Works in Theory but will it Work in Practice Hedging Strategy

I have been playing around with a hedging strategy and am looking for input to see if it can be developed.

The rules are as follows:

On the master candle (fancy term for the candle to start from) if it is facing north, buy 2 lots and sell 1 lot.

If the next candle closes north, and for every subsequent northerly candle, add 1 lot to the buy position.

If a candle closes in the opposite direction, sell 2 and buy 1. Then for every subsequent southerly candle sell 1 additional lot on the close.

No stops, and take the money when its there.

I am sure you get the idea....

I have attached a paper backtest i did using the choppiest pair (gbp/chf 3hr tf from oanda), but i think the concept merits an ea if someone can program it so that it can be tested properly.

You can use the excel file to simulate data from other pairs.

If theres a mathalete reading this, pls check my formulas to make sure they are correct.

Thanks.

I hedge sometimes to, but I use correlation from different pairs,

Ex BUY GBPUSD and Sell EURUSD



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Butterfly Patterns

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I can't say whether your strategy will be profitable or not - P/L in forex ultimately depends on how accurately you time adjustments to your position around market reversals.

But what I can say is this: hedging - in fact any kind of MM - can never, in itself, provide an edge. All hedging strategies can easily be replicated with an approach that is only ever long, OR short, at any point, that delivers exactly the same number of pips. And you will end up paying less swap, and possibly spread (in certain situations) by being out of the market, instead of hedged. More info here. And a good explanation by Merlin here.

The reason for this is that it is the net position that counts. Order types (whether entries, exits, TPs, SLs, scaling in, scaling out, hedging, .... whatever) are irrelevant; they are merely a vehicle for adjusting your net position. To profit long term in forex, you must be net long when price is rising, and net short when it's falling, frequently/heavily enough to overcome costs. No amount of MM can rescue a negative expectancy system. Expectancy is determined solely by how accurate your adjustments ("entries" and "exits") are.

You can simplify your system examination/testing by considering your net position at every point. For example, being 2 long and 1 short simultaneously is exactly the same as being 1 long. Adding a short position has exactly the same net effect as closing an open long position. And so on.

For a long term point of view, there is no point working on a hedging strategy as the NFA seems to want to remove hedging from the forex...

I want to develop this is to come up with something purely mechanical which left to its own devices can deliver consistant profit.

From my early paper testing, it seems to give results on any significant breakout because as price moves in that direction the net positions increase.

The downside is that if price stays within a confined range you could end up with lots of positions open, and if price is at median, all positions will be in loss.