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Grid-Hedge Reboot #3

  • #21
  • Edited 7:49am Aug 18, 2023 3:15am | Edited 7:49am
Quoting paul.s
What would you do if the market go down again?
Hi Paul,

Thank you for the question, and it IS one that I am constantly testing!

This was the original answer that I wrote in the post that you referenced; I highlighted the most pertinent comments to your question:

BUT, wait a minute!!! What if multiple EURAUD hedge sell positions are opened and the market starts to oscillate??? (a.k.a. Oh crap what do I do now??)
AHH!! This is where it can get a bit complicated and as of yet I don’t have a completely satisfactory answer and hence why I shut down my original Grid-Hedge account in December 2015. Remember that the goal [Risk Abatement] of this entire hedge process is to balance P/L positive EURAUD hedge positions with the P/L negative EURCAD position 1 and EURCAD position 0. Once this is achieved ALL positions are closed. What I don't want is a P/L positive EURAUD hedge trade becoming P/L negative...and so what I've done in the past is to immediately close a EURAUD hedge position when its P/L = $0. If the market continues to climb, then the remaining EURAUD hedge position 1 is balanced by EURCAD buy position 0 as described in "Closing the EURAUD hedge". However, if the market oscillates in a price range where EURAUD hedge positions are constantly being opened and closed, then that's what I've been doing. So… as I stated above, I will work out this dilemma in real time and also back-test various "what-if" scenarios to come up with a satisfactory answer.

I still don't have a "bullet-proof" answer to that dilemma- and it does happen frequently when there are wide swings in the market. As of right now, for the EURCAD and EURAUD scenario that you mentioned in your post, if the market turned down- and continues to move down, I would open EURAUD Sell trades at 100-pip intervals with no TP; no buy/sell trades in the basket would be closed until the net P/L of the basket = $0. The crux of this issue is that every time the market swings 100 pips to the upside of the first EURAUD hedge sell position, then both a EURCAD buy trade and EURAUD sell trade would be opened, but any price move beyond that first 100-pip upside swing, only EURCAD buy trades would be opened at 100-pip intervals. Opening buy and sell trades each time that the market swings 100-pips up/down around the first EURAUD Hedge position could go on at-nauseum until the market begins to trend in one direction or another - hence the need to keep position sizes small relative to your bank roll. Also, it can take quite a while for the basket P/L to reach $0. So, I'm not completely satisfied with this method of risk control.

Also see: Whats wrong with following twist to the grid or and Martingale? | Forex Factory, post #13, and subsequent posts thereafter.

Quoting paul.s
Besides high currency correlation, can we consider to use ADR * pipValue (Daily range in currency) of two pairs and their ratio to calculate to different lot size for each pair in trading. Is it give us more chance to get net P/L=0 ?
I did that originally in my first Grid Hedge thread but determined that each pair's weekly ADR had such a large overlapping variance that it didn't make sense to adjust for volatility. But with that said, you can adjust the trade size to equalize the pip values.

Hope this helps.

Best,

Dave
  • #22
  • Aug 18, 2023 8:39am Aug 18, 2023 8:39am
Hi Dave,
Not sure if my understanding is correct, In the case above, You add both Long and Short positions after 1st 100-pips' upside reversal, and Long postion only if every further 100 pips up trend happen, And then if market turn down, you add addtional Long and Short positions again after 1st 100-pips this reversal. only Short position if further 100 pips down trend happen. That's mean it is possible to have lots of positions long and short at same grid level.

All positions will keep opening till strong trending movement happen and exit at same time when basket P/L=0.
Beside that, Will the TP=100 in the first EURCAD position still take effect after many positions opened?

Thanks,
Paul
  • #23
  • Edited Aug 19, 2023 5:07am Aug 18, 2023 9:23am | Edited Aug 19, 2023 5:07am
Hi Paul,

Quoting paul.s
In the case above, You add both Long and Short positions after 1st 100-pips' upside reversal, and Long position only if every further 100 pips up trend happen
Yes.

