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Open-Close Trending with Hedging Discussion Thread

  • #41
  • Apr 10, 2007 12:33am Apr 10, 2007 12:33am
Dear Yesbick,

you have done a fine job.

I will test the use of the price alert tab on metatrader for the edges of the +/- band so that one can have the option of acting on the close of the candle rather than on the tick with a pending order in place. But I recognise that a 100 year flood could come along....and get a 300 pip spike...but usually it seems that there is some sort of pullback...

best
john
  • #42
  • Apr 10, 2007 12:44am Apr 10, 2007 12:44am
Hi Yezbick sorry for my ignorance.. But to get this right

1. You only place a stop loss on an order when you are in profit.. So how much profit do you think is necessary before placing the SL

2. Also at the moment you have 2 buys and a sell open.. So say it goes southbound and the SELL moves 200 pips.. Won't the 2 buys still be open? so wouldn't their be no profit.?
  • #43
  • Apr 10, 2007 4:15am Apr 10, 2007 4:15am
I'm doing some thinking about this and I find many similarities to a martingale money management sys, though the progression is more relaxed in this case. Most people will run away when they hear the M word but I strongly believe that it works if done properly.
  • #44
  • Apr 10, 2007 6:33am Apr 10, 2007 6:33am
Quoting Scientist
Most people will run away when they hear the M word...
Aaaaah - Aaaaaah! The "M" word.

None of my hedging experiments have devolved into Martingale. But I do need to get one more order on the right side of any particular move for things to work out.

So in a very relaxed and controlled sense, Scientist might have a point.

I'll have to test it and see.
  • #45
  • Apr 10, 2007 6:41am Apr 10, 2007 6:41am
Up 74 pips at the moment.
Attached Image
  • #46
  • Apr 10, 2007 6:47am Apr 10, 2007 6:47am
good for you

Quoting yezbick
Up 74 pips at the moment.
  • #47
  • Apr 10, 2007 7:44am Apr 10, 2007 7:44am
Dear Yezbick,
The price alert worked at .48 about where your buy is. I waited till the end of the candle hour and allowed a discretionary 10 minutes then placed buy at .38.

Probably not worth the effort for the extra 10 pips if you are going for the swing trade.
  • #48
  • Apr 10, 2007 7:59am Apr 10, 2007 7:59am
Quoting tbwss1234
Hi Yezbick sorry for my ignorance.. But to get this right

1. You only place a stop loss on an order when you are in profit.. So how much profit do you think is necessary before placing the SL

2. Also at the moment you have 2 buys and a sell open.. So say it goes southbound and the SELL moves 200 pips.. Won't the 2 buys still be open? so wouldn't their be no profit.?
Very good question.

?#1 Answer: When moving north your SL is based on the -50 level or 25LWMA -50, as a trend continues you will see the MA rise to a point where -50 is greater than or equal to your original price taken. The pure system you would have no losses at any time so you would set your SL to original price taken and/or greater as the MA moves up.

* In the basic system you can set your SL at 100 pips below your start value and adjust as the trend continues in your direction, but if you wish to use hedging you will need to wait until the LWMA -50 level (when north) passes your purchase price before entering a SL.

* This system peforms very well in basic mode without hedging, 5,000+ pips since 12-25-06 so hedging is an option available if you desire to use it.


?#2 Answer: If your buy positions were positive they would be closed at the SL set for them and you would have sell only positions in place. If they were not positive your sell positions would be greater than your buy positions and positive growth would be made.

The key to continual growth is to take out a new position in the positive direction. You should have more going north than south, this can be accomplished by increasing your trade sizes to keep with your % growth based on your balance.

* Example you start trading @ 2% of 1,000. Starting trade is $20 invested. You make 100 pips on your first trade for a profit of $40, your new balance is 1,040. 2% of 1,040 is $20.80 which you invest in your next position, etc. Now lets say that your 2nd position was hedged so you have 20.80 in hedge with new position of 20.8 going the oposite direction of the second.

The 3rd position then earns 100 pips making the balance on your account to 1082.60. New 2% is now based on the 1082.60, etc. Your hedged position @ 2% was .40 lots and your last trade was .41 lots. As you can see your balance is growing greater than your hedged position is holding you back.


