Open-Close Trending with Hedging Discussion Thread

http://img03.picoodle.com/img/img03/...4m_41cbdeb.jpg

It seems to me that if you split your lot size up you will find it easier to drop positions if you see fit to do so.

Example 2% of 1,000

One trade would be a .4 lot position.

Instead of doing the above you could open 4 .1 lots and have the same effect as 1 .4 lot.

When it comes time to place an uncle point and remove a bad trade if you desire to do so. It would be easier to close a .1 lot and still end up neutral or positive than to close a 1 .4 lot and remain positive or neutral.

Closing partial positions would allow more flexibility for closing open negative trades if you desire to do so.

Long term trendlines and price levels are pretty accurate as compared to those for intra day. If you take a look at the last chart for example you can see clearly a support line formed in the retrace from the red range circles.

since a V top tends to be formed in a quickly moving market, any retrace to this line (until it busts!) and subsequent rebound to the uper +50 could be considered a signal that the low point has been reached and that the market is likely to resume its upward trend.

In the first example I gave, however, the market resumed to the downside and would have taken out most of the shorts accumulated earlier and which I turned into a closed loss at the suggested uncle point.

That said, when a clean(ish) top forms and a retrace occurs for more than, say, 400 - 500 pips we can afford to be wrong about direction since the method prescribes a 100 pip hedge (limiting any further loss) we are sitting in the most profitable moment for the system already, even with the closed loss, and we are gambling with the long term trend, which is the way to bet.

Any subsequent rangeing is then taken as if we had just started the system, with no, or few already open trades, the only difference being an assured growth of our capital.

I would even go so far as to say that even if the trip downward was perfectly hedged we should still relinquish our shorts since the expected rebound to the +50 occurred, the balance of probabilities indicates the resumption of the long term trend and the only thing we have to lose is the 100pips*No of trades we were in danger of losing should the retrace never have occured. Furthermore our now net long trades would be much closer to the current price than all significanly stale shorts.

It is also worth noting that holding long trades is infinitely better than shorts for GBP/JPY due to swaps.

that's a good idea. I'll try it out.

Greetings and THX for the informative reply. That happens to be the same MM i'm using (on this model i opened a small 3K account and trade 3 micro lots and will compound) not a get rich quick MM...but will allow me to trade another day : )

Not doing much w/the old gang. Still to much infighting for my tastes. Time to move on for me. But did learn some nice pointers along the way.

Cheers,
Thom

we have been part of a long term uptrend since september 2000 on the monthly chart,

(in 1980 we would have been trading at around 570.00)

the weekly's confirm this and also suggest the downtrend prior to 3/18/07 was simply a large retrace within the even larger uptrend.

That said there is a nasty high at 241.00 which it bounced off, and which hadn't been visited since 1998, when it turned out to be the top.

The pair look likely to test this region again in the very near future. A double top could form in which case at least a medium term reversal of trend might seem likely.

Should the pair break consistently above this line, next resistance is at around 250.00

Why look for places to unwind shorts or longs? Just hang in there and close them after a period of time or after you reached your monthly target...

The hedging will protect you against rangy markets but it's not the holy grail.

Just my 2 cents.

In addition you may want to hold longs for as long as possible (until you meet a certain margin requirement) and get rid of shorts at first chance implementing a bit of a carry trade.

I have posted a new trending system at this location

http://www.forexfactory.com/showthre...224#post275224

Enjoy,

TK

I'm afraid the sytem is at the whim of the markets as concerns the number of shorts and longs it carries.

As we are currently in a long term up trend started in September 2000 it is only natural that the system picks up a large and ever increasing number of stale shorts.

It also means that any given long is much more likely to be extinguished, making those moments when we have a net imbalance of shorts significantly swap negative.

The hedging itself minimises the effect of swap at most given moments. It is however still doomed to be swap negative given the relative interest offered by brokers.

The most profitable and the most dangerous moment for the system is after a sharp pivot and a potential significant retrace/resumption of trend since the system naturally offloads one half of the hedge at that time.
Since we are in a long term uptrend such a scenario seems more likely to offload longs than shorts.

This is a small part of why these moments are so crucial.

Sitting at what is perhaps the crest of the current surge the market may rally causing our net imbalance of shorts to lurch away from us another 100 pips (* the number of outstanding trades).

Furthermore such moments leave the system significantly swap negative.
If, as you first suggested, we hold positions forever then the net imbalance of shorts continues to grow and with this growth comes the ever larger damage such occurances deliver.

If I had started this system before September 2000 I would now be in the ludicrous situation of holding a range of stale shorts all the way back to -9000 pips, oodles of them.

Even under normal trading conditions such a huge number of stales is likely to act as a significant drag on the capability of the system to continue to effectively hedge and open new profitable opportunities. It would certainly be performing at a less than optimum level.

I believe, therefore, that offloading these stales is of vital importance to the long term integrity of the system.




I respectfully disagree with your suggestion of cutting losses at some arbitrary moment in time or after some monthly target has been met. The first is unlikely to be the most opportune moment to make a descision since we would not be making it based on the dynamics present in the market at that time, merely the time itself.