Quoting paul.s
...if market turn down, you add additional Long and Short positions again after 1st 100-pips this reversal. only Short position if further 100 pips down trend happen.
In the example from the previous post, only a short position would be added once the market turns down. BUT, if the market were then to reverse upwards by 100 pips, a EURCAD Buy & EURAUD Sell would be opened. You do accumulate lots of Buy/Sell positions during a sideways movement.

Quoting paul.s
That's mean it is possible to have lots of positions long and short at same
Yes. Since the two pairs don't necessarily move pip-for-pip, you're waiting for the breakout of the pair that has the most open positions in order to close the basket at $0 or even at a moderate profit depending on your risk appetite and the amount of daily swap being paid.

See attached screenshot; I've drawn out some of the scenarios....
Attached Image (click to enlarge)
Click to Enlarge Name: Untitled.jpg Size: 48 KB


Quoting paul.s
Beside that, Will the TP=100 in the first EURCAD position still take effect after many positions opened?
I wish I had a more concrete answer for you, but it depends on what scenario is playing out. At any point along the route if the number of open trades starts to build up, and I'm paying daily swap, my goal is to close trades whose cumulative P/L = $0 (+swap) while keeping trade(s) open where the net P/L is either currently profitable or in an "acceptable" (to me) draw down. So, the whole process of trade management is dynamic and ever changing.... mainly because I don't have a clue to what the pairs are going to do. I just have to make a decision every time a price alert hits my phone.

Best,

Dave
  • #24
  • Aug 18, 2023 12:59pm Aug 18, 2023 12:59pm
End of week update. Friday August 18, 2023 (4:00 pm):

Current open trade(s):
AUDUSD (SELL, opened on 8-16-23): 1000 units @ 0.63717; TP = 0.62970 (75 pips; pip value = $0.10)

Today's closed trade(s):
none

Pending order(s):
AUDUSD 1001 units @ 0.62970 (TP @ 0.62220 (75 pips))
AUDUSD 1001 units @ 0.64467 (NO TP; if this trade is opened, will immediately open a NZDUSD hedge Buy Trade (1001 units @ current price)

Initial Balance = $728.56 USD
Current Balance = $748.46 USD
Net Asset Value = $745.02 USD
Realized P/L: $19.90
Unrealized P/L = -$3.44
%DD = -0.46%
Margin Used = $19.22 (50:1 leverage)
Margin Available = $725.86
%Margin Available = 97.43%
Cumulative swap paid/gained: $0.03
  • #25
  • Aug 19, 2023 7:01am Aug 19, 2023 7:01am
Hi Dave,
Thanks for the very detailed explanation. Just want to confirm if the Buy6 position in scenario C described in your image will come up with Sell6 rather than single Buy order.

Thanks and have a nice weekend~
Paul
  • #26
  • Edited 9:40am Aug 19, 2023 8:58am | Edited 9:40am
Quoting paul.s
Hi Dave, Thanks for the very detailed explanation. Just want to confirm if the Buy6 position in scenario C described in your image will come up with Sell6 rather than single Buy order. Thanks and have a nice weekend~ Paul
Hi Paul,

The way that I wrote scenario C means that either a buy6 or sell6 could be opened depending on the movement of the market, and it shows how rather complex these scenarios can become depending on the current volatility of the market.

If you haven't already, I highly recommend reading Waveskierob's thread - you'll get lots of great ideas regarding hedging and averaging trades.
Hedging/averaging trades without prediction | Forex Factory

Have a great weekend as well!

