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new idea trading

  • #1
  • First Post: Sep 13, 2006 8:34pm Sep 13, 2006 8:34pm
as i was laying in bed, an idea popped into my head.

How profitable would it be if you have two separate forex accounts like on Oanda. And you have a trend strategy on one account and a range strategy on the other. So whenever you have a signal on either account, you just do an opposite order on the other account

For example

You get a buy signal on USD/CHF on a trend account, so you take a long order. At the same time, you short USD/CHF on the other account.

So when the loss on one account gets to a specific amount, you closed that trade and let the trade in the other account reap in more profits.

I am sure you can do clever money management with this technique. I feel that this way you will ALWAYS be on the right side of a trade.
I wonder how this technique will do in the long term provided that you limit the losses to minimum when you realize it...
  • #2
  • Sep 13, 2006 8:37pm Sep 13, 2006 8:37pm
I don't think it's that novel of an idea, but why would you need two accounts?
  • #3
  • Sep 13, 2006 8:45pm Sep 13, 2006 8:45pm
...you're close !
  • #4
  • Sep 13, 2006 8:45pm Sep 13, 2006 8:45pm
well i read a book and it says when you implement two different strategies you will get a higher return in the end. It's what you may forex diversification. So you implement a trend strategy and a range strategy each on a different account (primary and sub account)

History have shown that those who fade (range trade) often get higher percent wins but smaller gains. But those who follow trend lose a lot more but have higher gains. So with periods where your trend system is having consecutive losses, your range system will pick up the slack. It's kind of counterbalance each system if you know what i mean.

So i was wondering how great it would be if you take this to a different level of having two opposite orders whenever a system gives a signal to buy or sell..
  • #5
  • Sep 13, 2006 8:47pm Sep 13, 2006 8:47pm
for example i went long on usd/chf, but now it's 40 pips against me. I would have 40 pips profit if i had short usd/chf on a different account.

Maybe i'll work with this in the future..it's interesting
  • #6
  • Sep 13, 2006 8:50pm Sep 13, 2006 8:50pm
I read about that in a book too. Essentially it's a glorified straddle. You put say $250 in one account, $250 in another account, and take the same trade. When a definitive move occurs in one direction or another, the account that's on the losing side of the trade margins out, while the other side goes on to take the profits. You're net profit is whatever you make in the winning account minus the $250 from the losing account.

In effect it's like a poor-man's forex option except it doesn't expire.
  • #7
  • Sep 13, 2006 8:54pm Sep 13, 2006 8:54pm
It will end up a zero sum game IMHO-Seems like you would be a Rich man in one account and a Poor man in the other.
Trade what you see - Not what you think
  • #8
  • Sep 13, 2006 9:06pm Sep 13, 2006 9:06pm
u r doing hedging....profit plus minus = 0
  • #9
  • Sep 13, 2006 9:07pm Sep 13, 2006 9:07pm
well it's true from merely observing the logic of this is that I will end up break even.
That's where you implement exit strategies and money management.

I don't think you should use the same number of lots and stop losses on both accounts. The trade for each account must still follow the rules of the system you design.
And from my very limited experience, you often have smaller stop losses in range system than in trend system. So if you follow the rule of trading no more than 2% equity, that translates to using less lots for system that use higher stop losses.

So let's say you have a stop loss of 150 pips below market of a long usd/chf. You decide to buy 500 lots (approx 5 cents/pip with 500 equity). At the same time your range strategy says you put in a stop loss at 70 pips below market so you decide to short with 1400 lots (aprox 14 cents/pip).

So the opposite trades are executed and you notice that the trend account is -50 against you. You might want to close that trade and let the range system reap its profits. Or if the range account is -50 pips against you, you might close this trade and possibly buy more lots inthe trend account.
I feel that this technique also involves some technical analysis to figure out where to add positions and stuff..
  • #10
  • Sep 13, 2006 9:09pm Sep 13, 2006 9:09pm
so..this is hedging?!?!

i never knew what that meant all this time..it's funny that idea just came to me..hehe
  • #11
  • Sep 13, 2006 9:10pm Sep 13, 2006 9:10pm
Don't forget to include the double spreads. If you don't, they'll slowly eat away your account.
  • #12
  • Sep 13, 2006 9:13pm Sep 13, 2006 9:13pm
well i came with the idea cause i'm pretty frustrated with my trend account, it's down to 475 from 500 in one month, but my range account is up 539. I'm experiencing close to 10 consecutive losses in my trend account...it's weighin down on my psych
  • #13
  • Sep 13, 2006 9:32pm Sep 13, 2006 9:32pm
This may sound strange, but the logical thing seems to be to stop trading the trend acct until the ranging acct starts to lose - then obvously u have a trend.