Hope the above answers your questions.

yezbick
  • #49
  • Apr 10, 2007 8:02am Apr 10, 2007 8:02am
Quoting Scientist
I'm doing some thinking about this and I find many similarities to a martingale money management sys, though the progression is more relaxed in this case. Most people will run away when they hear the M word but I strongly believe that it works if done properly.
Scientist,

I'm familiar with the term Martingale, but not familiar with the concept. Could you explain it or show us where we can read more about it?

Thanks,

yezbick
  • #50
  • Apr 10, 2007 8:06am Apr 10, 2007 8:06am
Quoting jsh01
Dear Yezbick,
The price alert worked at .48 about where your buy is. I waited till the end of the candle hour and allowed a discretionary 10 minutes then placed buy at .38.

Probably not worth the effort for the extra 10 pips if you are going for the swing trade.
jsh01,

Thanks for posting your findings. I've often considered this as an option, but not tested it. I find it hard to be a wake for all of the price movements and a buy stop or sell stop work when I'm asleep. That trade happened at about 1:00 am my time since I'm in EST.
  • #51
  • Apr 10, 2007 8:23am Apr 10, 2007 8:23am
Quoting yezbick
Scientist,

I'm familiar with the term Martingale, but not familiar with the concept. Could you explain it or show us where we can read more about it?

Thanks,

yezbick
There is a very good discussion here: http://forexfactory.com/showthread.php?t=11639
  • #52
  • Apr 10, 2007 8:47am Apr 10, 2007 8:47am
Quoting Scientist
There is a very good discussion here: http://forexfactory.com/showthread.php?t=11639
Thank you Scientist, looks interesting.
  • #53
  • Apr 10, 2007 12:23pm Apr 10, 2007 12:23pm
Quoting Scientist
Thanks yezbick, I'll be watching with great interest. In the mean time I'm doing some forward testing on a daily hedging system. Will post results in a few days/weeks to compare with the original.

Good luck
Here we go: http://forexfactory.com/showthread.php?t=23839
  • #54
  • Apr 10, 2007 5:16pm Apr 10, 2007 5:16pm
Quoting Scientist
There is a very good discussion here: http://forexfactory.com/showthread.php?t=11639

Just thought I would pass this on. A few of you were wondering if the Martingale Moneymanagement is profitable and could be put into action. I found the following while researching hedging techniques. Thought I'd pass it along. Slick 60 appears to be using a Martingale technique combined with hedging strategy.

Slick 60's postings are found here: http://forexfactory.com/search.php?searchid=1377498

The original post for hedging can be found here: http://forexfactory.com/showthread.php?t=823

Great information about using hedges. A recommend read for all. Thread started back in 2004, but still valid today.

enjoy the read.

yezbick


P.S. Could be a good technique to work with this current system. Seems like it would run smoothly. I'll give it some more thought and post my findings here.
  • #55
  • Apr 10, 2007 6:26pm Apr 10, 2007 6:26pm
Hi Yez,

I still don't get the hedge entry entirely...

I've got my hypothetical currency set up with TK's system, 25LWMA +50 and -50 lines on the 1H chart.

The +50 line is at 100.00 I have a buy stop to buy the currency with a position size calculated using a theoretical 100 pip move = 1% of my account equity. Lets say that 1% is 1 lot.

So my buy stop is hit and I'm long one lot that has no set TP and no initial SL. I set a sell stop say 10 pips below at 99.90 for 1 lot so if my inital long position moves negative, I enter a hedge with has a SL set at say 100.10. This gives me a hedge with a much tighter difference between the two orders. Of course you can still get chopped around right here and not be in the hedge. In my theoretical situation the hedge doesn't get used, price causes the -50 level to move above 100 and i then place a SL at 100.00 + spread to make my original long entry never close in the negative and I cancel the sell stop for the pending hedge. I then manage my SL according to my trading plan.

I have a big feeling that this is not what you mean, I feel what you mean is that we would enter at 100.00 1 lot, and if the -50 level was broken we'd hedge there. While that's fine, all that does in a practical sense is lock in whatever the difference between the -50 and +50 level as a loss.

I'm confused. Can you walk through in detail one of your hedging situations? I feel that I'm missing something, and I don't usually consider myself a newbie to trading.

Thanks in advance.
  • #56
  • Apr 10, 2007 7:22pm Apr 10, 2007 7:22pm
Quoting longhornxtreme
Hi Yez,

I still don't get the hedge entry entirely...

I've got my hypothetical currency set up with TK's system, 25LWMA +50 and -50 lines on the 1H chart.

