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Open-Close Trending with Hedging Discussion Thread

  • #81
  • Apr 11, 2007 11:31am Apr 11, 2007 11:31am
There has to be an uncle point. I know you say we'll be trading larger and larger as account balance grows BUT our account won't grow fast enough to where our hedge will be matched by the same initial percentage risked per trade.
  • #82
  • Apr 11, 2007 11:34am Apr 11, 2007 11:34am
Quoting Gmak
it is possible to code an expert advisor to manage pending orders such that in situations where hedging is deemed necessary a pending order can be modified in much the same way as a trailing stop.

Once the breakeven point has been reached one could then swap the trailing pending order for a trailing stop and continue as normal.
I have seen some EA's operate close to this and feel that they could be created. Backtesting with an EA set up this way would show some interesting data.
  • #83
  • Apr 11, 2007 11:35am Apr 11, 2007 11:35am
Quoting longhornxtreme
There has to be an uncle point. I know you say we'll be trading larger and larger as account balance grows BUT our account won't grow fast enough to where our hedge will be matched by the same initial percentage risked per trade.
Then where do we set the uncle point? Open to ideas.
  • #84
  • Apr 11, 2007 11:53am Apr 11, 2007 11:53am
Quoting longhornxtreme
There has to be an uncle point. I know you say we'll be trading larger and larger as account balance grows BUT our account won't grow fast enough to where our hedge will be matched by the same initial percentage risked per trade.
Longhornxtreme,

I'm working on a spreadsheet to look into the effects of growth, hedging, etc. with current data.

It may take a couple of days, but I'll post my findings here when complete. Should help us find an uncle point for this system.
  • #85
  • Apr 11, 2007 11:53am Apr 11, 2007 11:53am
if, as you say the +/- points of your system is calculated on the basis of an average daily range, would it make more sense to hold this as a variable, rather than a fixed chunk of +/-50.

The average daily range changes gradually but significantly over time. if we set a paramater for, say, the last two months worth of daily data, we would surely arrive at a different daily range value than if we analysed the previous two months.

I feel this might lead to a more elastic system able to evolve with circumstances.
quote of the day: . It's like deja-vu all over again
  • #86
  • Apr 11, 2007 11:57am Apr 11, 2007 11:57am
Quoting Gmak
if, as you say the +/- points of your system is calculated on the basis of an average daily range, would it make more sense to hold this as a variable, rather than a fixed chunk of +/-50.

The average daily range changes gradually but significantly over time. if we set a paramater for, say, the last two months worth of daily data, we would surely arrive at a different daily range value than if we analysed the previous two months.

I feel this might lead to a more elastic system able to evolve with circumstances.
This makes some sense and should help with the flow of the market and make for smoother system. What ideas do you have on how to calculate it. Last 2 months average daily range as foundation perhaps.
  • #87
  • Apr 11, 2007 12:38pm Apr 11, 2007 12:38pm
Maybe we set a time limit that trades can stay negative? Say negative trades can only stay open for 1 month? Or maybe at the first of each month we flatten ourselves. March 07 would've ended up as a 1072 pip month if we went flat on the last day of march.

I think the extreme usefulness of the hedge is to save all the 100 pip whipsaws in a ranging environment but once the market starts trending, I think it makes much more sense to limit the time limit or maximum negative pip limit on the hedged trades. The hedges let us enter into breakouts and protect us from the -100 here and there of the basic system, BUT if we hold hedges for X long period of time, we turn from traders into involuntary investors.

Do you think a time limit or a pip limit sounds correct? 1 month? 3 months? 1000 pips? We need a way to limit the 'market won't return to here for years' trades while keeping the hedges that make us boatloads during the ranging periods.
  • #88
  • Apr 11, 2007 12:43pm Apr 11, 2007 12:43pm

add up the highs/ lows

or open/close for last 40 days (excluding sundays) and divide by 40.

results for high/low are far in advance of the +-50.

dividing by 2 may get nearer the mark.


quote of the day: . It's like deja-vu all over again
  • #89
  • Apr 11, 2007 12:56pm Apr 11, 2007 12:56pm
how will we usethat information?
  • #90
  • Apr 11, 2007 1:00pm Apr 11, 2007 1:00pm
in year 2000, gbp/jpy was around 150.00.

is now at around 240.00

if we were carrying a single bad trade all this time, we would have 1 lot at
-9000 pips.

this would equate (considering a 100 pip ride) to a 90 lot hedge.

