Locking it in - multiple position hedging | Forex Factory

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Locking it in - multiple position hedging

  • #1
  • First Post: Sep 22, 2014 4:24pm Sep 22, 2014 4:24pm
Hello there,

As I am often bored my brain came up with a new idea, this is about orders. You could use this with everything if it makes sense?

Example
So you get a signal that you have to buy. We call this entry buy 1 TP and SL can be anything (mathematical) for this example I use 100 pips as TP & SL. On those 100 pips we risk 1%.

Trade is not going that well and goes down 50 pips. Here we open entry sell 2 TP and SL are 50% of 1st trade so that is 50 pips. On this trade we risk the same as on entry buy 1.

If the price went futher down and went to TP of entry sell 2 and SL of entry buy 1 you would have lost nothing but the spread.

But ofcourse the second trade is also going the other direction than planned....

So when you are down 25 pips (50%) on entry sell 2 you open entry buy 3. With an TP and SL of 25 pips and ofcourse with the same % risk as the first trade.

So trade entry buy 3 goes to TP then trade entry sell 2 to SL and you are then on the same level you entered the first trade without losing anything only a bit spread money and still having entry buy 1 open.


If u see what I mean you could continu the cycle with more trades if trade 3 goes not good; 12,5 pips 6 pips etc.

Would this be risk free trading or is my brain giving me an illusion once again?
Food for thought.....

-Jysticim
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  • #2
  • Sep 22, 2014 11:08pm Sep 22, 2014 11:08pm
This is another variation of a hedging strategy.
As the market ranges most of the time, you can find yourself risking more and more. You will start second guessing yourself or running out of capital.
It relies on you holding your nerve and having a real belief that you will come out OK at the end.
It also absorbs more and more of your capital - leading to more and more stress.

I would suggest that you are better off taking your losses with a controlled stop loss and then analysing each of them to see what you missed.
This way, you will learn something from every trade - profits AND losses - and ultimately become a consistently profitable trader.

You will see the benefit of this in the long run.

Cheers, H
  • #3
  • Sep 22, 2014 11:41pm Sep 22, 2014 11:41pm
Quoting Jysticim
Hello there, As I am often bored my brain came up with a new idea, this is about orders. You could use this with everything if it makes sense? Example So you get a signal that you have to buy. We call this entry buy 1 TP and SL can be anything (mathematical) for this example I use 100 pips as TP & SL. On those 100 pips we risk 1%. Trade is not going that well and goes down 50 pips. Here we open entry sell 2 TP and SL are 50% of 1st trade so that is 50 pips. On this trade we risk the same as on entry buy 1. If the price went futher down and went...
Shall I say u found a "Holy grail"?. Frankly I dont know but with some backtesting i think we can check it...

There will be only 2 possibility 1) either trade will go in our favour-Profit or 2)trade don't go in our favour- in that case it will be hedge effectively to make it a BE trade

I will catch someone to make EA for this concept so we can backtest this idea.

But its a nice idea coz i think it is replacing a mundane "cut your loses small and let your profit run" with "No losses and let your profit run" but lets first backtest this thing so we know the actual result

Thanks Jyticim for floating the nice idea
  • #4
  • Sep 23, 2014 12:24am Sep 23, 2014 12:24am
Quoting Aich
This is another variation of a hedging strategy. As the market ranges most of the time, you can find yourself risking more and more. You will start second guessing yourself or running out of capital. It relies on you holding your nerve and having a real belief that you will come out OK at the end. It also absorbs more and more of your capital - leading to more and more stress. I would suggest that you are better off taking your losses with a controlled stop loss and then analysing each of them to see what you missed. This way, you will learn something...
I know lose what you got to lose and move on, but here you can't lose because you trapped the price. 100 x .50^5 = TP and SL of 3 pips so risk would go to 2^5 33% if you would risk 1% in the beginning.

What do you think
  • #5
  • Sep 23, 2014 1:13am Sep 23, 2014 1:13am
Nobody that thinks this has some value?

Backtesting it for a while stil not found any losing trade......
  • #6
  • Edited 1:46am Sep 23, 2014 1:35am | Edited 1:46am
Quoting Jysticim
{quote} I know lose what you got to lose and move on, but here you can't lose because you trapped the price. 100 x .50^5 = TP and SL of 3 pips so risk would go to 2^5 33% if you would risk 1% in the beginning. What do you think
Was talking bollocks here, risk does not increase....