Dave
  • #27
  • Edited Aug 22, 2023 5:59pm Aug 21, 2023 6:07pm | Edited Aug 22, 2023 5:59pm
Monday August 21, 2023 (8:15 pm):

Current open trade(s):
AUDUSD (SELL, opened on 8-16-23): 1000 units @ 0.63717; TP = 0.62970 (75 pips; pip value = $0.10)

Today's closed trade(s):
none

Pending order(s):
AUDUSD 1001 units @ 0.62970 (TP @ 0.62220 (75 pips))
AUDUSD 1001 units @ 0.64467 (NO TP; if this trade is opened, will immediately open a NZDUSD hedge Buy Trade (1001 units @ current price))

Initial Balance = $728.56 USD
Current Balance = $748.47 USD
Net Asset Value = $744.50 USD
Realized P/L: $19.91
Unrealized P/L = -$3.97
%DD = -0.53%
Margin Used = $19.23 (50:1 leverage)
Margin Available = $725.27
%Margin Available = 97.42%
Cumulative swap paid/gained: $0.03
  • #28
  • Edited Aug 23, 2023 4:40pm Aug 22, 2023 5:58pm | Edited Aug 23, 2023 4:40pm
Tuesday August 22, 2023 (8:48 pm):

Current open trade(s):
AUDUSD (SELL, opened on 8-16-23 @ 9:30 pm, EST): 1000 units @ 0.63717; TP = 0.62970 (75 pips; pip value = $0.10)

Today's closed trade(s):
AUDUSD (Sell, opened on 8-22-23 @ 3:42 am EST): 1001 units @ 0.64468; closed @ 0.64189 @ 10:28 am, EST (+$2.79)
NZDUSD (Buy, opened on 8-22-23 @ 3:43 am EST): 1001 units @ 0.59629; closed @ 0.59351 @ 10:28 am, EST (-$2.78)

Pending order(s):
AUDUSD 1001 units @ 0.62967 (TP @ 0.62220 (75 pips))
AUDUSD 1001 units @ 0.64467 (NO TP; if this trade is opened, will immediately open a NZDUSD hedge Buy Trade (1001 units @ current price))

Initial Balance = $728.56 USD
Current Balance = $748.47 USD
Net Asset Value = $742.17 USD
Realized P/L: $19.91
Unrealized P/L = -$6.31
%DD = -0.84%
Margin Used = $19.30 (50:1 leverage)
Margin Available = $722.87
%Margin Available = 97.40%
Cumulative swap paid/gained: $0.03
  • #29
  • Aug 23, 2023 4:35pm Aug 23, 2023 4:35pm
Wednesday August 23, 2023 (7:22 pm):

Current open trade(s):
AUDUSD (SELL, opened on 8-16-23 @ 9:30 pm, EST): 1000 units @ 0.63717; TP = 0.62970 (Current P/L = -$10.81)
AUDUSD (SELL, opened on 8-23-23 @ 9:47 am, EST): 1001 units @ 0.64470; No TP (Current P/L = -$3.28)
NZDUSD (Buy, opened on 8-23-23 @ 9:49 am EST): 1001 units @ 0.59612; No TP (Current P/L = +1.37)

Today's closed trade(s):
AUDUSD (Sell, opened on 8-22-23 @ 9:23 pm EST): 1001 units @ 0.64468; closed @ 0.64145 @ 6:38 am, EST (+$3.23)
NZDUSD (Buy, opened on 8-22-23 @ 9:24 pm EST): 1001 units @ 0.59625; closed @ 0.59305 @ 6:38 am, EST (-$3.20)

Pending order(s):
NZDUSD 1002 units @ 0.60362 (NO TP)

Initial Balance = $728.56 USD
Current Balance = $748.48 USD
Net Asset Value = $735.73 USD
Realized P/L: $19.92
Unrealized P/L = -$12.75
%DD = -1.70%
Margin Used = $56.84 (50:1 leverage)
Margin Available = $678.89
%Margin Available = 92.27%
Cumulative swap paid/gained: $0.00
  • #30
  • Edited Aug 26, 2023 6:59am Aug 25, 2023 7:33am | Edited Aug 26, 2023 6:59am
Thursday August 24, 2023 (7:30 pm):

