another one.

If you enter at the right time, the $200 profits you have accumulated will tide you over during dips in the net value of the spread.


I would not trade this, but it gives you an idea of what a potentially profitable hedge is.
There is at least a rationale for this trade.

This is the type of thing that Freedom Rocks does.
  • #74
  • May 20, 2007 12:13pm May 20, 2007 12:13pm
Thanks for this information, it is helfpul. I'm curious, why would you not trade this way?

Quoting billbss
As I've said, the hedge you're doing isn't any different that a simple long position on EUR/CHF except you're losing out on SWAPS and paying more commission than you would on a straight EUR/CHF.

Let me show you a spread that has a reason for being.

Long GBP/JPY
Short CHF/JPY

These two pairs have over a 80% positive correlation.

The long GBP/JPY pays $34.91 daily in SWAPS.
The short CHF/JPY costs $7.798 daily SWAPS

Net SWAPS = + $27.12 a day.

I'm basing this on Oanda's SWAPS rate.
Many brokers pay much more- FXDD for example.

Close out the hedge at $200 profit and open another one.

If you enter at the right time, the $200 profits you have accumulated will tide you over during dips in the net value of the spread.


I would not trade this, but it gives you an idea of what a potentially profitable hedge is.
There is at least a rationale for this trade.

This is the type of thing that Freedom Rocks does.
  • #75
  • May 20, 2007 12:38pm May 20, 2007 12:38pm
Quoting mikejody
Thanks for this information, it is helfpul. I'm curious, why would you not trade this way?
Its just not my style of trading.

If I were going to do a hedge I would do the GBP/JPY alone.

You open a long GBP/JPY position with a broker that pays SWAPS-
That collects from $35 to $48 a day per lot- 365 days a year.

You go short a GBP/JPY position with a broker that does not charge SWAPS. There are some that offer interest free accounts.

This is a hedge where you are fully protected from ups and downs in the market. The value of the hedge itself will remain the same since you have both a long and short position of the same pair.

The problem with this is logistics.

One of your positions will be in profit and one will be in loss. You must transfer money around between the two brokers to prevent margin calls.

When I first looked at this I would have had to lie and say I was Muslim to get the interest free account.

I understand there are now non interest accounts available that do not require you to be a Muslim.
  • #76
  • May 20, 2007 3:31pm May 20, 2007 3:31pm
Quote
That collects from $35 to $48 a day per lot- 365 days a year.

Which broker pays this much interest on 1 lot GBP/JPY? The best I could find is ~$26.10 on 1 lot

Ex:

$35 x 10 lots = $350 daily X 365 days = $127750 annually

I could quite my day job!!!

You would need 400:1 and transfer funds continually to keep both accounts viable.
  • #77
  • May 20, 2007 4:22pm May 20, 2007 4:22pm
Quoting lcfxtrader
Which broker pays this much interest on 1 lot GBP/JPY? The best I could find is ~$26.10 on 1 lot

Ex:

$35 x 10 lots = $350 daily X 365 days = $127750 annually

I could quite my day job!!!

You would need 400:1 and transfer funds continually to keep both accounts viable.
Oanda pays $34.91. I looked it up this morning.
The last I heard, FXDD paid $40 something.
  • #78
  • May 20, 2007 4:39pm May 20, 2007 4:39pm
Quoting billbss
Its just not my style of trading.

If I were going to do a hedge I would do the GBP/JPY alone.

You open a long GBP/JPY position with a broker that pays SWAPS-
That collects from $35 to $48 a day per lot- 365 days a year.

You go short a GBP/JPY position with a broker that does not charge SWAPS. There are some that offer interest free accounts.

This is a hedge where you are fully protected from ups and downs in the market. The value of the hedge itself will remain the same since you have both a long and short position of the same pair.

The problem with this is logistics.

One of your positions will be in profit and one will be in loss. You must transfer money around between the two brokers to prevent margin calls.

When I first looked at this I would have had to lie and say I was Muslim to get the interest free account.

