Popular Hedge-trading system

that is an arbitrary number. It calibrates the amount in dollars at which the group_grab_profit (when oscillation swings in your favor) and the group_stop_loss (when the oscillation swings against you). I think the group_stop_loss is 3-times the group_grab_profit and both of those are calibrated with that arbitrary number.

Some background information: The FR system pits two, inversely related currencies against one-another. The net/sum profit-loss of those two groups should (theoretically) hover around zero net profit/loss (since the two should cancel each other out). This (again theoretically) is supposed to allow you to accrue interest at the Forex rates. Also, those (hopefully muted) fluctuations are going to oscillate both in your favor and out: The FR theory holds that you should clip-off the tops of those oscillations (grab Profit) and bear the dips until a certain threshold (stop_loss). My theory (Not FR) was that if you are willing to tolerate dips into your principle (Balance) at 3-times the point at which you wanted to take your profit (3:1) then you would have an optimal risk-reward ratio.

The problem was that using different Leverages, Starting Balances, Lot Sizes and the margin you wished to trade with made those numbers (Group_grab_profit/stop loss) too small or too large at times (for my taste). I also considered that others have different tastes... so I made that profit_factor number. I had intended to abstract that value to a more meaningful, more applicable value... but never got around to it.

Feel free to figure out what that arbitrary factor really relates to and rename it or find another way to calibrate that issue.

Thanks!

Hi alphaone
I tried yr EA and it is working well from the EURUSD/GBPUSD/USDJPY pairs.
It has profited even though it was on floating loss for a few days. Just to reassure myself better, would you be able to run thru with us some principles on how yr hedging works.

ronaldo

This Expert Advisor is designed to run under the MetaTrader-4 Platform.

It is a mathematical system which pits one currency pair against another inversely-correlative pair. It uses a very complex mathematical formula to determine the optimal ratios based on the relative prices + your account balance, margin percentage, size of the lots and the leverage you are using.

The system emphasizes three things: Overnight interest, buy low, sell high and profit grabs.

O/N INTEREST:

The short-term, overnight interest rates (or swap rates) are extremely high in Forex. When you leave your positions overnight you will accrue interest. If the currency pairs were perfectly correlated, the net gain/loss would be zero and you would accrue the high interest rates with no risk to your principle.

BL/SH:

The paradigm of buying low and selling high is a staple for all investing. This system sets Buy and Sell limits for each currency bought. Using a complex mathematical formula, the buy and sell limits, as well as the amount to purchase, are optimally set around each currency pair purchased. When the currency pair drops past the Buy Limit, the order is executed, that number of lots is bought and new limits are calculated and set around that price. Similarly, when the currency pair rises past the Sell Limit, an amount determined by the formula is sold short and new limits are calculated and set round the price. The EA monitors the progress of the limit orders once they have been executed into Buy or Sell orders. Just like the profit grabs and drawdown max, the limit orders wait for a particular profit or max loss to be realized. In addition, the program logic also monitors the average variations of the past few hours and calculates the best time to close the order for maximal gain or minimal loss. This algorithm also protects against wild swings in the currency and consequently avoids large losses in favor of modest gains.

http://www.forexfactory.com/attachme...1&d=1207103405

The idea of “profit grabs,” is simple: since no two currency groups are perfectly correlated, one pair will always lag behind or race ahead of the other. These fluctuations will show up as a net gain or net loss on the pair-group. Sometimes the group will “draw down,” such that the net loss dips down into your equity. Sometimes the group will swing positive and the net gain will add to your equity. A constant state of flux will always exist. The idea is to take the profit when it swings high enough to trigger a grab. Once grabbed, the pair-group is reallocated and the process starts again. Since hedging does not care at what value either of the currency pairs start at, there is no penalty for taking a profit grab and reallocating.

http://www.forexfactory.com/attachme...1&d=1207103405

In summary, the system is designed to hedge two, inversely correlative currency pairs against one another. If this group maintains a reasonable correlation, the position is left overnight to accrue interest. If this group fluctuates in the positive direction past a pre-determined cutoff, profits are taken and the group is reallocated. The whole while, buy limits are waiting for a currency pair to swing low, in order to buy lots or high in order to sell them.

Hi alphaone

Thks for your clear and detailed explanations whenever we ask you questions abt Hedge Rock. I looked through your code to try to understand the thinking behind Hedge Rocks. There is this portion on closing orders based on some criteria which you commented as follows. Could you explain this part, thhks


//if Limit Order met, and has met either +50.00/-75.00 and the Rate has gone above or below the 3 hour max/min plus spreads

ronaldo

A few reiterations:

My programming is sloppy and I never took the time to clean it up... sorry.

