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Three Pairs Hedging

  • #61
  • Feb 6, 2011 10:02am Feb 6, 2011 10:02am
I've coded a very basic version of an EA to open and close trades as per post #1 rules...but I need to wait a few hours for market open in order to see if it works...
Market is like a puzzle, YOU have to fit the pieces!!
  • #62
  • Feb 6, 2011 10:06am Feb 6, 2011 10:06am
Quoting Chris_B
I've coded a very basic version of an EA to open and close trades as per post #1 rules...but I need to wait a few hours for market open in order to see if it works...
thx for this info, Chris_B
  • #63
  • Feb 6, 2011 10:09am Feb 6, 2011 10:09am
This method accomplishes nothing except placing a trade on usd/chf and just holding on to it until it shows a profit. Say you place the trades with 10,000 units per pair buying g/u and u/c and selling g/c. That will just leave you with approx 6100 units short u/c exposure with no gbp exposure whatsoever. This is absolutely no different, if you're opening and closely these pairs together, than just placing a trade short usd/chf. And using 3 pairs to accomplish this does nothing to limit risk, drawdown or anything else except increase your transaction costs.
  • #64
  • Feb 6, 2011 10:10am Feb 6, 2011 10:10am
As has been stated previously, a perfect hedge would involve altering the lots traded for each pair and would certainly not be a profitable strategy.

Since you are trading the same lot size for all three pairs, you are in essence trading just one pair.

Take EURCHF (Long) EURUSD (Short) USDCHF (Short) for an example. When trading equal lot sizes among these three pairs, you are, for the most part, trading USDCHF (Long). When the price of USDCHF goes far enough above your entry price to offset the spread/commission and to reach your profit target, you will be successful. However, if you enter at the start of an extended downtrend for USDCHF, bad things will happen.

I ran this scenario (Long EC, Short EU, UC) through several backtests. I specifically wanted to pick a point where USDCHF was starting a downtrend. The attached screenshot shows the USDCHF M5 chart and an equity chart of the basket. Trades were opened 9/5/2010 17:41:45 ET and close 9/9/2010 21:53:23 ET.

Long EURCHF 0.5 Lots Open 1.31055 Close 1.29425
Short EURUSD 0.5 Lots Open 1.28855 Close 1.26660
Short USDCHF 0.5 Lots Open 1.01660 Close 1.02190

As you can see, the basket performance mimics the movement of USDCHF. When USDCHF finally crept above the entry by enough pips, the Profit target of $30.00 was reached and the basket was closed. Max DD in this case was about 2.65%. Spikes in the equity chart are usually caused by excessive spreads during times of low liquidity (ie, rollover).

Edit: Funny that Lonestar posted the same thing just a few seconds before I did!
Attached Image (click to enlarge)
Click to Enlarge Name: 3pairhedge.jpg Size: 190 KB
  • #65
  • Feb 6, 2011 10:19am Feb 6, 2011 10:19am
Quoting zznbrm
I ran this scenario (Long EC, Short EU, UC) through several backtests.
Hi zznbrm, which backtest tool did you use to be able to use three pairs?
  • #66
  • Feb 6, 2011 10:20am Feb 6, 2011 10:20am
Quoting Chris_B
I've coded a very basic version of an EA to open and close trades as per post #1 rules...but I need to wait a few hours for market open in order to see if it works...
Looking forward

Hope can custom pairs to trade as well

For discussion:

Theoretically, since it does not really matter if it is BBS or SSB, do you think it makes more money if the EA is placed to two charts with one on BBS and the other one on SSB (EA to close on dollar profit of 50)?
福 子 Victor V
  • #67
  • Feb 6, 2011 10:30am Feb 6, 2011 10:30am
Quoting Lonestar
This method accomplishes nothing except placing a trade on usd/chf and...

that was exactly my first thought, reading the topic. i don't see any sense in hedging 3 crossrates with each other, but paying the spread 3 times. it's like trying to speculate on oil, while hedging yourself against rising oil price. or better its like playing red AND black at the same time on a roulette table, the only thing you do is paying for the 36
  • #68
  • Feb 6, 2011 10:42am Feb 6, 2011 10:42am
I modified an indicator found here
http://www.forexfactory.com/showpost...postcount=2230
for three pairs. I also added the ability to input spreads for the three pairs.

Read about how to use it from the above link.
Now you can test the method while the market is closed with this indicator
thanks to squalou.
Attached File(s)
File Type: mq4 Basket Profit 3 Pairs sq.mq4   11 KB | 4,325 downloads
  • #69
  • Feb 6, 2011 10:43am Feb 6, 2011 10:43am
Quoting cash4u2
Hi zznbrm, which backtest tool did you use to be able to use three pairs?
I use a custom-built MT4 trade simulator and Dukascopy tick data.
  • #70
  • Feb 6, 2011 10:46am Feb 6, 2011 10:46am
Quoting zznbrm
I use a custom-built MT4 trade simulator and Dukascopy tick data.
Great is it a free available tool?
  • #71
  • Feb 6, 2011 10:50am Feb 6, 2011 10:50am
Quoting zznbrm
Funny that Lonestar posted the same thing just a few seconds before I did!
The funny part is going to be when no one believes what we're saying until this thread goes about 100 pages and about 12 ea's and indicators to prove it versus just thinking and trying to understand what others are saying and not getting caught up in the hype.
  • #72
  • Feb 6, 2011 11:06am Feb 6, 2011 11:06am
Quoting Lonestar
The funny part is going to be when no one believes what we're saying until this thread goes about 100 pages and about 12 ea's and indicators to prove it versus just thinking and trying to understand what others are saying and not getting caught up in the hype.
Dont think alot of people understand what "exposure" is. Thats the problem. I know when I started it took me awhile to grasp that fact.
  • #73
  • Feb 6, 2011 11:19am Feb 6, 2011 11:19am
Quoting zznbrm
As has been stated previously, a perfect hedge would involve altering the lots traded for each pair and would certainly not be a profitable strategy.

