My Grid-Hedge Journal

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Interesting concept... Similar to my concept here: http://www.forexfactory.com/showthread.php?p=8486751

Have you backtest it? Can you explain why 100/200 pips?

Good luck,

Regards.
Z

Hi Z,

The 100 pip step is approximately 1/4th to 1/3rd of the weekly EURAUD and EURCAD ATR over the past 5 years. The manual backtest results were good; the monthly gain ranged from -2% to 8% over a 3 year testing period; average monthly gain was ~3.5%, but in reality the only important "test" is forward testing, which is the purpose of this journal...

Dave.

Very interesting concept! I trade similar to this in regards to using correlation to extract profit, and many more pairs.

This system has been getting better in time! from about 2006 onward to correlation between these two pairs has been ever increasing making it a wonderful trade!

Hi Dave,

A chart would be useful to explain the concept.


Regards
Z

As of 8:00 PM est, Sunday, Sept 20, 2015:

EURAUD/EURCAD volatility ratio (13 wk ATR) = 1.20;
Base number of units = 150 for EURAUD, therefore 150 x 1.2 = 180 units EURCAD
EURCAD is above its 10-week EMA; placed market order to buy 180 units @ 1.49456; TP = 1.51456 (each pip = $0.0165 USD)
EURAUD is above its 10-week EMA; no trade.

Balance = $109.63 USD
Unrealized P/L = NA
Net Asset Value = $109.63
Margin Used = $4.03 (50:1 leverage)
Margin Available = $105.60
%Margin Available = 96.3%
Number open trades = 1

As of 8:00 PM est, Monday, Sept 20, 2015:

Current trade:
EURCAD (buy) 180 units @ 1.49456; TP = 1.51456 (each pip = $0.0165 USD)

Balance = $109.63 USD
Unrealized P/L = -$1.64
Net Asset Value = $107.99
Margin Used = $4.03 (50:1 leverage)
Margin Available = $103.94
%Margin Available = 96.2%
Number open trades = 1

Hi Z,

It's simply a buy/sell decision for both currency pairs based on whether price is above/below their respective 10-week EMA. EURAUD sell positions are opened only if its price is below its 10-week EMA, and EURCAD buy positions are opened only when its price is above its 10-EMA. For each currency pair, additional positions are opened at 100 pip intervals above or below the initial opened position as long as the price vs. EMA condition remains true. Positions are closed when the 200 pip TP is hit. The number of EURCAD units is adjusted for volatility relative to the EURAUD (lower panel of attached image).

EURCAD is still above its 10-week EMA
Opened 2nd EURCAD buy position (179 units) @ 1.48505; TP = 1.5048

As of 8:00 PM est, Tuesday, Sept 22, 2015:

Current trade:
EURCAD (buy) 180 units @ 1.49456; TP = 1.50456 (each pip = $0.0165 USD)
EURCAD (buy) 179 units @ 1.48505; TP = 1.49505 (each pip = $0.0165 USD)
NOTE: TP for each open and pending order was adjusted to 100 pips - see post 12

Balance = $109.63 USD
Unrealized P/L = -$3.73
Net Asset Value = $105.89
%DD = -3.4%
Margin Used = $7.98 (50:1 leverage)
Margin Available = $97.91
%Margin Available = 91.8%
Number open trades = 2

Note: the weekly 10-EMA is calculated from the average price, and it's shifted 1 week forward... this way, the current week's price is moving towards or away a fixed point on the EMA...also, the red dotted line on the charts represents the point at which price would intersect the EMA...

EURCAD is still above its 10-week EMA
Opened 3rd EURCAD buy position (178 units) @ 1.47500; TP = 1.4950

For the EURCAD, the current intersection point of price with the 10-EMA = 1.4668 (see chart in post 11); this is the floor for buying. Why? Because the next buy price point is @ 1.4650 which is below the intersection and according to the rules (post 1) no new buy positions are opened if price is below the EMA.

Important note from further testing: Changed TP targets to 100 pips; was able to increase ave monthly gain by ~1.1% (2 year test period). Also testing the idea of using 25% of the 13-week ATR for setting the pending step orders as well as determining the TP level. This would allow the volatility of each pair to dicate its pending order pip step as well as its TP. So for instance, if you look at the lower panel ("Relative Volatility") of post #11, you see:

EURAUD Step = 112 pips, TP = 225 pips
EURCAD Step = 93 pips, TP = 186 pips

The 112 pip step for the EURAUD is 25%of its 13-week ATR; therefore if EURAUD dips below its 10-week EMA, then pending sell orders would be placed at 112 pip intervals with an expiration date of 1 week. The TP for each pending order would be 112 pips.

Likewise, for the EURCAD, the 93 pip step is 25% of its 13-week ATR; therefore if EURCAD is above its 10-week EMA, then pending buy orders would be placed at 93 pip intervals with an expiration date of 1 week, and the TP for each pending order would be 93 pips.

Importantly, every week, the pending order placements and TP levels for each pair would change depending on their current 13-week ATR. Moreover, the TP levels of EXISTING open orders would also be adjusted based on the current 13-week ATR.