Made live test.....we will see.

Sold GU
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  • #7
  • Sep 23, 2014 8:53am Sep 23, 2014 8:53am
Live test was not really good example, straight to TP.
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  • #8
  • Sep 23, 2014 9:52am Sep 23, 2014 9:52am
Nice idea. Are you doubling up at each level or risking 1% all the time with less TP, which is probably the same. How do you easily calculate the cost of each trade? Thank you.
  • #9
  • Sep 23, 2014 9:57am Sep 23, 2014 9:57am
Quoting aelimian
Nice idea. Are you doubling up at each level or risking 1% all the time with less TP, which is probably the same. How do you easily calculate the cost of each trade? Thank you.
Risking 1% or the x% you are comfortable with with a less TP.

For easy calculating you can use:
http://www.alpari.co.uk/research-tools/calculators
  • #10
  • Sep 23, 2014 10:01am Sep 23, 2014 10:01am
Hi Jysticim.

At first I didn't realized that you stop and reverse the trades... I took a pen and a paper and I wrote down the difference scenarios. Except I kept all the positions open (in "hedge"). Of course you can always net out to keep a single position open. Actually my mistake worth this posting I think. Let's say you start with a 1 lot buy and a 100 pips SL. You also set a sell stop 2 lots at -50 pips. This sell has a TP at the same place the buy has its SL. Each time an order is triggered you set an opposite pending stop order twice the size at half the distance. See what happens:

case 1 The buy goes to TP directly (sell isn't triggered). Fine.

case 2 The buy goes in the loss and the short is triggered at x2 lots. The price continues and reaches the sell TP (and buy SL). The result is -100x1+50x2 = 0. Spread cost (1+2) spreads.

Now let's say the price went back north and triggered the x4 buy.

case 3 Let's see the worse case: price turns back again and triggers the x8. We stop adding pending orders. The x8 goes in the loss and we close everything when it is -12.5. The price is on the entry price of x4. the loss is -12.5x8-0x4-25x2-25x1=-175. Spread cost (1+2+4+8=15) spreads.

Now the "unhedging" part.

case 4 The x8 goes +12.5 =+100 pips. In this case x2 is on the entry price. The x4 is -25x4=-100. We close x8 and x4 for a total of 0 and a cost of 8+4=12 spreads. We are now at the same point we were when we open x2.

case 5 The last case is when x8 is not triggered and the price returns to the level of the first entry. The x1 is at 0. The x2 is -50x2=-100. The x4 is 25x4=100. We close x2 and x4 for 0. We are now at the same point we were when we open the first trade. Spread cost (1+2+4=7) spreads.

If the market ranges a long time we bleed money because of the spread but this is not really the same as 33% DD and the process may be stopped any time with a loss known in advance.

Your thoughts?

EDIT: all of this is theoritical. I don't know if it makes sense doing it with real money!
No greed. No fear. Just maths.
  • #11
  • Sep 23, 2014 10:56am Sep 23, 2014 10:56am
I also hedge them, I am not stopping the trades. Sorry for the clutter. Main language is not english.

How PipMeUp explains it is totally what I ment......

....the only problem that I have is what if the x8 goes to SL within that range of 12.5 pips you can open ofcourse a x16 and continu but because we have spread taking more and more % of the total trade in pips I don't know if that is going to be a problem.

You can also see it like this. The x8 goes to SL and then you are back on the level of x4 then price just moves on to TP and you are out at -1% just as you would normally lose the trade. So if you stop at x8 and it just goes to the TP of x4 it's a normal trade.

With this way you are giving you posistions some extra żlive?........like a cat with 7 lives.

- Jysticim
  • #12
  • Sep 23, 2014 12:18pm Sep 23, 2014 12:18pm
Yes the spread is a killer. That's why I stopped the example at x8. The spread cost is already 8+4+2+1=15 times the spread!

Actually the problem I have with the method is that when the price returns to the original entry and you close the x2 and x4 you're 1 lot long.
But you were 1+4-2=3 lots long just before. I find it sad the reduce the lot size when the price finally goes with you...