I understand there are now non interest accounts available that do not require you to be a Muslim.
The other problem associates with this kind of strategy (2 broker) is the amount of equity to trade.

You will need a huge capital on both accounts to lengthen the trading period and lessen transferring of funds from one broker to another. Do you think its worth the time by putting huge capital and just earn the daily swap? How about the fund transferring fees? What if one broker suddenly close down? You will end up with one direction on one table which may in profit or loss. What if you lost your internet connection, and one of your account is near magin call?

Won't it be more safer to just hedge the correlated pairs on a single broker?
  • #79
  • May 20, 2007 5:00pm May 20, 2007 5:00pm
Quoting sam1
The other problem associates with this kind of strategy (2 broker) is the amount of equity to trade.

You will need a huge capital on both accounts to lengthen the trading period and lessen transferring of funds from one broker to another. Do you think its worth the time by putting huge capital and just earn the daily swap? How about the fund transferring fees? What if one broker suddenly close down? You will end up with one direction on one table which may in profit or loss. What if you lost your internet connection, and one of your account is near magin call?

Won't it be more safer to just hedge the correlated pairs on a single broker?
That's another objection I have to this method- I was a Refco victim and wouldn't keep the money it takes to make this worthwhile with a single broker.

However, there are enough of these non-interest brokers around now that it could be split up between several.

Yes it would be a headache running it.

It depends on how large your account is whether the transfer fees would be a problem or not.

An occasional $20 or $30 transfer fee won't matter to a $100,000 account. It would to a $5,000 one.

As far as "just for the SWAPS". On a large account the SWAPS can make you rich if you compound it.
  • #80
  • May 21, 2007 12:25am May 21, 2007 12:25am
Quoting BaasHarm!
Here's an EA I'm using live.

But be aware, all the concerns that have been raised are correct, although one might think equity is protected by a hedge you are exposed to all the components of the so called hedge: EUR,CHF and USD. And even when you got the lot ratio exactly right, you're still exposed to the EURCHF.
Going long EURUSD and USDCHF 1 lot each is equivalent to:
135.060 USD worth of EUR long
35.060 (135.060-100.000) USD short
100.000 USD worth of CHF short!
If you can't do the maths or don't understand it, this method is not for you. Forget about the correlation BS, the "if pair x moves this, pair y moves opposite 98% of the time" blabla.... Just watch the EURCHF.
Over the past period buying euro vs selling dollar and swiss hasn't been a bad strategy and hence this method is making money. But when the fundamentals change, the party is over.
Also closing and opening at the same price is useless, it's just throwing money at your broker.
And why not just trading EURCHF directly? Don't know you have a little short dollar exposure as well but I think it is mainly the misplaced confidence in the "hedge" that allows novice traders to sit out drawdowns.

Now about the EA:
With EntryMode 1 it is looking to open positions at 6 am and 6 pm, platform time (if not opened yet). With EntryMode 2 it opens positions when the candle body of the previous bar of the synthetic pair exceeded the hourly ATR14.
Once positions are opened, the EA updates every 5 seconds to close at the defined % balance increase. During this phase, the EA properties cannot be accessed!
The MaxDD acts as a stoploss, positions are closed when the losses reach a defined percentage of the balance.

Use Parameters:
Pair1
Direction1 Trade Direction Pair1( "buy" or "sell")
Pair2
Direction2
Ratio Lotsize ratio (Pair1/Pair2)
EntryMode 1= time based entry (6 & 18h) 2 = entry when candle body > ATR
Synthetic Synthetic pair used with EntryMode = 1
SynthDirection
MarginUsage % of available margin to use
ProfitFactor % balance increase to close positions
MaxDD Max allowed drawdown
MagicNumber
Suspend

Have fun with it.
Just realized I uploaded an older version with a bug. Here's the right one.
Attached File(s)
File Type: ex4 GaoXing Pseudo Hedger.ex4   9 KB | 581 downloads
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