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Attachments: Safe Hedging System - Daily Swap
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Safe Hedging System - Daily Swap

  • Post #1
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  • First Post: Apr 13, 2007 3:17pm Apr 13, 2007 3:17pm
Hello Guys:

I wanted to share this strategy that I have been trading on my live account for about couple months. It has been very profitable and safe from all of the market movement and allows you to make daily swaps without having 2 broker accounts of risk a major drawdown. Anyone can start with this and gradually increase their position.

Basically you will set the following order and they have to be in the same ratio and placed within seconds of each other for maximize stability. I usually do this at 4:55 PM EST just before the swap being calculated:

1 LOT BUY (+)GBP/JPY(-)
1 LOT SELL (-)CHF/JPY(+)
1 LOT SELL (-)GBP/USD(+)
1 LOT SELL (-)USD/CHF(+)

Now this is sort like a combination hedge but using 4 pairs. If you separate each pair, you will see that you are SELLING and BUYNG All 4 currencies at the same time, see the (+) and (-) that I placed Next each currency? You will see that I am buying GBP, Selling GBP, Buying CHF, Selling CHF, etc... This will net you about $11.00 USD in swap per day if using FXDD. The margin requirement for a 200:1 account is about $2500, so u need to have a $3500 account to do this. You must get a 200:1 or 400:1 leverage, so make sure you ask for it.

Now $11.00 per day is about $330 per month, which is like 10% return on your $3500.00. Combining with Compounding you positions, you are looking at 200% return in a year. (every $350 gain, start with a new set of hedge using 0.1 Lot sizes)

Once you reach about 20 standard lots, you are making $220 per day, and that should be a pretty comfortable income, not even counting the positive gains on the GBP/JPY pair.

Some of you might ask about the drawdown on this, I have seem a maximum of 15% drawdown. The market might be a little more unforgiving at first, but once you start to spread out your position, like entering a new mini-lot set everyday for 10 days straight, you are actually minimizing your exposure. Always use discretion to do this and once you are in profit with your GBP/JPY pair for about 100 PIPS, put your stop/loss at 1 PIP profit, only use stop with GBP/JPY pair, and if you are not at your computer all the time, setup the EMAIL function in MT4 and send yourself a text message telling you that you got stopped out on the GBP/JPY. If the market moves against you with the GBP/JPY, you will get stopped out at 1 PIP, but your CHF/JPY, USD/CHF, and GBP/USD short orders will be profitable.

Another thing to watch out for when doing this trade is to do it on Wednesday, which is triple interest day. So it will pretty much cover your spread and give you a positive swap the very first day. And it might take up to 4 days to see your account being positive, but again, your initial entry is the most important entry.
Neo,

q about your system?

When would you close any of your trades?
Would the gains from the swap enough to cover any of the loses from the open positions?
does it matter if the market is ranging or trending?



thanks for sharing!
  •  iya
  • | Joined Oct 2006 | Status: always protect yourself | 129 Posts
Quoting neo1001
Now this is sort like a combination hedge but using 4 pairs. If you separate each pair, you will see that you are SELLING and BUYNG All 4 currencies at the same time, see the (+) and (-) that I placed Next each currency? You will see that I am buying GBP, Selling GBP, Buying CHF, Selling CHF, etc...
Did you take the different lot sizes into account? I'm not sure about FXDD but all my GBP pairs are just 70,000 units per lot instead of 100,000.
That should leave you short 30,000 units of USD/JPY. Just something to consider...
that sounds very interesting and similar to the freedom rocks system. But I don't know that much about hedging systems so anything would impress me.
The only downside to this system is that you do need to be attentive to what's going on as even though the four way square you have set up might be tightly correlated, there will always be that one time when it's not; and what will you do about that?

Your system has a good setup out the gate, but I would like to pick your brain about your worst case scenario solutions? At the same time, do you ever actively close and reset positions that are just too profitable to leave alone, like being up 150 pips or so in a pair?

Like I said, it seems like a more "ground-level/passive" system, but what are your active maneuvers with the system?
Never underestimate the powers of the Force.
Quoting lkwd2000
Neo,

q about your system?