Current open trade(s):
None

Today's closed trade(s):
AUDUSD (SELL, opened on 8-16-23 @ 9:30 pm, EST): 1000 units @ 0.63717; closed @ 0.63820 @ 10:28 am, EST. (-$1.03)
AUDUSD (SELL, opened on 8-23-23 @ 9:47 am, EST): 1001 units @ 0.64470; closed @ 0.63820 @ 10:28 am, EST. (+$6.51)
NZDUSD (Buy, opened on 8-23-23 @ 9:49 am EST): 1001 units @ 0.59612; closed @ 0.0.58913 @ 10:29 am, EST. (-$7.00)

Pending order(s):
None

Initial Balance = $728.56 USD
Ending Balance = $746.96 USD
Realized $P/L: $18.40 USD
%P/L = 2.52%
Unrealized P/L = $0
Current %DD = 0%
Max %DD = -1.70%
Cumulative swap paid/gained: $0.00

Changing directions....

I'll be taking a more aggressive role in managing the hedge trades; the concept of "trimming the hedge" and taking small bites of profit while reducing a losing trade is explained here:

How to Hedge trading Forex | Forex Hedging Strategy - YouTube

I'm working on adapting this concept around the Grid-Hedge idea, my unfortunate lack of patience, as well as my work schedule. Will start a new TE as well.

Best,

Dave
  • #31
  • Edited 8:08am Aug 27, 2023 4:24am | Edited 8:08am
Note: post#30 the update was for Friday, August 25, 2023, and not Thursday, August 24.
  • #32
  • Oct 4, 2023 7:28pm Oct 4, 2023 7:28pm
Quoting davelansing
Thursday August 24, 2023 (7:30 pm): I'll be taking a more aggressive role in managing the hedge trades; the concept of "trimming the hedge" and taking small bites of profit while reducing a losing trade is explained here: How to Hedge trading Forex | Forex Hedging Strategy - YouTube I'm working on adapting this concept around the Grid-Hedge idea, my unfortunate lack of patience, as well as my work schedule. Will start a new TE as well. Best, Dave
Hi Dave, I too have been following Chad on YT. How have you got on adapting his concept to your Grid-Hedge?
  • #33
  • Oct 5, 2023 12:06pm Oct 5, 2023 12:06pm
Quoting davelansing
See attached screenshot; I've drawn out some of the scenarios....
I wonder why many use hedging. You can always achieve the same effect by first closing positions and only opening trades in 1 direction, right? That way you save on commission and spread, and save margin/deposit load.

For example Dave's example scenario B:
Attached Image (click to enlarge)
Click to Enlarge Name: no-hedge.png Size: 12 KB
Is hedging just a convenience to make bookkeeping/tracking your entries simpler, or am I missing something here?
  • #34
  • Edited Oct 9, 2023 1:36pm Oct 8, 2023 4:20pm | Edited Oct 9, 2023 1:36pm
Hi Yoriz,
I honestly don't know. I had written a long response to your post, but I didn't have any extensive back testing data to back up my response, so I deleted it. For me it's more of a psychological crutch; I'm less like to blow my account when hedging versus trading straight up as you described above (hard SL, variable/hard TP).

@steve2222
Yes, I've ditched my grid hedge approach and I'm now completely "trimming the hedge" as Chad describes on his YT page. Simply brilliant in my opinion... and something completely overlooked by me after years of extensive research into different styles of hedging (as well as other approaches including the approach described by Yoriz in the post above). I watched Chad's first video back in late August and it was like the light had finally penetrated my rather thick skull.
  • #35
  • Edited 1:17pm Oct 9, 2023 12:58pm | Edited 1:17pm
Quoting davelansing
For me it's more of a psychological crutch; I'm less like to blow my account when hedging versus trading straight up as you described above (hard SL, variable/hard TP).
I just watched the YouTube from Chad you linked to, and now fully understand why you use hedging. There is a lot of bookkeeping needed to execute his strategy. Without an EA it is hard to do that correctly without hedging.

