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Hedge Wedge Trending System

  • #1
  • First Post: Edited 12:33pm Apr 17, 2007 10:49am | Edited 12:33pm
One of the weaknesses of any trending system is that the price action has a tendency to stay to close to the actual trend. The simple premise is that prices always gravitate towards their means.

The idea behind this system is to create distance between the price action and mean thereby allowing for a longer adherence to price action during trending. This trading idea was inspired by Yezbick's work.

This is a very simple system. The rules are as follows:

1. Create a one hour chart
2. Create a 25 period weighted close moving average (WCMA) with 25 and -25 offset levels. This will create the WCMA wedge appearance.
3. Add a 50 period postive shift to the (WCMA)
4. The WCMA will appear as a Wedge on the chart.
5. Establish a spread Hedge (Long and Short simultaneous orders) whenever the price enters the Wedge. This is a neutral position.
6. Unwind the hedge (spread) whenever the price action leaves the wedge. For example, if the price is trending Long and exceeds the Long side of the wedge, remove the short side of the Hedge (spread) which will result in a Long position. If the price is trending Short and exceeds the Short side of the wedge, remove the Long side of the Hedge (spread) which will result in a Short position.
7. Once a trend has been engaged, enter an opposite side entry order to re-establish the spread should the price reverse. Do not place any stops. The opposite side hedge entry order will serve as the stop.


The attached chart illustrates the price action slicing through the Wedge that is created by the WCMA. This type of slicing action permits clean trade entry. Remember, the hedge wedge is a completely neutral zone where spreads are created which is an artifical stop...

TK
Attached File(s)
File Type: pdf GBPJPY,H1 (offline).pdf   54 KB | 2,653 downloads
  • #2
  • Apr 17, 2007 11:11am Apr 17, 2007 11:11am
Hi,

thank you for the contribution!. Can you attach your template to this thread?. I have some difficults to add the indicators to a graph.

Thank you!
  • #3
  • Apr 17, 2007 11:39am Apr 17, 2007 11:39am
Thanks TK for the revised method
Regards
  • #4
  • Apr 17, 2007 12:11pm Apr 17, 2007 12:11pm
I think I get the fundamentals but remain unsure as to how such a system would operate in practice, though I keenly hope it works.

Surely there is a lot of ranging - even with a positive 50 shift, from within and without the hedge wedge boundary.

Such situations would lead to multiple unhedgings and rehedgings depleting your balance by spread each and every time.

I attatch a chart to explain what I mean. Perhaps I am missing something.

http://img03.picoodle.com/img/img03/...gm_763a765.jpg


I think Yezbick made a good suggestion on another thread

Quote
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....remove a bad trade if you desire to do so, it would be easier to close a .1 lot

perhaps an incremental removal of hedging as trend develops (as a sort of hedge equivalent of increasing position) is more appropriate?

Perhaps not.
quote of the day: . It's like deja-vu all over again
  • #5
  • Apr 17, 2007 12:40pm Apr 17, 2007 12:40pm
Quoting Gmak
I think I get the fundamentals but remain unsure as to how such a system would operate in practice, though I keenly hope it works.

Surely there is a lot of ranging - even with a positive 50 shift, from within and without the hedge wedge boundary.

Such situations would lead to multiple unhedgings and rehedgings depleting your balance by spread each and every time.

I attatch a chart to explain what I mean. Perhaps I am missing something.

http://img03.picoodle.com/img/img03/...gm_763a765.jpg


I think Yezbick made a good suggestion on another thread



perhaps an incremental removal of hedging as trend develops (as a sort of hedge equivalent of increasing position) is more appropriate?

Perhaps not.
The offset minimizes the price ranging and you could augment the trading rules to precule any wedge offset trading until the closing price of a particular bar exceeds the upper or lower boundary of the wedge...

TK
  • #6
  • Apr 17, 2007 12:45pm Apr 17, 2007 12:45pm
tKimble,

I like the looks of the new system. I'm studying the effects of this system and will post my findings and any questions, I may come across.