The +50 line is at 100.00 I have a buy stop to buy the currency with a position size calculated using a theoretical 100 pip move = 1% of my account equity. Lets say that 1% is 1 lot.

So my buy stop is hit and I'm long one lot that has no set TP and no initial SL. I set a sell stop say 10 pips below at 99.90 for 1 lot so if my inital long position moves negative, I enter a hedge with has a SL set at say 100.10. This gives me a hedge with a much tighter difference between the two orders. Of course you can still get chopped around right here and not be in the hedge. In my theoretical situation the hedge doesn't get used, price causes the -50 level to move above 100 and i then place a SL at 100.00 + spread to make my original long entry never close in the negative and I cancel the sell stop for the pending hedge. I then manage my SL according to my trading plan.

I have a big feeling that this is not what you mean, I feel what you mean is that we would enter at 100.00 1 lot, and if the -50 level was broken we'd hedge there. While that's fine, all that does in a practical sense is lock in whatever the difference between the -50 and +50 level as a loss.

I'm confused. Can you walk through in detail one of your hedging situations? I feel that I'm missing something, and I don't usually consider myself a newbie to trading.

Thanks in advance.

Hopefully, I can explain this thoroughly. Ok here we go.

The basic strategy for H1 tKimble is as follows:

1. Open a position north if +50 level is crossed (+50 is 50 pips above the 25LWMA)
2. Open a position south if -50 level is crossed
3. If you have a north bound position and your price crosses the -50 level close the north position and open a south position.
4. If you have a south bound position and your price crosses the +50 level close your south position and open a north position.

* Basic adjustment rules:
1. Move your SL with the moving trend. If you have a north bound position and it is still moving north adjust your SL to -50 level on an hourly basis in the north bound direction only.
2. The opposite of #1 is also true for south bound positions.

* The basic system does not allow for wipsaws (ranging markets) in a given period. The maximum loss per trade is 100 pips.
* The basic system is setup on Stop Losses and your positions close when the reach either the +/-50 level with a range from -100 pips to the current record for this year 896 pips.

Hedging Adjustment to this System are as follows:

Rule #1 is always never loose pips. Rule #2 if we are ever in doubt and you want to loose pips refer to rule #1.

* To achieve rule #1 we will run with out stop losses until our position is positive.

Hypothetical example: You open a position at 0:00 gmt on 4-1-07 with 1 lot @ 230.00 when the price hits the +50 level (without SL's). The trend is going north until 4-2-07 @ 3:00 when it goes through the -50 level. Between 4-1 and 4-2 we are monitoring the trend, once the moving up -50 level reaches our price @ 230.00 we set a SL. From there we continue to adjust it until the trend ceases to go north and goes through -50 level on 4-2-07.

** The above is real simple with a trend going in the same direction. The trouble comes when the market is not trending but ranging before we have a chance to adjust (or in this case add a SL) the SL to a 0 or + position. We don't want a margin call and we don't want to loose profits.

Hypothetical example #2: In this example we opened a north bound position on 4-1 @ 230.00, this time the pair went south through the -50 level before we could place a positive SL in place. Rule #1 says to never loose pips so we take out a south bound position in an equal or greater amount than our north position.

* It would look like this: North position (lot size 1.00) on 4-1-07 233.00 @ 0:00 gmt (+50 level). South position (lot size 1.00 or higher) on 4-1-07 232.00 @ 5:00 gmt. Our south position is our hedge position and protects us from our 100 pip loss.

* After you have taken the above position you would have 2 positions open. Depending on which direction the trend went from here you would adjust and add SL according to the basic rules of always placing SL's when in positive pips. (see above) If the trend went south far enough to put your south position in positive territory you would close your south position after the trend came back through the +50 level. and the process continues.

** Note it is possible to have multiple hedges and or positions in place if the market is in a tight ranging motion.

Hope I explained that thoroughly enough. If I didn't please let me know and I'll try to re-explain an area that may have been unclear.

hope you find the pips your looking for.

yezbick
  • #57
  • Apr 10, 2007 7:59pm Apr 10, 2007 7:59pm
Ok, I understand your hedge entries and exits, but how do you deal with long running open positions? If the market returns to where you can close your previously negative position at break even that's great. But how do you handle situations where the price won't return for possibly years or never? Is there an 'uncle' point to the open positions? Not to mention you're adding even more pips thrown away to the hedge. There's also the issue of interest.

