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Open-Close Trending with Hedging Discussion Thread

  • #161
  • Apr 18, 2007 10:58am Apr 18, 2007 10:58am
Price action during the last two - three hours went from Long to Neutral (Hedge) to Short..

TK...
  • #162
  • Apr 18, 2007 1:03pm Apr 18, 2007 1:03pm
Quoting 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
Although I havent posted anything in this thread, I have been watching for a while. If I come across a system which I think has some merit, I tend to modify it a little according to my preferences (as im sure other people do too). I've been using 4hr charts with the bands set to +/- 25 and find it to be just as profitable. In fact, there's less whipsawing, so you tend to stay in a profitable position longer than you would with the 1 hr charts.
  • #163
  • Apr 18, 2007 2:48pm Apr 18, 2007 2:48pm
Quoting Markj
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.
You can always see the high and low of the bar. If it goes up and down 3 times within 4H you will only have 1 hedge on, since you are basing your decisions on the 4h chart.

Hope that makes sense
S
  • #164
  • Apr 18, 2007 2:54pm Apr 18, 2007 2:54pm
Quoting Gmak
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
So if I understand correctly you close the longs before you get an opposite signal and put a stop order some place above that makes sense technically?

Sounds interesting if this is the case.
  • #165
  • Apr 18, 2007 7:23pm Apr 18, 2007 7:23pm
just done a backtest between the dates 11 Spetember (06) and 30 January (07)

It is not a beauty.
quote of the day: . It's like deja-vu all over again
  • #166
  • Apr 19, 2007 1:15pm Apr 19, 2007 1:15pm
Quoting Gmak
just done a backtest between the dates 11 Spetember (06) and 30 January (07)

It is not a beauty.
Did you try H4?
  • #167
  • Apr 19, 2007 3:11pm Apr 19, 2007 3:11pm
Quoting Ebenst
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
After studying this for a while, it apears to have some merit. Actually what you have when you have a 25LWMA in a H4 is the equivelant of a 100 LWMA in the H1. If you want to ananlize it in a M30 you will need to use a 200 LWMA to make it the same.

Longer LWMA seems to move better with less wipsaws, will look at longer periods as well to see if it is beneficial.

Below is a 25LWMA H4 in M30 which is a 200 LWMA in M30. I also used the 25 +/- as in your example. May have some promise, but will have to be tested to proove for it.
Attached Image
  • #168
  • Apr 19, 2007 3:25pm Apr 19, 2007 3:25pm
Long MA but stands a good look. Not much wipsaw.

H4 = 125LWMA 25+/-
H1 = 500LWMA 25+/-
M30 = 1000LWMA 25+/-

Example listed in H4. Wipsaw almost totally removed.
Attached Image
  • #169
  • Apr 19, 2007 3:38pm Apr 19, 2007 3:38pm
I think the 25/-25 levels were mentioned by howard in an earlier post. I have been tested this and found a lot of entries caused by the wicks of the candles. I am now busy testing with the close of the candle above 25 for long and below -25 for a short.I will finish it over the weekend and post my results here. So far the max open trades is only 15 after 18 months of backtesting.I am testing from 2003 to collect as much info as posible so that we could determine a MM sytem for this strategy.

Also i have found so far that a time limit will not work on G/J but a pip value of 1500 per trade looks do-able.

Eben

PS. I am testing on IBFX live account via the step-by-step function so i believe we will be able to give reliable results here
  • #170
  • Apr 19, 2007 3:50pm Apr 19, 2007 3:50pm
Ebenst,
Looking forward to the results. Thank's for your effort!
  • #171
  • Apr 19, 2007 4:37pm Apr 19, 2007 4:37pm
Quoting Ebenst
I think the 25/-25 levels were mentioned by howard in an earlier post. I have been tested this and found a lot of entries caused by the wicks of the candles. I am now busy testing with the close of the candle above 25 for long and below -25 for a short.I will finish it over the weekend and post my results here. So far the max open trades is only 15 after 18 months of backtesting.I am testing from 2003 to collect as much info as posible so that we could determine a MM sytem for this strategy.

Also i have found so far that a time limit will not work on G/J but a pip value of 1500 per trade looks do-able.

Eben

PS. I am testing on IBFX live account via the step-by-step function so i believe we will be able to give reliable results here

What period LWMA are you using for the testing?