Dave

Update as of 7:35 PM est, Wednesday, Sept 23, 2015:

Current open trade:
EURCAD (buy) 180 units @ 1.49456; TP = 1.50456 (each pip = $0.0165 USD)

Today's closed trades:
TP hit: EURCAD buy: 179 units @ 1.48505
TP hit: EURCAD buy: 178 units @ 1.47500

Balance = $112.24 USD
Unrealized P/L = -$0.58
Net Asset Value = $111.66
%DD = -0.52%
Margin Used = $4.03 (50:1 leverage)
Margin Available = $107.63
%Margin Available = 96.2%
Number open trades = 1

Update as of 7:40 PM est, Thursday, Sept 24, 2015:

Current open trade:
EURCAD (buy; opened 9-24-15) 181 units @ 1.5045; TP = 1.5145 (each pip = $0.0165 USD)
EURCAD (buy; opened 9-24-15) 180 units @ 1.4945; TP = 1.5045 (each pip = $0.0165 USD)


Today's closed trades:
TP hit: EURCAD buy (opened 9-20-15): 180 units @ 1.4945; closed @ 1.5046

Balance = $113.52 USD
Unrealized P/L = -$2.45
Net Asset Value = $111.06
%DD = -2.16%
Margin Used = $8.07 (50:1 leverage)
Margin Available = $102.99
%Margin Available = 92.1%
Number open trades = 2

Update as of 7:55 PM est, Friday, Sept 25, 2015:

Current open trade(s):
EURCAD (buy; opened 9-24-15) 181 units @ 1.5045; TP = 1.5145 (each pip = $0.0165 USD)
EURCAD (buy; opened 9-24-15) 180 units @ 1.4945; TP = 1.5045 (each pip = $0.0165 USD)
EURCAD (buy; opened 9-25-15) 179 units @ 1.4845; TP = 1.4945 (each pip = $0.0165 USD)

Today's closed trades:
NONE

Balance = $113.51 USD
Unrealized P/L = -$0.78
Net Asset Value = $112.72
%DD = -0.69%
Margin Used = $12.10 (50:1 leverage)
Margin Available = $100.62
%Margin Available = 89.3%


​

Note: Next week's price/10-EMA intersection points are:
EURAUD: 1.5500
EURCAD: 1.4675

Results from last night's backtesting (2 years; containing several long up/down trends in the EURCAD & EURAUD):

1. Always leave open one countertrade to balance one losing trade. The number of counter trades that must remain open equals the number of losing trades +1. This will mitigate the DD.
2. Close ALL trades when the floating P/L = $0.

For example:
I currently have 3 open EURCAD trades. Let's say next week the EURCAD plummets and all three trades go into DD. At this point, if the EURCAD drops below its 10-week EMA, no other EURCAD buy positions will be opened (see post #1). However, if the EURCAD plummets so will the EURAUD (due to their high directional similarity). And if the EURAUD plummets below its 10-week EMA, this will open EURAUD sell positions at 100 pip step intervals (post #1). If the market continues to fall, the three EURCAD buy positions will continue to lose pips, but EURAUD sell trades will sequentially open and gain pips. The number of EURAUD trades that will remain open to balance the EURCAD positions = 4. Once the net P/L of these 7 positions = $0 (~net positive 50 pips), those trades will be closed. Meanwhile, EURAUD sell positions will continue to open if the market continues to drop, and these positions will net a positive P/L. Obviously, if the market bounces in a range it takes a bit longer to net the floating P/L of the losing positions to $0. But this works surprisingly well to keep the DD within a very manageable level while slowly increasing the NAV.

Best,

Dave

Hello Dave!
Very interesting concept... Been playing with something similar on AU for over a year on demo account but your system is way better. Will be following with interest))

Thanks julee... we'll see how it works out in the live testing....and as always, I'll continue to develop the system over time as I test new ideas...

Dave

Update as of 8:55 PM est, Sunday, Sept 27, 2015:

Current open trade(s):
EURCAD (buy; opened 9-24-15) 181 units @ 1.5045; TP = 1.5145 (each pip = $0.0165 USD)
EURCAD (buy; opened 9-24-15) 180 units @ 1.4945; TP = 1.5045 (each pip = $0.0165 USD)

Today's closed trades:
EURCAD (buy; opened 9-25-15) 179 units @ 1.4845; TP = 1.4945

Balance = $114.82 USD
Unrealized P/L = -$2.04
Net Asset Value = $112.79
%DD = -1.78%
Margin Used = $8.08 (50:1 leverage)
Margin Available = $104.70
%Margin Available = 92.8%

Update as of 7:03 PM est, Monday, Sept 28, 2015:

Current open trade(s):
EURCAD (buy; opened 9-24-15) 181 units @ 1.5045; TP = 1.5145 (each pip = $0.0165 USD)

Today's closed trades:
EURCAD (buy; opened 9-24-15) 180 units @ 1.4945; TP = 1.5043

Balance = $116.03 USD
Unrealized P/L = -$0.01
Net Asset Value = $116.02
%DD = 0%
Margin Used = $4.07 (50:1 leverage)
Margin Available = $111.97
%Margin Available = 96.5%

Update as of 8:32 PM est, Tuesday, Sept 29, 2015:

Current open trade(s):
EURCAD (buy; opened 9-29-15) 182 units @ 1.5145; TP = 1.5145 (each pip = $0.0167 USD)

Today's closed trades:
EURCAD (buy; opened 9-24-15) 181 units @ 1.5045; TP = 1.5141

Balance = $117.27 USD
Unrealized P/L = -$0.47
Net Asset Value = $116.80
%DD = -0.40%
Margin Used = $4.10 (50:1 leverage)
Margin Available = $112.68
%Margin Available = 96.5%