When would you close any of your trades?
Would the gains from the swap enough to cover any of the loses from the open positions?
does it matter if the market is ranging or trending?



thanks for sharing!
Basically you will let your system run and collect SWAP indefinitely. You will not close any trades. But then, when you are making swaps and making PIPS as well, like I am in my 50K account, when I am up 20%, I will just withdraw that out of my bank. Just remember, you have to close by sets. You cannot close the winning pairs and leave the losing pairs running. You open a set of 4 pairs, and when you close, you must close the same lots of the sets.

This system is relatively safe, and since GBP/JPY has been the focus of my carry trade, you just have to enter the market at a good time. I suggest after a major retracement then prepare your entry.
Quoting iya
Did you take the different lot sizes into account? I'm not sure about FXDD but all my GBP pairs are just 70,000 units per lot instead of 100,000.
That should leave you short 30,000 units of USD/JPY. Just something to consider...
I do all 100K lots. Maybe you have a different broker?
You just have to make sure that You are buying the same size and selling the same size on all pairs.
Quoting aicccia
that sounds very interesting and similar to the freedom rocks system. But I don't know that much about hedging systems so anything would impress me.
I don't use FreedomRocks.
This system was first presented to me by using an original 2 Pairs hedging. Then I read somewhere that you can actually do a 3 Pair Heding, and I digged a little deeper, even created myself a 10 Pair hedging, but the interest was very low, like $4.00 per day or something. It involved AUD, NZD, CHF, JPY, GBP, USD, and CAD. I guess from an Institutional view of that strategy, a 50% return per year was good enough, if you trade big money. SO I tried different combos and finally I found the best combo is what I have listed in my first post.
Again, if your broker use MT4 and pay good swap, then this will work for you.

This is better than the 3 pair Hedging, which is devastating for your account in the event of a drawdown. The best combination that I have found and most stable is the 10 Pair Hedging that I have deviced, that will only create a 3% drawdown max. A relative safer way, if you ask me.

Anyways, sorry for the ranting.
Quoting The Jedi
The only downside to this system is that you do need to be attentive to what's going on as even though the four way square you have set up might be tightly correlated, there will always be that one time when it's not; and what will you do about that?

Your system has a good setup out the gate, but I would like to pick your brain about your worst case scenario solutions? At the same time, do you ever actively close and reset positions that are just too profitable to leave alone, like being up 150 pips or so in a pair?

Like I said, it seems like a more "ground-level/passive" system, but what are your active maneuvers with the system?

The problem my friend, is not correlation. We are not depending on correlation to hedge our position. Lets say that you BUY 1 LOT of EUR/USD and Sell 1 LOT of EUR/USD, what correlation are you depending on? The same rule apply here. You are basically creating a perfect circle that eventually comes back to itself. If you further examine the idea behind this hedging, you will see that it is absolutely dependent on the market's supply and demand. But sometimes the market is not perfect, or people will overreact to certain events or sentiments, and that is when you start to see unbalanced market pricing. The whole purpose of this is not to gain the pips, but to create a constant swap payments. I have to admit that is it tempting sometimes to want to cash out, but then again I don't sit in front my PC all day and watch this. This is one of those "set it and forget it" type of thing.

I would recommend that anyone doing this, to enter a 10th of your position and gradually add to it so you can spread out your position. This will add more security.

Now during the recent selloff on the GBP/JPY where the market went 1600 PIPS in a short amount of time, my system was able to keep the maximum drawdown to a NET of 200 PIPS, because the GBP/USD CHF/JPY and USD/CHF were all positive, the relative drawdown on the GBP/JPY of 1600 PIP was effectively cancelled by the positive movement of the other pairs. Now that is taken the worst scenario into account and say that you entered the market at the absolute top. If you have entered sooner, like I did, you will have placed the 1 PIP stop on your winning position, and the movement would have been positive, since the other pairs are gaining.

The only part where you will actively close your positions will be that when the GBP/JPY position is stopped out, you have in essence an unbalanced equation, and you will need to close as soon as they are positive, or trail stop them. That is done by experience. Just remember, if the GBP/JPY is dropping, the CHF/JPY will drop too, because generally the JPY is strong. The GBP/USD will drop, because there are too many GBP in the market, supply and demand laws will make GBP weaker. The 4th Pair USD/CHF will be stronger, but you will have 2 Pairs hedging against 1, so you are still a 2:1 ratio on that. This is just the scenario if there is a selloff on the GBP/JPY.