I found a variant: instead of closing the x2 and x4 at the original entry level you wait for say +20 above the entry (or a reversal to the x8). The
x2 will have lost an additional 40 pips and the x4 will have won 80. Now you set the SL of x4 10 pips above the original entry (i.e. 10 below current price) and close the x2, you realize a loss of 40 for x2 and lock 40 pips for x4. If the price hits the SL the x2 and x4 together make 0. But if the price goes to the target you have a 5 lot winner. This should pay the spread.

I don't know if I would use this live but that's the first time I see a rescue method keeping the the risk under control.

Long 7 lives cats!
No greed. No fear. Just maths.
  • #13
  • Sep 23, 2014 1:42pm Sep 23, 2014 1:42pm
I really like you second variant, was also thinking along those lines.

"If the price hits the SL the x2 and x4 together make 0"
You are still having the spread issue here what can't be fixed because of the nature of the system.

So to summarize it. Let the x2 and x4 run and close them and put an SL accordingly.


What you also could do is opening for every "trade" 2 possitions only not the first trade. For those two possitions you will have ofcourse 50% of the normal size but you let 1 trade run after the other trades closes on SL, I don't know if this adds any value but I got to work that out on paper as it is really hard to visualize that mental.

I really hope that we can work this out to a rescue method keeping the risk in control. Because then we would have something groundbreaking....
.....and not martigale-ish.

-Jysticim
  • #14
  • Sep 24, 2014 12:15pm Sep 24, 2014 12:15pm
Hey Jysticim. Have you been testing your hedging today?

I had a little go on demo and managed to hedge 7 losers all to BE. The majority of which only took the one hedge to get to BE. I did have one trade where i had to make 6 entries to get my BE, which had that been a live trade I would have probably needed to visit the doctor afterwards. when you need that many entries the SL TP becomes so small it becomes very risky.

Hope its going well for you.
  • #15
  • Sep 24, 2014 3:51pm Sep 24, 2014 3:51pm
Hey there,

Yes also trying it out live you should stop on the x8. Otherwise the spread and ofcourse risk per pip is increasing alot.
If everyone would like to see a explorer I could attach one.

-Jysticim
  • #16
  • Sep 24, 2014 4:04pm Sep 24, 2014 4:04pm
Yeah I would be interested to see a TE if you put one up.

So would you just take a loss if the x8 didn't go your way?
  • #17
  • Sep 25, 2014 12:01am Sep 25, 2014 12:01am
So if you take the x8 loss, essentially that equates to the following (negating spread/commission/swap etc)

-0.25 (from the first buy),
-1% (from the first sell),
-0% (from the second buy),
-8% (from second sell).

Thats a fair chunk of the account if the market slightly ranges against you (which you can assure that it will happen).

Any plan to tackle this little issue or a work in progress?

Oh - assuming your TP and SL = +/- 100 pips
Luck is where preparation meets opportunity.......
  • #18
  • Sep 25, 2014 2:34am Sep 25, 2014 2:34am
Quoting Ozzie Taz
So if you take the x8 loss, essentially that equates to the following (negating spread/commission/swap etc) -0.25 (from the first buy), -1% (from the first sell), -0% (from the second buy), -8% (from second sell). Thats a fair chunk of the account if the market slightly ranges against you (which you can assure that it will happen). Any plan to tackle this little issue or a work in progress? Oh - assuming your TP and SL = +/- 100 pips
Assuming 100 pips for the SL you get:
-25 pips, 1 lot for the 1st buy => -25
-25 pips, 2 lots for the 1st sell => -50
0 pip, 4 lots for the 2nd buy => 0
-12.5 pips, 8 lots for the 2nd sell => -100

Total loss 175 pips + 15 spreads (normalized to the size of the 1st buy)

@rizla101
If you go for the 16 lots entry the loss is 208.5 pips + 31 spreads. IMO this is where the "cost of not losing" becomes too high. With the x8 you can already improve the bottom line by saving just a bit more than half of the losers. With x16 you need almost 3/4 of "rescue success". Also from what I could see on some charts it looks like that when the x8 loses the x16 has a great chance of losing too anyway.
No greed. No fear. Just maths.
  • #19
  • Last Post: Sep 25, 2014 11:38am Sep 25, 2014 11:38am
Added TE, made some nistakes tho.
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