I agree, uncle points needed.
quote of the day: . It's like deja-vu all over again
  • #91
  • Apr 11, 2007 1:03pm Apr 11, 2007 1:03pm
if we treat the 25 SMA as a reliable midpoint, one could use the average daily volatility to plot a more accurate picture of trend than an arbitrary +-50.

if, say, the average daily volatility is 118, we could plot points at +- 59.

if over time this shrinks to just 87, we could plot points at + - 43, etc.
quote of the day: . It's like deja-vu all over again
  • #92
  • Apr 11, 2007 3:42pm Apr 11, 2007 3:42pm
Quoting longhornxtreme
Maybe we set a time limit that trades can stay negative? Say negative trades can only stay open for 1 month? Or maybe at the first of each month we flatten ourselves. March 07 would've ended up as a 1072 pip month if we went flat on the last day of march.

I think the extreme usefulness of the hedge is to save all the 100 pip whipsaws in a ranging environment but once the market starts trending, I think it makes much more sense to limit the time limit or maximum negative pip limit on the hedged trades. The hedges let us enter into breakouts and protect us from the -100 here and there of the basic system, BUT if we hold hedges for X long period of time, we turn from traders into involuntary investors.

Do you think a time limit or a pip limit sounds correct? 1 month? 3 months? 1000 pips? We need a way to limit the 'market won't return to here for years' trades while keeping the hedges that make us boatloads during the ranging periods.
Time limit sounds like a feasible option. We will need to test it to see what would be the best time limit. Or perhaps limiting the number of hedged positions that you carry as an option.
  • #93
  • Apr 11, 2007 3:46pm Apr 11, 2007 3:46pm
Quoting Gmak
if we treat the 25 SMA as a reliable midpoint, one could use the average daily volatility to plot a more accurate picture of trend than an arbitrary +-50.

if, say, the average daily volatility is 118, we could plot points at +- 59.

if over time this shrinks to just 87, we could plot points at + - 43, etc.

I have enclosed an indicator that shows average daily volatility based on prev. day, prev 5 days, prev 10 days, and prev 20 days. I have used it to calculate the best SL for other pairs. Would be useful in a market that has differrent daily volatility for the adjustment.
Attached File(s)
File Type: ex4 #(T_S_R)-Daily Range Calculator .ex4   19 KB | 432 downloads
File Type: mq4 #(T_S_R)-Daily Range Calculator .mq4   14 KB | 421 downloads
  • #94
  • Apr 11, 2007 5:35pm Apr 11, 2007 5:35pm
I haven't had a chance to load up the indicators as of yet Yez but are you saying we should deviate from the +50 and -50 levels according to average daily range of the currency?
  • #95
  • Apr 11, 2007 6:20pm Apr 11, 2007 6:20pm
Quoting longhornxtreme
I haven't had a chance to load up the indicators as of yet Yez but are you saying we should deviate from the +50 and -50 levels according to average daily range of the currency?
Actually, I would not reccomend changing from the 50 +/- unless the daily 20 average is less than 148, its historical average.

Reason being is listed below with historical movements. The following was based on the GBPUSD which has an avg daily volatility of 142. The following can be extrapolated into any pair. The %ages hold true for any pair. This also seems to hold true for the 25LWMA which we are using. The below helps give us a visual and seperate the ranging and trending markets.

_______________________________________________________________

When it moves 0-9 pips from the days opening the probability of it reversing the trend is 75%.

When it moves 10-19 pips from the days opening the probability of it reversing the trend is 55%.

When it moves 20-29 pips from the days opening the probability of it reversing the trend is 40%.

When it moves 30-39 pips from the days opening the probability of it reversing the trend is 25%.

When it moves 40-49 pips from the days opening the probability of it reversing the trend is 13%.

When it moves 50-59 pips from the days opening the probability of it reversing the trend is 8%.

When it moves 60-69 pips from the days opening the probability of it reversing the trend is 4%.

When it moves 70 pips from the days opening the probability of it reversing the trend is < 1%.

_______________________________________________________________


If you take the above data and place the same %-ages into the GBPJPY at an average of 148 daily you will get 75% chance the trend will not reverse when the total # of pips is 50 or greater. Pretty good odds that it will not return.

The indicators that I listed above can be very helpful in determining the correct distance for any level in any pair under virtually any daily volatility.

I would only recommend lowering from 50 if the 20 day avg volatility is less than than 148. To set the best stop loss or positions take the 20 day volatility and divide by 4 and then add your spread. You will find that 50 is very close to where it needs to be.

Currently the 20 day avg is 160. 160/4 is 40 plus the current spread of 8 that my broker gives me levels at +/-48. Pretty close to the 50 levels given in this system.