Looks good.

yezbick
  • #7
  • Apr 18, 2007 5:08am Apr 18, 2007 5:08am
is the same result achievable simply by instituting a larger MA rather than an MA shift, eg 75/100
quote of the day: . It's like deja-vu all over again
  • #8
  • Apr 18, 2007 8:09am Apr 18, 2007 8:09am
Quoting yezbick
tKimble,

I like the looks of the new system. I'm studying the effects of this system and will post my findings and any questions, I may come across.

Looks good.

yezbick
Thanks for you work and your contributions...

TK
  • #9
  • Apr 20, 2007 10:22am Apr 20, 2007 10:22am
tKimble,

I like the concept of hedging inside the +/- levels. It makes good sense. One thing I ran across though is the following.

It seems that the shift can cause losses. I have enclosed a chart below describing the issue in question.
Attached Image
  • #10
  • Apr 20, 2007 8:02pm Apr 20, 2007 8:02pm
Im interested in hedge trading useing different pairs like eur/usd and uds/chf. Does any one know how I can set these up properly?? From what I understand, I should buy or sell 2 X the amount of eur/usd then usd/chf.
  • #11
  • Apr 21, 2007 2:27pm Apr 21, 2007 2:27pm
I've loved alot of your past ideas TK, but I'm having alot of difficulty with the practical implementation of this method. This just seems to be too much computer time. And if I'm being a baby about it, I understand :-)
  • #12
  • May 21, 2007 6:29am May 21, 2007 6:29am
Where has tkimble gone to? He/she hasn't posted in FF since 4/18. I hope he is alright.

Is this thread going to continue?
  • #13
  • May 21, 2007 6:37am May 21, 2007 6:37am
Quoting tkimble
One of the weaknesses of any trending system is that the price action has a tendency to stay to close to the actual trend. The simple premise is that prices always gravitate towards their means.

The idea behind this system is to create distance between the price action and mean thereby allowing for a longer adherence to price action during trending. This trading idea was inspired by Yezbick's work.

This is a very simple system. The rules are as follows:

1. Create a one hour chart
2. Create a 25 period weighted close moving average (WCMA) with 25 and -25 offset levels. This will create the WCMA wedge appearance.
3. Add a 50 period postive shift to the (WCMA)
4. The WCMA will appear as a Wedge on the chart.
5. Establish a spread Hedge (Long and Short simultaneous orders) whenever the price enters the Wedge. This is a neutral position.
6. Unwind the hedge (spread) whenever the price action leaves the wedge. For example, if the price is trending Long and exceeds the Long side of the wedge, remove the short side of the Hedge (spread) which will result in a Long position. If the price is trending Short and exceeds the Short side of the wedge, remove the Long side of the Hedge (spread) which will result in a Short position.
7. Once a trend has been engaged, enter an opposite side entry order to re-establish the spread should the price reverse. Do not place any stops. The opposite side hedge entry order will serve as the stop.


The attached chart illustrates the price action slicing through the Wedge that is created by the WCMA. This type of slicing action permits clean trade entry. Remember, the hedge wedge is a completely neutral zone where spreads are created which is an artifical stop...

TK

Question about #7. So once the trend has been established we are either long or short. Suppose we are long. Then we open sell hedge entry order to serve as a stop. If understand correctly, this hedge order should be a limit order right? It shouldn't be an instant order right?

If so, what would determine the price of the hedge order? Which side of the wedge?

Thanks!
  • #14
  • Jul 25, 2007 8:36am Jul 25, 2007 8:36am
Similar concept, simpler design: http://www.forexfactory.com/showthread.php?t=40034
  • #15
  • Jul 25, 2007 9:55am Jul 25, 2007 9:55am
What are you looking for? A no loss system? zzzzzzzzzzzzzzzzzzzzzzzzzz

Quoting yezbick
tKimble,

I like the concept of hedging inside the +/- levels. It makes good sense. One thing I ran across though is the following.

It seems that the shift can cause losses. I have enclosed a chart below describing the issue in question.
  • #16
  • Last Post: May 4, 2020 7:23pm May 4, 2020 7:23pm
"tKimble" is one of the greatest traders ever to post on the FF.
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