Spreading risk with a mechanical trading strategy/s | Forex Factory

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Spreading risk with a mechanical trading strategy/s

  • #1
  • First Post: Edited 11:01am Jun 10, 2007 9:46am | Edited 11:01am
Hi

I just want to gauge general opinion on the following -

i have a fully automated trend-following mechanical trading strategy that i trade on GBPUSD at the moment on 60 minute charts.

You hear about spreading risk within a trading portfolio/trading plan. This may include trading more than one instrument.

My approach suits GBPUSD best. Therefore i am thinking about 'spreading the risk' and incresing profits, by trading essentially the same strategy (probably with a different maximum stop-loss size) on a 2nd GBPUSD timeframe such as 90/120/180 minute charts.

Do you agree that trading the same instrument, with the same strategy, but on a different timeframe is a valid way of spreading risk?
(I happen to think it is, because the two timeframes will not always be trading in the same direction at the same time, because it will take longer, and a bigger pip movement for the longer timeframe to generate a reverse signal. Thus the longer timeframe will often miss parts of a move, but will also avoid loss-making reversals/entries.)

If you do agree, do you think trading the same instrument & strategy on 2 different timeframes at the same time, is as valid a way as spreading risk as trading the same strategy on two seperate instruments?

Also, do you do this in your own trading (one strategy, traded on two separate timeframes on one instrument)?

Obviously to trade a strategy on 2 timeframes on the same instrument, at the same time, would require 2 seperate accounts, because few brokers allow you to be long & short in the same instrument at the same time.

Thanks a lot.
  • #2
  • Jun 10, 2007 10:07am Jun 10, 2007 10:07am
Quoting jimbil
Obviously to trade a strategy on 2 timeframes on the same instrument, at the same time, would require 2 seperate accounts, because few brokers allow you to be long & short in the same instrument at the same time.
Sure you're spreading the risk, albeit in a limited sort of way.

Regarding the 2 separate accounts, shop around. Times have changed and even the Big, Bad Broker that everybody loves to hate, allows (and even encourages) hedging these days. They have to move in that direction in order to remain competitive.

The cynical will point out that hedging essentially pays the broker two spreads rather than one, which is true. But it also fundamentally changes the game for the trader as well.

So hedging is there if you want it.
  • #3
  • Jun 10, 2007 10:49am Jun 10, 2007 10:49am
basic i think its a good idea but when u hedge only do it when u have 1 position in profit i can give and example as i se it, U enter long gbpusd with 1 lot u are in front with 250 pips u know get a signal on other timeframe but in oposite direction u can enter gbpusd short but i think its wise to be carefull so only enter 1/2 of original position, then its time to calculate abreakeven sheet of those 2 positions to manage the risk and calculate the best case scenario and worst case in order to eventually bail out of 1 of the positions.Hope u understand my point my english is bad sorry

revoke
  • #4
  • Edited 11:20am Jun 10, 2007 10:56am | Edited 11:20am
Quoting revoke
basic i think its a good idea but when u hedge only do it when u have 1 position in profit i can give and example as i se it, U enter long gbpusd with 1 lot u are in front with 250 pips u know get a signal on other timeframe but in oposite direction u can enter gbpusd short but i think its wise to be carefull so only enter 1/2 of original position, then its time to calculate abreakeven sheet of those 2 positions to manage the risk and calculate the best case scenario and worst case in order to eventually bail out of 1 of the positions.Hope u understand my point my english is bad sorry

revoke
Hi revoke

my intention would be to basically trade both timeframes as two equal and seperate strategies.
I expect both of them to perform similarly & make an overall profit, therefore wouldn't use 1/2 stakes on a "secondary" timeframe.
Having said that, i would be happy for the "second" timeframe (120-minute) to make the equivalent of half the monthly profits that the 60-minte timeframe strat makes.

It is a form of hedging as i see it, and it is a form of spreading the risk (albeit slightly limited V's trading the same strategy on the same timeframe on 2 separate instruments - and the bigger the difference between the two timeframes, reduces the limited nature of this spreading of risk).....I'm just wanting a few other traders to confirm or deny this for me, so that i can be sure that I have critically evaluated this approach B4 implementation.........
  • #5
  • Jun 10, 2007 11:07am Jun 10, 2007 11:07am
Your net position is either long or short,still i think having opposite trades on two different TF can both profit.
100% of traders are losers. Just that some win more than they lose!
  • #6
  • Jun 10, 2007 11:09am Jun 10, 2007 11:09am
Quoting Mr demark
Your net position is either long or short,still i think having opposite trades on two different TF can both profit.
but the lot size on the longer TF must be different from the shorter TF
100% of traders are losers. Just that some win more than they lose!
  • #7
  • Last Post: Jun 10, 2007 11:12am Jun 10, 2007 11:12am
Quoting Mr demark
but the lot size on the longer TF must be different from the shorter TF
As i said
Quote
Obviously to trade a strategy on 2 timeframes on the same instrument, at the same time, would require 2 seperate accounts, because few brokers allow you to be long & short in the same instrument at the same time.
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