My current position on GBP/JPY is about 560 PIPS in profit, I entered on the 28th of March and I just added to my position yesteday, which I am up about 16 PIPS. But remember, you are not trying to cashout the pips, you are trying to stay in the game long enough and get swap. But if you are going on vacation and you need to close all positions, then do it, you might actually net couple hundred pips.

neo
Without taking any strength away from what is being discussed here, there is a group trading a dual hedge that each day they place one micro lot in the direction of positive swap on two particular pairs (GBPJPY and GBPCHF). I wonder how something like this might work into what is going on here?

You mentioned taking 1/10th positions to build your portfolio/trades. Maybe doing something like a micro lot each day per each pair would gradually let one into this and gain confidence in the process?

Doing so, as per the particular group's testing yeilds the following:

Interest earned on 400:1 account is approximately as follows:

Month 1 $90
Month 2 $288
Month 3 $478
Month 4 $667 (now 1.2 lots long 100k each)

...so there might be some use to such a build up. By the end of month one you would have built up to 30 micro lots on each pair as you do a tripple each Wednesday if i've got the figures right.

Just rambling and interested in seeing other's succeed!
Cheers,
Thom
Interesting, you've obviously put a lot of thought into this so thanks for sharing.

One question I have is about pip value. As each currency pair has a different dollar cost for each pip, GBP/USD pip is $10 but GBP/JPY is around $8.50, if you're using the same lot sizes on each pair doesn't that make the hedge unbalanced?

Just for an example, say you entered all the trades on Jan 1st 2002 and left them alone. You would be up in terms of pips (1,368) but because of the different pip values you'd be in the red.

I'm just starting to look at hedges so if anyone can clear that up - great.

Cheers
Quoting the bhoy
Interesting, you've obviously put a lot of thought into this so thanks for sharing.

One question I have is about pip value. As each currency pair has a different dollar cost for each pip, GBP/USD pip is $10 but GBP/JPY is around $8.50, if you're using the same lot sizes on each pair doesn't that make the hedge unbalanced?

Just for an example, say you entered all the trades on Jan 1st 2002 and left them alone. You would be up in terms of pips (1,368) but because of the different pip values you'd be in the red.

I'm just starting to look at hedges so if anyone can clear that up - great.

Cheers
Well, if you have been in for that long just the swap will probably make you a rich man, provided that you have been doing some spreading out of your position throughout the years. Remember thats $11.00 per day x 365 x 5 years = $20,0075.00 in swap alone, if you started with a $5,000 account doing only 1 set of 4 pairs.

As far as PIP value, I guess that is an interesting question. This strategy may need to be fine tuned a little bit to take into account of PIP value and actual LOT sizes, but since many broker offers only standard 10K or 100K sizes, it will be difficult unless you trade at OANDA with unit sizes. Last time I checked, OANDA does pay good SWAP for GBP/JPY, so it would be interesting to get the exact Unit size. But then let's not be too anal (excuse the expression) about that, the market is not perfect, if the market was perfect, then this hedge will cancel out all movements and give you what some people refer to "impeccable hedge"
Quoting accrete
Without taking any strength away from what is being discussed here, there is a group trading a dual hedge that each day they place one micro lot in the direction of positive swap on two particular pairs (GBPJPY and GBPCHF). I wonder how something like this might work into what is going on here?

You mentioned taking 1/10th positions to build your portfolio/trades. Maybe doing something like a micro lot each day per each pair would gradually let one into this and gain confidence in the process?

Doing so, as per the particular group's testing yeilds the following:

Interest earned on 400:1 account is approximately as follows:

Month 1 $90
Month 2 $288
Month 3 $478
Month 4 $667 (now 1.2 lots long 100k each)

...so there might be some use to such a build up. By the end of month one you would have built up to 30 micro lots on each pair as you do a tripple each Wednesday if i've got the figures right.