Interesting thought to use an acct or whole system as an indicator.

Quoting hilmy83
well i came with the idea cause i'm pretty frustrated with my trend account, it's down to 475 from 500 in one month, but my range account is up 539. I'm experiencing close to 10 consecutive losses in my trend account...it's weighin down on my psych
In trading, there is no bullshit. You either make money or you don't.
  • #14
  • Sep 13, 2006 11:11pm Sep 13, 2006 11:11pm
Quoting summitfx
It will end up a zero sum game IMHO-Seems like you would be a Rich man in one account and a Poor man in the other.
Quoting iwanqf
u r doing hedging....profit plus minus = 0
Nope. The whole thing behind the idea presented in the book is that you get margined out and forced to liquidate one of your positiosn on purpose. Basically you place small amounts of money in two accounts. As long as the trade bounces around in a small enough range, your profit/loss is at 0$ (minus the spread). Once the price makes a large break in either direction, the losing account is automatically liquidated by your broker. You are now still at 0$ p/l (minus the spread), but you're now in on the winning side of a large movement and you (hopefully) exit out of the trade for a large profit.

That's the theory presented in the book at least. I personally think a simple straddle would work better but there you have it none the less.
  • #15
  • Sep 13, 2006 11:26pm Sep 13, 2006 11:26pm
How do you know it's going to be a large move? If not,you'll be lucky to breakeven. I'm not sure I understand the logic behind being liquidated and acct. closed. Surely, there must be a better way. I think hedging is really used by BIG players and not micro-minis but I could be wrong. Best of Luck.
Trade what you see - Not what you think
  • #16
  • Sep 14, 2006 12:02am Sep 14, 2006 12:02am
i though about this before. this is what my conclusion was.

say you get a signal so you go both long and short at the same time.
then when you determine one is better then the other one, you close one of them out to pull in money on the good one.

but, how is it different then

you get a signal, you wait until you prove its going your way, then you enter.

actually the 1st option costs you more as you have 2x the spread.

when you reach the point of deciding which trade you keep open, in essence you are placing an order. kinda like a double negative
  • #17
  • Sep 14, 2006 12:11am Sep 14, 2006 12:11am
I play around with hedging in demo... doubt i would do it on a live acct. In a ranging market... go long and short with 5-10 TP. everytime one pays out reenter the trade. so your constantly hedged... but you have to do some artful exit at some point. looking for a trend break to ride out one side to end with profit on both. its fun, but can be a pain to get out of.

Trev
  • #18
  • Sep 14, 2006 12:15am Sep 14, 2006 12:15am
In commodities and futures, you can do a spread trade. The 3 types of spreads that exist are: Intermarket, intramarket, and inter-exchange spreads.

The intermarket spread - you long one futures contract in one market and you short one futures contract in another market.

The intramarket spread - you long and short one futures contract within the same market but different months.

The inter-exchange spread - you long and short the same month but on different exchanges.

In forex, if you use one account, you close your trade out. If you use two accounts, you end up with minus the number of pips to each of your brokers. If you use the EUR/USD and you have a 3 pip spread, you pay 6 pips for the two transactions. By the time you close out the losing position on a news trade, the trade is over.

Keep in mind the drawdown and having to put money into the losing side when you have a margin call. You might collect or pay some interest for holding this overnight. It seems like an all around bad trade idea. You are not on the right or wrong side of a trade. You are in a neutral position.
  • #19
  • Sep 14, 2006 12:45am Sep 14, 2006 12:45am
Quoting hilmy83
as i was laying in bed, an idea popped into my head.

How profitable would it be if you have two separate forex accounts like on Oanda. And you have a trend strategy on one account and a range strategy on the other. So whenever you have a signal on either account, you just do an opposite order on the other account

For example

You get a buy signal on USD/CHF on a trend account, so you take a long order. At the same time, you short USD/CHF on the other account.

So when the loss on one account gets to a specific amount, you closed that trade and let the trade in the other account reap in more profits.

I am sure you can do clever money management with this technique. I feel that this way you will ALWAYS be on the right side of a trade.
I wonder how this technique will do in the long term provided that you limit the losses to minimum when you realize it...
Why two positions , two spreads !
when you see usd/chf want to run open just one position with market

direction .

There is no benefit having two opposite positions but spreads.
-------------------------
  • #20
  • Sep 14, 2006 1:01am Sep 14, 2006 1:01am
Sorry because I didn't read all the posts but a cheapest idea could be to place your hedge on a demo account and you place only the winning position on your real account...so you pay only one spread.
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