The second seems more reasonable however in reality it is always unpredictable as to whether a monthly target will or will not be met. If it is we again enter the market with no regard to its present situation. If it isn't we have no strategy for exit at all.

Your third suggestion is a good one, the question however is 'how?'
I believe the answer is uncle points utilised in the manner I have previously outlined (which may of course be utter garbage but does not seem to be so) though I am happy to be persuaded otherwise.

Since we are in the market all the time it seems only reasonable and natural to take advantage of the market without the need for prediction.

I believe these uncle points are the soonest possible profitable moment for stales to be extinguished.

A) they appear to occur fairly regularly

B) they occur at the most profitable moment for our system, so any error as to the nature and size of the retrace is minimiserd.

c) in all likelyhood it is the moment when the stales can be extinguished at near the least possible loss.

I think we both need to spend some time forward testing this system. I'm at least honest enough to admit I haven't spent any. What I'm thinking right now is that when we are within a range we may develop say 14 buy/sell hedged positions. As a new trend develops the hedged orders decrease. Say in a strong up trend we add just 2 more buy/sells hedged positions while riding it. Since we are in an uptrend we will need to take 17 lot long positions. One must be really brave (or stupid) to kill either side at this point since you will leave 17 buys or sells open risking to wipe out all your gains with only a 100 pip move...

I agree with you Scientist. I have been forward testing. Leaving your position open can be hazardous to your account. You always have to have at least a pending order in place to protect your balance and equity.

I just started splitting up my positions into smaller sizes and this has been very helpful. If I want to close a position, I can choose how much of my position I will close rather than the only option to close the whole position.

tKimbles new system does appear to have some benefits. I'll continue to post regarding my findings on the current system, but will also be doing testing on the new wedge hedge system.

Hi Yezbick

I have been tryiing to some backtests on this system and i was very impressed with the low amount of hedges and all the profits as the market takes of. Then i saw i was on the 4 hour chart. Have you perhaps been looking at this with the same MA settings?

It looks like a lot more profits and you will have about 2 thirds less on your open hedges.

Just an observations. No real testing has been done

Eben

Exactly, less hedges, less baby sitting (every 4 hours), more profits, we can even reduce the width of the channel to 50 pips as opposed to the existing 100 pips

Yezbick, So you will be looking for good areas to close a portion of your position? Have you figured out any numbers? Thanks again for your excellent system and on going support.

I think that if we decrease the the channel we will only increase our hedges again. Maybe all we need to do is applying good MM. I am currently working on something and will give feedback here if it works out

Eben

I'm not sure I understand.

if we reach the top of a trend we would surely close all hedges which are in profit as a natural course of following the system.

Surely if we didn't there would have been no point in hedging in the first place and we might as well have placed stops.

The danger you point out seems to be one inherent in any system that uses an imperfect hedge. I'm not proposing any difference from the original method of opening and closing trades.

We would also always place a number of trailing pending orders at -100 pips the current position in order to hedge ourselves. This is only common sense should a retrace not materialise and is following the system exactly.

(The modification Yezbick mentioned is a good one I think)

At the top of a surge the vast majority of longs are already naturally extinguished.

At that point there is the danger you point out, but if we didn't close out our profitable positions when would we?

it follows that if the natural danger of the system is averted and there follows a large retrace, then our open stales become a much lesser burden on the system.

Ifr we believe it to be a retrace and that the long term trend will reassert itself then all I'm proposing is that such moments are best to rid ourselves of all open trades except those that maybe still held from the top of the trend and start again from nearly scratch.

once a retrace has reached 4 - 500 pips simply delete all but one pending order and set all stale shorts to a trailing stop of 100 pips

We went through our lower level 50 this morning @238.00 Looks like a strong south bound trend is underway finally.

We should have opportunity to remove any shorts that we have accumulated.

As for holding hedged positions, I plan on using the original plan until we can proove something else to be a solid performer.

I believe that closing the trade early does have some merit, but have yet to proove or see through testing how to go about it.

Accrete, Gmak, Scientist, and Ebenst thank you for your input. You all have good insight and your ideas are valid.

We may have to proove this with forward testing of these different ideas to see which is the best. Backtesting would definately speed this up but requires a vast amount of time and energy to pull together. The team work shown would and is beneficial to all of the forex factory and especially to those reading our thread.

Thanks again for your insight.

yezbick

Interesting that you found this by accident. The H4 with the same 25LWMA and +/-50 levels appears to work very well.

I have been running with the basic tKimble and have completely overlooked the H4.

Your idea of switching to +/- 25 on the H4 does show some merit. Definately needs to be backtested before any conclusion can be made.

Looks a lot more profitable. I'll run backtesting on it to see and post the results later.

yezbick

Just a note. I would be cautious testing any system with a 50 pip Hedge or SL level on a four chart. It may look good but in reality it could move against you 50 pips 3 times in that 4 hour candle and in the end finishing 50 pips above giving the allusion of not being stopped.

From my experience you really need to drill down to 30 min chart at least with a 50 pips stop to get an accurate reading from the data.