Just rambling and interested in seeing other's succeed!
Cheers,
Thom
Yes. You are absolutely right. The only problem with the GBP/CHF and GBP/JPY is that you are not covered 100%. You always have higher risk
exposure because you are now depending on correlation of the currencies. I have been burned by that and that is why I decided to do it this way instead of the other hedging. Remember, all these hedging ideas work fine until there is a selloff and then is either you blow up your account or you lose all the profit gained. My system will protect you far more than that, but then again you are not making the $22.00 or $17.00 swap per day.
At the risk of sounding more "anal" (I tend to be about hard cash )

Taking pip value at $8.5 for the yen pairs, $8.1 for USD/CHF and of course $10 for cable a 4 trade basket would look like this:

G/U - 10 mini lots (1 standard lot)
G/J and C/J - 11 or 12
U/C - 12
----------------------

G/U - 15 mini lots
G/J and C/J - 18
U/C - 18 or 19

So obviously the higher you go, the more you need to be aware of this difference.
thx for the kind regards bhoy : ) . . . and it looks like you are onto the right idea on the pip factoring. It's fairly simple math, and some trade stations such as FXSol's (demo and live) have pip value tables to make it even easier.

Neo, you are right on the risk. My intent on mentioning that particular hedge was only the ramping up concept that you had touched on with your 1/10th entry in lue of full lots at a time. Again the idea of adding say one micro lot or some combination of equality-in-micro-lots thinking of what has been pointed out in the above posts on getting the market-presence equal between pairs with the differeing pip value.

Cheers,
Thom
Hello traders and Neo1001,

I love the concept, and have worked on similar projects before. But with all due respect, I can not understand how you are receiving swap on this system.

When I run the numbers with some of the brokers I know of, I find the swap to be either negative OR at the best it is break even. An example from MIG shows the following:
Long GBP/JPY gives you +1.90
Short CHF/JPY you pay -0.55
Short GBP/USD you pay 0.00
Short USD/CHF you pay -1.35

TOTAL SWAP = 0 interest paid! That is the best example I could find. I tried the broker you mentioned, but their swap rates where not posted. IF there is a way to do this, I am extremely interested. Thank you for your response.

Good Trades,
Yukoner
From IBFX
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Quoting the bhoy
At the risk of sounding more "anal" (I tend to be about hard cash )

Taking pip value at $8.5 for the yen pairs, $8.1 for USD/CHF and of course $10 for cable a 4 trade basket would look like this:

G/U - 10 mini lots (1 standard lot)
G/J and C/J - 11 or 12
U/C - 12
----------------------

G/U - 15 mini lots
G/J and C/J - 18
U/C - 18 or 19

So obviously the higher you go, the more you need to be aware of this difference.
Great work!

So BUY 1.1 Lot of GBP/JPY
SELL 1.0 Lot of GBP/USD
SELL 1.2 Lot of USD/CHF
SELL 1.2 Lot of CHF/JPY

That about right?
Quoting Yukoner
Hello traders and Neo1001,

I love the concept, and have worked on similar projects before. But with all due respect, I can not understand how you are receiving swap on this system.

When I run the numbers with some of the brokers I know of, I find the swap to be either negative OR at the best it is break even. An example from MIG shows the following:
Long GBP/JPY gives you +1.90
Short CHF/JPY you pay -0.55
Short GBP/USD you pay 0.00
Short USD/CHF you pay -1.35

TOTAL SWAP = 0 interest paid! That is the best example I could find. I tried the broker you mentioned, but their swap rates where not posted. IF there is a way to do this, I am extremely interested. Thank you for your response.

Good Trades,
Yukoner
What I would recommend is that you open a DEMO account and do it on a DEMO to see how my concept would work. Open a DEMO with FXDD and start with 1 lot of each pair.
Some of the swap rate posted are based on the Base Currency, so you have to really calculate it and find out. The best way is to do it with a DEMO.

BTW, the Short Pair GBP/USD is not 0.0, is actually receiving positive swap due to last rate hike. Its like 0.03 per lot. Low but nevertheless positive.

Neo
Quoting smjones
From IBFX

Based on this rate, you are looking at $8.10 per day.

If you look for better brokers, you might achieve the $11.30 that I am getting.
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