If you think through the %-ages in the above chart if the GU moves greater than 25% of the daily avg, you have a 75% chance that it will not return the opposite direction in the next 24 hours.

Kind of lengthy explanation, I know. Hope this helps you understand the logic of the 50 level.
  • #96
  • Edited 11:28pm Apr 11, 2007 7:30pm | Edited 11:28pm
I'm NOT vouching for Yezbick's method. But would like to clarify a couple of points that have been raised.

1. I believe Yezbick inquired about the swap (or interest), all brokers play it differently, but with mine - I earn and pay interest with each lot bought or sold. Holding a buy and sell simultaneously creates a negative swap.

2. With my broker, I could have an "unlimited" number of hedged trades active - and consume ZERO margin while doing so. This is of no concern at all.

3. What if the price "never came back?" PERFECT!!!

I'd be scaling into that mega-trend (accumulating lots) like there was no tomorrow.

So what if you've got an open trade that's down 2,000 pips? Yes, interest sucks - but it's really a minor concern - because you might have made 10,000 pips on the ride up north. Then you can close out the loser if you want.

Yezbick - again, I haven't tried your method - but I suspect there's some promise to it that can be tweaked to meet different individual's needs.

But don't get cowed into changing it - just for the sake of satisfying folks who may not fully understand it.

FORWARD TEST this thing!!! Don't debate the hypotheticals, just test it.

If Yezbick says this method can produce 1,000 pips a month - then try it! Put him and his method to the test. That's probably more pips than you're earning right now.

I believe that if you get fortunate enough to get it to work - and produce a couple of month's worth of pips - you'll figure out a way to manage your prosperity. You don't have to be a helpless victim to anything the market does.

And again, if the price never came back - PERFECT!
  • #97
  • Apr 11, 2007 7:59pm Apr 11, 2007 7:59pm
Quoting brentmack
I'm NOT vouching for Yezbick's method. But would like to clarify a couple of points that have been raised.

1. I believe Yezbick inquired about the swap (or interest), all brokers play it differently, but with mine - I earn and pay interest with each lot bought or sold. Holding a buy and sell simultaneously creates a negative swap.

2. With my broker, I could have an "unlimited" number of hedged trades active - and consume ZERO margin while doing so. This is of no concern at all.

3. What if the price "never came back?" PERFECT!!!

I'd be scaling into that mega-trend (accumulating lots) like there was no tomorrow.

So what if you've got an open trade that's down 2,000 pips? Yes, interest sucks - but it's really a minor concern - because you might have made 10,000 pips on the ride up north. Then you can close out the loser if you want.

Yezbick - again, I haven't tried your method - but I suspect there's some promise to it that can be tweaked to meet different individual's needs.

But don't get cowed into changing it - just for the sake of satisfying folks who may not fully understand it.

FORWARD TEST this thing!!! Don't debate the hypotheticals, just test it.

If Yezbick says this method can produce 1,000 pips a month - then try it! Put him and his method to the test. That's probably more pips than you're earning right now.

I believe that if you get fortunate enough to get it to work - and produce a couple of month's worth of pips - you'll figure out a way to manage your prosperity. You don't have to be a helpless victim to anything the market does.

And again, if it never came back - PERFECT!

Brentmack that was well said and needed to be said.

Thank you for the input. This system has worked exceptionally well for me. It may not be for everyone, I will continue to use it as I have posted the rules until I find a better way to manage my "prosperity."

You are right on with what you had to say.

Thanks again.
  • #98
  • Apr 12, 2007 6:10am Apr 12, 2007 6:10am
Quoting yezbick
Could be possible moving towards the north position. Positive 50 level currently set at 234.51 with a 25LWMA at 234.01. Place a pending order for a Buy Stop at 234.51 to cover the North bound position.
SL for position taken on 4-10-07 is now at 235.33. We have secured a 75+ pip profit so far from this trend. It appears that the GJ has stalled again, but the trend is still alive for the moment.
  • #99
  • Apr 12, 2007 9:13am Apr 12, 2007 9:13am
Quoting yezbick
SL for position taken on 4-10-07 is now at 235.33. We have secured a 75+ pip profit so far from this trend. It appears that the GJ has stalled again, but the trend is still alive for the moment.
Position closed at 235.33 (-50 level). New positon south bound, following new trend.
  • #100
  • Apr 12, 2007 9:18am Apr 12, 2007 9:18am
Quoting yezbick
Position closed at 235.33 (-50 level). New positon south bound, following new trend.
Hi Yezbick, could you please post a picture of your chart? On my charts, i'm seeing something different. I realize it might be different with every broker but the difference at the moment is too much.

Thanks
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