Thank you for all your hard work. Looking forward to seeing your results.
  • #172
  • Apr 19, 2007 5:00pm Apr 19, 2007 5:00pm
What I suggested to Ebenst was 25LWMA with +25 and-25 levels on 4h bars. He is now running his tests using "close" of the bars outside the boundaries as opposed to piercing of boundary levels by the wicks which is a great idea.
Regards
  • #173
  • Apr 19, 2007 5:14pm Apr 19, 2007 5:14pm
I have been using a swing trading strategy using a 100EMA for some time with a 20/-20 channel for a 40SL.

What makes a big difference in these systems results are, 4 hr candle opens above your stoploss level i.e. if you are entering at 100 with 60 as your stop the candle open should be above 60, The time of day the entry happens, i.e. an hr prior to NY close is not a good entry time as price will normally bounce around you entry and SL level, and the daily range already taken place prior to the trade.

I carried out a lot data analysis on this system to 2001. The profits target area or areas are probably more important so I have given my results below for help in determining your if you have chosen targets instead of technical profit exits.

2002 2003 2004 2005 2006

Traget 1 - 50 44% 48% 47% 37% 51%

Target 2 - 100 21% 26% 25% 23% 25%

Target 3 - 150 13% 20% 18% 15% 16%

Target 4 - 250 5% 10% 8% 8% 9%

Target 5 - 350 3% 9% 6% 5% 3%

Hope this helps
  • #174
  • Apr 19, 2007 10:40pm Apr 19, 2007 10:40pm
The first period I would check out for the new 4 hr idea is still September through November. Is the worst period I've come across.
quote of the day: . It's like deja-vu all over again
  • #175
  • Apr 20, 2007 9:17am Apr 20, 2007 9:17am
could we not filter some bad trades in ranging markets by utilising a smaller MA Eg 10, or 12 to operate alongside the original 25 ma.

We could make a rule such that if the 25 ma is flat, then instead of watching price action we should only trade once the short ema has crossed the uppoer and lower boundary. Just a thought.
quote of the day: . It's like deja-vu all over again
  • #176
  • Apr 20, 2007 10:16am Apr 20, 2007 10:16am
Quoting Gmak
could we not filter some bad trades in ranging markets by utilising a smaller MA Eg 10, or 12 to operate alongside the original 25 ma.

We could make a rule such that if the 25 ma is flat, then instead of watching price action we should only trade once the short ema has crossed the uppoer and lower boundary. Just a thought.

Gmak,

I believe that this has some merit. The short ma would have to be short enough to give a good indicator when we are officially out of the ranging period.

I think that a less than 10 ma would be best. 5 seems to work pretty well.
  • #177
  • Apr 20, 2007 11:44am Apr 20, 2007 11:44am
Quoting yezbick
Long MA but stands a good look. Not much wipsaw.

H4 = 125LWMA 25+/-
H1 = 500LWMA 25+/-
M30 = 1000LWMA 25+/-

Example listed in H4. Wipsaw almost totally removed.

Just did a quick back test on the above. Resulted in an average of 158 pips a week. Testing done back to November 20th. Only saw 4 small wipsaws during this timeframe. Total pips earned was 3,471.

Very little maintance as some of the trades lasted up to 6 weeks.
  • #178
  • Apr 20, 2007 2:08pm Apr 20, 2007 2:08pm
The problem with very long MAs is that you get on board very late and also you leave an awful lot of pips on the table when exiting and that is why yesbick's back test has not produced very high results while some trades have lasted for 6 weeks.

So we have to arrive at a compromise; I checked a number of MAs from 25 to 125 and I think 50 lwma of median price on 4h bars which is equivalent to 200 on hourly with a neutral zone of 50 or 100 pips might be an optimal length, of course a manual backtesting would have to be run to confirm it.
Regards
  • #179
  • Apr 20, 2007 4:10pm Apr 20, 2007 4:10pm
Have you thought of using +- 30? It seems that you would have more trades, earlier trend entries, and less negative trades that are being hedged. I mean 60 instead of 100 pips. Also, you SL when you are in positive territory is closer to the current price, as well as price moving to the point where you actuallly set a SL.
  • #180
  • Edited 7:39am Apr 22, 2007 7:09am | Edited 7:39am
I've been studying a number of methods to take advantage of hedging. Lately I've been playing around with MACD and StdDev. I take a signal only when StdDev is on the rise and MACD histogram rising (long) or falling (short). MACD must agree with price action (convergence). Have a look at the attached chart. I use daily charts but should also work on lower time frames.

At this point I would close all longs. If trend continues up a new long would be taken. You can exit on falling volatility and re-enter when it rises again.
Attached Image (click to enlarge)
Click to Enlarge Name: eu.jpg Size: 69 KB
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