Since you are trading the same lot size for all three pairs, you are in essence trading just one pair.

Take EURCHF (Long) EURUSD (Short) USDCHF (Short) for an example. When trading equal lot sizes among these three pairs, you are, for the most part, trading USDCHF (Long). When the price of USDCHF goes far enough above your entry price to offset the spread/commission and to reach your profit target,...
Yes, I agree with you the same shows up here. The shape of the equity curve is the same for the 3 pair hedge and just selling the usdchf. only the dollars are different, because I did not take the time to figure out exactly the ratio of lot sizes for each currency in reference to usdchf.
Attached Image (click to enlarge)
Click to Enlarge Name: ScreenHunter_013.jpg Size: 111 KB
  • #74
  • Feb 6, 2011 11:23am Feb 6, 2011 11:23am
hi,

sorry if this is not the right place for my question, and i apologize for my bad english but i am searching for an hedging ea.

i explain it what i mean.

An Ea that hedges my manual ordert positions,
-20 pips from my entry is the entry of the hedge position in the opposite site

the take profit from my hedge position is the stop loss from my manual ordered position

the stop loss from my hedge position is 5pips

and the ea is not allowed to open orders only when i open manual orders
thats all

i hope you understand and i thank you if somebody can help me to find such an ea

best regards
  • #75
  • Feb 6, 2011 11:24am Feb 6, 2011 11:24am
Quoting smjones
Yes, I agree with you the same shows up here. The shape of the equity curve is the same for the 3 pair hedge and just selling the usdchf. only the dollars are different, because I did not take the time to figure out exactly the ratio of lot sizes for each currency in reference to usdchf.
Meaning?

Worthwhile carry on with the rules as per Post #1 or ... ... ?
福 子 Victor V
  • #76
  • Feb 6, 2011 11:30am Feb 6, 2011 11:30am
Quoting camvcvoo
Meaning?

Worthwhile carry on with the rules as per Post #1 or ... ... ?
Well, that is up to you. The method can be profitable. However, the same trade can be done in one pair, but it takes some thought to setup the one pair trade. This does not require much thought, but you pay for it in transaction costs as I said earlier. So you have to make that choice.
  • #77
  • Edited 2:21pm Feb 6, 2011 12:10pm | Edited 2:21pm
Quoting camvcvoo
Meaning?
Meaning there is no such strategy when you can just placed hedged

trades and go to sleep, if this was possible, nobody wouldn't even

care to look at the charts. If profit can be made then there is always

a risk for loss and Forex is on the place #1, for me it's not much away

from

simple gambling in the casino, when the house got little advantage,

same as brokers on Forex and same as Bookers on Sport betting..

The only things, I see working by far is Large account and very small lots

keep buying/selling averaging the few different pairs.. It works, but

you can get sucked in for few weeks in the wrong trade, but eventually

what goes up, must comedown.. Like buying USDJPY below 81, could it

go to 70? maybe but averaging down will work eventually, I'm trying this

approach with small account and penny lots,, working like a clock..

Other than that, I found no system working since I start looking.

Bare charts, simple Fibs, few trend lines, all you need and still this is

pretty much guessing: "Up or down?" take your pick.

P.S: Sure there should be something and most likely that something it's simple :

1) Money Management
2) Discipline
3) Fear and Greed Management
4) Reasonable expectations (better 20$ now then(IF) $100 later
5) Money goes to money = very little chance to made something with nothing..

Sure, there is something else (but I'm watching charts now).. Good luck..
Viewer Discretion Advised: Shall we shag now or should we shag later? :-)
  • #78
  • Feb 6, 2011 2:04pm Feb 6, 2011 2:04pm
Quoting smjones
Well, that is up to you. The method can be profitable. However, the same trade can be done in one pair, but it takes some thought to setup the one pair trade. This does not require much thought, but you pay for it in transaction costs as I said earlier. So you have to make that choice.
smjones, could you code your "Stochastic different pairs" for 3 pairs?
  • #79
  • Edited 6:23pm Feb 6, 2011 3:02pm | Edited 6:23pm
Quoting cash4u2
smjones, could you code your "Stochastic different pairs" for 3 pairs?
What is the math?

One line indicator: First + Second - Third?

Three line indicator: First - Second and First - Third and Second - Third?

Not obvious, to me, what you want.

http://i54.tinypic.com/wqpvkk.gif
  • #80
  • Feb 6, 2011 3:41pm Feb 6, 2011 3:41pm
Quoting cash4u2
smjones, could you code your "Stochastic different pairs" for 3 pairs?
No thanks. sorry, I am too busy right now.
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