Chad's approach is interesting. I can't think of what sequence of events or price action would result in a Black Swan with this approach. However, I doubt this strategy will work in any market. If I can find the time, I might try to code it in an EA to backtest it over a longer time period to see what happens...
  • #36
  • Oct 9, 2023 1:35pm Oct 9, 2023 1:35pm
Quoting yoriz
{quote} There is a lot of bookkeeping needed to execute his strategy. Without an EA it is hard to do that correctly without hedging. .
The Trim calculation is actually quite straightforward - and I trade off my phone.

A = applied profit from hedge trade
B = current draw down from the opposing losing outside trade
C = Trim Percentage
D = Current size (units/lots) of opposing losing trade
E = units/lots to close
F = adjusted size of opposing losing outside trade

A/B = C
C*D = E
D-E = F

or more efficiently:

D - (D* (A/B))
where A/B = Trim Percentage

It takes about a minute to calculate on the fly...
  • #37
  • Oct 9, 2023 2:04pm Oct 9, 2023 2:04pm
Quoting yoriz
{quote} I just watched the YouTube from Chad you linked to, and now fully understand why you use hedging. There is a lot of bookkeeping needed to execute his strategy. Without an EA it is hard to do that correctly without hedging. Chad's approach is interesting. I can't think of what sequence of events or price action would result in a Black Swan with this approach. However, I doubt this strategy will work in any market. If I can find the time, I might try to code it in an EA to backtest it...
Hi @Yoriz, I agree with your logic/theory that hedging is no different to taking the loss and re-entering. Many people say this (plenty of posts on this forum proving that ). I have even done many modelling scenerios myself proving the same. Admittedly, all this talk of hedging is the same as taking the loss and re-entering is predicated on closing out the FULL trade and re-entering.

Funny thing is when I tried to test this on Chad's trimming strategy (where clearly his strategy involves only closing part of a position) I could not get the same answer ie Chad's trimming strategy gave a better final profit than taking the loss and re-entering. I suspect there maybe some issue in my logic as to what quanitity you re-enter for when taking the loss.

To do this test I used Chad's Trade 2 series of videos and did my best to make a written record of everything he did across 18 videos. I don't have the calculations of Chad's trades with me, but it was something like the cummulative profit was well over $1,000 before swap costs. Whereas my modelling of taking the loss and re-entering only produced $340 of profit.

Nothwithstanding all the above, I am with @davelansing in seeing the benefit of Chad's hedging system as being from the pshycological side rather than mathematically producing a better profit.

Unlike Chad, I get an added benefit of coming from a country where I can trade long & short on CFD's in the same account (margin netting benefit) with no overnight swap costs.
  • #38
  • Oct 9, 2023 2:10pm Oct 9, 2023 2:10pm
Quoting davelansing
{quote} The Trim calculation is actually quite straightforward - and I trade off my phone. A = applied profit from hedge trade B = current draw down from the opposing losing outside trade C = Trim Percentage D = Current size (units/lots) of opposing losing trade E = units/lots to close F = adjusted size of opposing losing outside trade A/B = C C*D = E D-E = F or more efficiently: D - (D* (A/B)) where A/B = Trim Percentage It takes about a minute to calculate on the fly...
This video from Trade series 4 has a pinned comment (and discussion) that covers off quite well the maths theory on the hedging pip gap and the appropriate TP level so as to optimise trim quantity.

Inserted Video
  • #39
  • Oct 10, 2023 8:53am Oct 10, 2023 8:53am
Quoting steve2222
I could not get the same answer
I suspect you made logic error somewhere. You can always recreate the exact same net positions by closing positions instead of hedging. For an EA that is easy, for a human just hedging might be easier mentally, albeit at the cost of additional commission, spread and margin.
  • #40
  • Last Post: Jun 12, 2024 12:32pm Jun 12, 2024 12:32pm
Is there a fresher thread on Chad's Forex Hedging system to follow anywhere?
Currently coding the system, and I'm not a fan of reinventing the wheel. Thanks.
I've been integrating his ideas from this video.
Inserted Video
I know there are similar EA's on Trading Hero's site, but would like open source code if possible. TY.
There ain't no use in cryin' It doesn't change anything." QOTSA
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