My comments were written with only me in mind. I often did not update them when I changed something.

It has been over a year since I last worked on this or any MQL program.

With that in mind...

I think that I tried a few different things there. The amounts specified in the comments may represent an earlier revision (or maybe not). The general idea was to check each of the limit orders against a set amount of profit or loss... and to also moderate the point at which the order was closed, by checking the rate against the 3 hour average:

Checking the rate against the 3-hour average was a way to check for a rapid change: if the rate surged or fell too fast, the current rate would fall outside of the average... if it ebbed or wained slowly, it would stay within average.

I think my theory was that as long as the currency rate was stable (not rapidly fluctuating) that it would hold on to the order (not close and reorder) past the cutoff points. Somehow, I thought that this would be a good mechanism to trigger/not trigger a closeout.

It also helps to be versed on the FR method... you put a BUY LIMIT and SELL LIMIT ORDER on every currency you BUY... so that is 4 LIMIT ORDERS per hedge group. eg. EURUSD vx USDCHF = group. They (FR) are purposely vague on if/when to close them out (or the BUY orders for that matter). This is why I had to come up with a method.

This is just off the top of my head... I will have to take a good look at what the heck I did there. I will have to get back to you on the specifics.... but generally, this is what I believe I was trying to do.

Gpf = GrabProfitFactor x 2 + 500
Gpf = 4 x 2 + 500
Gpf = 8 + 500
Gpf = 508
[508] * [.85] x Order Lots) x [Lot Size] x [Point Size]
=431.8 x [Number of Lots Held] x [Lot Size] x [Point Size]

If [Current Limit Order, Order Profit] greater than 431.8 x [Numer of Lots Held] x [Lot Size] x Point Size


Or If [Current Limit Order, Order Profit] less than 431.8 x [Numer of Lots Held] x [Lot Size] x -1.5 x Point Size


AND


If [current rate of currency] less than [average low – spread]


Or if [current rate of currency] greater than [average high + spread]
-------------------------------------------------------------------
Thus:


In order to close out a limit order you check the profit/loss against the value arrived at by : [431.8] x [#lots held] x [Lot Size] x [point size] (the bottom bracket is 1.5 times as low, as the top is high)


If that number is above/below those brackets then check the current rate against the average:[current rate of currency] greater/less than [average high/low +/- spread]
---------------------------------------------------------------------

The effect of which:


The price of a LIMIT order, which has been previously executed, can fluctuate freely within the brackets determined by the above formula. Above and below the brackets, the order will be closed only if the current rate of the currency falls outside of a 3-hour average (a rapid surge or fall in price).

Why did I do it this way?

I have no idea. Looking at it now, I am sure there is a way to simplify that. Feel free to do just that.

So far, demo results are positive for only EURUSD and USDCHF. Any other combinations with GBPUSD and USDJPY resulted in losses. I suppose this is because EURUSD and USDCHF are more highly correlated than the others (EURUSD USDJPY or GBPUSD USDJPY or GBPUSD USDCHF)

Hi AlphaOne,

in the HedgingHedge thread I posted a few indicators, but I dont continue the idea:

http://www.forexfactory.com/showthre...t=53919&page=3


I have read about the TrioHedge system (you have programmed a DuoHedge system!). I think that a solution with three pairs is better as with two, what mean you?

http://www.4xfx.biz/catalog/item/4173092/4333927.htm


I'm verry interested to compare both alternatives, and for the begin I try to understand your code.

Sorry AlphaOne, I see now in web that you make only a nice(!) revange campaign, and are not interessed for further developements...

Thanks for code sharing!

What is your native language? I am having difficulty understanding what you are saying.

"Revenge campaign," is not accurate... if that is what you meant to say.

I am willing to assist in further development and answer questions. I would like to see my EA become something better but am unwilling to devote significant time to it. That is my motivation for sharing it.

Yes, the other pairs are stinking lately. That is why FR has fallen apart. If you stick to the EURUSD-USDCHF, then the system seems to hold... for now. The o/n (swap) rates are much better for the riskier pairs but it's unadulterated gambling if the correlations are not at least -.5 : that is why I have all of those warnings that pop up.

would help if this was posted tothe correct thread.

Is anone still using this system and EA? If so, what have the results been to date. Thanks.

very nice explanation of this strategy,
is this from a book? in so, wich one?
Im interested to dig deeper in this strategy,
do you know any EA that work after this principal?