I can see how it protects you from range bound periods, but if you still have an opposite position and the market takes off trending to never return for days, weeks, months etc... how do you deal with the large negative unrealized pips? I understand that account balance will grow but how does that combat the increasing amount of money in unrealized losses? In no way am I trying to bash the method, I'm just trying to make it fit my own trading style, but I don't know if I can handle knowing that a growing balance is not 'real' if there's enormous losing positions sitting in the background.
  • #58
  • Edited 8:41pm Apr 10, 2007 8:28pm | Edited 8:41pm
Quoting longhornxtreme
Ok, I understand your hedge entries and exits, but how do you deal with long running open positions? If the market returns to where you can close your previously negative position at break even that's great. But how do you handle situations where the price won't return for possibly years or never? Is there an 'uncle' point to the open positions? Not to mention you're adding even more pips thrown away to the hedge. There's also the issue of interest.

I can see how it protects you from range bound periods, but if you still have an opposite position and the market takes off trending to never return for days, weeks, months etc... how do you deal with the large negative unrealized pips? I understand that account balance will grow but how does that combat the increasing amount of money in unrealized losses? In no way am I trying to bash the method, I'm just trying to make it fit my own trading style, but I don't know if I can handle knowing that a growing balance is not 'real' if there's enormous losing positions sitting in the background.

You have asked the best question and most often asked about any hedging system.

When I originally considered trading with this method this was a standard concern that I might have a position that I can never be able to close or might take years to close. My findings are that these hedge positions at least so far are against the long term (W1) trend which has been south since
January 21.

But even if I didn't expect to be able to recover these hedges in the next couple of weeks, the profitability of the system allows you to be able to outgrow the few bad trades that you might be carrying with you until they clear.

Also, as your account grows your trade sizes increase to compensate for your new growth.

* Example you start trading @ 2% of 1,000. Starting trade is $20 invested. You make 100 pips on your first trade for a profit of $40, your new balance is 1,040. 2% of 1,040 is $20.80 which you invest in your next position, etc. Now lets say that your 2nd position was hedged so you have 20.80 in hedge with new position of 20.8 going the oposite direction of the second.

The 3rd position then earns 100 pips making the balance on your account to 1082.60. New 2% is now based on the 1082.60, etc. Your hedged position @ 2% was .40 lots and your last trade was .41 lots. As you can see your balance is growing greater than your hedged position is holding you back.

** My findings so far are that I have taken 14 trades that have been hedged since 12-25-06 which would have resulted in 1088 pip loss if I close them at the outside levels. Of the 14 positions 10 of them have closed resulting in a positive 2,030 pips. 4 positions are still open and all open positions are from a south bound trade gone bad. I fully expect the market to go down within the next couple of months and correct those hedged positions, but even if they don't. The 2,030 pips made by those hedge positions that have closed is more than enough to compensate for the losses.

Total net pips produced without hedging to date from 12-25-06 is 5,091. If you include the profits from hedging the total net pips is 8,209.

* Also please note that there was a total of 41 trades taken and only 14 of them needed hedging & only 4 of the hedged positions have been open for greater than a week. Ultimately only 10 % of all of the trades so far could possibly end up not closing for a long time. 90% positive trades with 8,000 plus pips to show for is not all bad.

As with any system it will only work for you if you make it your own and work your system like a machine.

Hope this helps answer your question.
  • #59
  • Apr 10, 2007 9:03pm Apr 10, 2007 9:03pm
I have based the following on pips taken the date listed on the left is the week beginning date. All pips shown below are for the basic system without hedging.

12-25-06 -59
1-1-07 103, 469
1-8-07 157, -86
1-15-07
1-22-07 896, 255, -8
1-29-07 -91, -12, 94
2-5-07 -3, 118, 134
2-12-07 0, 80, 0, 303
2-19-07 -94
2-26-07 345, 444, -2
3-5-07 832, -100, -81, 133, -73
3-12-07 341, 378, 229, -88, -100
3-19-07 -100, 408
3-26-07 -47, 11, 179, 63, -100
4-2-07 207, -44

Total net pips 5,091

All of the above are from the GBPJPY with parameters shown in basic rules and no hedging.
  • #60
  • Edited 9:30pm Apr 10, 2007 9:17pm | Edited 9:30pm
Hi yezbick... and thank you for sharing your TS with us... I am reading your thread over and over again and still have problem with understanding the workings of it... and would much appreciate if you could clarify a few things for us... blue color in your text below...

