Synthetic Hedging

I do not know all of the reasons that a trader would want to hedge a forex position. One reason would be to follow the method presented by pipEASY in his thread "Building an equity millipede," on this forum.
http://www.forexfactory.com/showpost...77&postcount=1

pipEASY is Australian so has no problem maintaining a hedgeable forex account. For US citizens it is a problem. We can use sub accounts and be held for double margin or use an unrigistered broker. CitiFx claims to have a platform that allows hedging but I am not sure of the details and would like to stay with my current broker.

I would like to have a frontend or some other system linked to my account that would show all of my positions long and short in the same pair. Because of the NFA regulation these positions would be netted out in my actual account but I would be able to easily keep track of them with a specially designed platform.

Failing that, I have considered using a spread sheet to keep track. I have attached an example spreadsheet. changing the euro
quote will recalculate the open p/l.

There is a explanation here of what I am trying to do. (the trades in the explanation do not match the example trades in the spreadsheet.)
http://www.forexfactory.com/showpost...postcount=3850

I would appreciate any comment from others who have any ideas as to how to accomplish this task.

Archie

You seem to have no problem working with a netting account. So why do you insist in going back to a non-FIFO account?

You do realize that no professional trader uses this sort of same pair "hedging".

In working with a spread-sheet with many entires there is the danger of a mistake making you falsely evaluate your current situation. I once forgot about some limit orders that I didn't close and only noticed three days later.

So why complicate your life with hedging?

If you want to follow the trades of somebody using heding, just do what they do: when they buy, you buy. When the sell, you sell. If they hit TP or SL, you sell or buy depending on the situation. You will perfectly emulate what they are doing, while having a much clearer position of you current situation (size and average entry price).

I am using a method similar to what you are describing. I have solid evidence from 4 years that this WILL work no matter what the naysayers say. I have been trading only two pair (EUR/USD and GBP/USD), using simple price action signals and a simple but effective "validation" criteria for entering the market.

I go long when the market gives a "validated" bullish signal and short when the market gives a "validated" bearish signal. The true key to this method is position sizing and risk management. But the average ROI over the past 4 years is greater than 100%. Even though the win-to-loss ratio is roughly 50/50 the risk management method makes this method a solid winner.

I am in the US and use two accounts, one for longs and one for shorts. Only recently did the "net position" (read FIFO) cause challenges but they are not unsurmountable. It is perfectly legal and quite profitable IF (and only if) you work out the kinks and the risk management.

You NEVER know if any given signal will be the one that turns the market. Anyone who says they "Know" is either I liar or a fool or both. For that reason I believe in taking every valid signal that the market gives and let the risk management and position sizing take care of the rest. Last year's ROI was the exception and only produced 84% ROI. Every year since 2007 has been 100+% or more...including this year.

Don't let the naysayers get you down. You can do it!! Be vigilant, Be patient, work out the kinks FIRST before you lay your real money down. All those that say you cannot do it are the same people that "know" when the market will turn, they are liars and fools.

As an example: I just scaled out over 2% profit on shorts for EUR/USD and GBP/USD respectively and still have small remaining positions in those trades short but now risk free and with profit in the bank. I also entered long on both of these pair yesterday (12-23-10), in the "longs" account and have two trades each for a total of 2% risk. So that's 2% profit (in the bank) and 2% risk, and my "portfolio" stays in balance. Principle is protected from risk by the current profit...and so it goes. Each time you win more than you lose you add a little more to your principle.

Its not sexy, but it works...and it works really well. Ask anyone if (conservatively speaking) 50% ROI on their investment is good, and they will say you are crazy. Show them returns of 50% or better and they will hail you a trading genius. Don't over complicate it just use simple principles of arithmetic and you WILL succeed.

Merry Christmas and a prosperous New Year

[quote=Adal;4264751]You seem to have no problem working with a netting account. So why do you insist in going back to a non-FIFO account?

You do realize that no professional trader uses this sort of same pair "hedging".



Thanks for the reply,

Actually, I do not know that many professional forex traders, I guess six, that I would consider "professional." Three of them hedge. I know of one prop firm that has put their account offshore because they want to maintain the ability to hedge.

I do not want to follow anyones trades. I think I explained the reasoning quite plainly in the post I referenced and it is explained thoroughly in the "millipede " thread but the bottom line is that hedging is used when you want to take advantage of a correction in a trend.

For example, short the euro long term, say, the weekly chart but you want to trade the daily uptrend without disturbing your short.

Hedging has a bad name because people use it instead of a stop loss. There are definitely good reasons to apply hedges. I suspect that the majority of hedgers lose just as the majority of traders do.

Archie

[quote=gspajon;4264761]I am using a method similar to what you are describing. I have solid evidence from 4 years that this WILL work no matter what the naysayers say. I have been trading only two pair (EUR/USD and GBP/USD), using simple price action signals and a simple but effective "validation" criteria for entering the market.


Gaspajon,

Thanks for the reply. I will likely start as you recommend, separate accounts. I will worry about the double margin issue when it becomes a problem.

Merry Christmas,

Archie

When I talked about professional traders I meant people working for banks or using institutional trading platforms like autobahn FX, which don't support hedging. Hedging was invented by the retail world.

I thought that your problem was that pipEASY made recommendations for a hedged account, while you had a FIFO one and that you had troubles following them. Sorry for misunderstanding.

I second this!