Quoting yezbick
Hopefully, I can explain this thoroughly. Ok here we go.

The basic strategy for H1 tKimble is as follows:

1. Open a position north if +50 level is crossed (+50 is 50 pips above the 25LWMA)
2. Open a position south if -50 level is crossed
3. If you have a north bound position and your price crosses the -50 level close the north position and open a south position.
4. If you have a south bound position and your price crosses the +50 level close your south position and open a north position.

[3 & 4] is this mean you need to lose 100 PIPs ...?

* Basic adjustment rules:
1. Move your SL with the moving trend. If you have a north bound position and it is still moving north adjust your SL to -50 level on an hourly basis in the north bound direction only.
2. The opposite of #1 is also true for south bound positions.

1. Move your SL with the moving trend. If you have a north bound position that is still moving north, adjust your SL up from -50 level, in increments of ???, on an hourly basis in the north bound direction only.
2. The opposite of #1 is also true for south bound positions.

so what are the increments...? will this be like trailing stops...?

* The basic system does not allow for wipsaws (ranging markets) in a given period. The maximum loss per trade is 100 pips.
* The basic system is setup on Stop Losses and your positions close when the reach either the +/-50 level with a range from -100 pips to the current record for this year 896 pips.

* The basic system prevents wipsaws (ranging markets) in a given period. The maximum loss per trade is 100 pips.
* The basic system is setup on Stop Losses and your positions close when they reach either the +/-50 level, which is a range of -100 pips... to the current record for this year 896 pips.

so 896 PIPs is the floating negative unrealized P/L on the account... or a +896 PIPs figure?... okay, I see the unswer... -tks!

Hedging Adjustment to this System are as follows:

Rule #1 is always never loose pips. Rule #2 if we are ever in doubt and you want to loose pips refer to rule #1.

* To achieve rule #1 we will run with out stop losses until our position is positive.

Hypothetical example: You open a position at 0:00 gmt on 4-1-07 with 1 lot @ 230.00 when the price hits the +50 level (without SL's). The trend is going north until 4-2-07 @ 3:00 when it goes through the -50 level. Between 4-1 and 4-2 we are monitoring the trend, once the moving up -50 level [initial distance in PIPs] reaches our price @ 230.00 we set a SL. From there we continue to adjust it until the trend ceases to go north and goes through, then new, -50 level on 4-2-07.

how many PIPs do we adjust each increment by...?

** The above is real simple with a trend going in the same direction. The trouble comes when the market is not trending but ranging before we have a chance to adjust (or in this case add a SL) the SL to a 0 or + position. We don't want a margin call and we don't want to loose profits.

Hypothetical example #2: In this example we opened a north bound position on 4-1 @ 230.00, this time the pair went south through the -50 level before we could place a positive SL in place. Rule #1 says to never loose pips so we take out a south bound position in an equal or greater amount than our north position.

* It would look like this: North position (lot size 1.00) on 4-1-07 233.00 @ 0:00 gmt (+50 level). South position (lot size 1.00 or higher) on 4-1-07 232.00 @ 5:00 gmt. Our south position is our hedge position and protects us from our 100 pip loss.

it seams we have already lost 100 PIPs here...233.0 - 232.0 = -100 ??? also, we will not pay 2nd commission only if the lots are the same in opposite direction...

* After you have taken the above position you would have 2 positions open. Depending on which direction the trend went from here you would adjust and add SL according to the basic rules of always placing SL's when in positive pips. (see above) If the trend went south far enough to put your south position in positive territory you would close your south position after the trend cames back through the, then new, +50 level... and the process continues.

** Note it is possible to have multiple hedges and or positions in place if the market is in a tight ranging motion.

Hope I explained that thoroughly enough. If I didn't please let me know and I'll try to re-explain an area that may have been unclear.

hope you find the pips your looking for.

yezbick
I think I understand your system better now... could you please also explain again all the lines/positions on your charts... I understand -50/50 Buy/SELL/CLOSE blue lines... but I also see there "buy" "buy stop" "sell" dash/dot lines - could you explain the order in which you place them and associated with it thinking process... a running commentary of what your eyes are telling you what to do, when you are looking at the chart... what is first... what is second... etc...

Thanks for being patient with people like me... I will read it and read it, until I will get it
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