lets discuss a bit about hedging strategy
regarding comission and swap:
comission: some of the brokers provide razor account and standard account, razor has tigher spread but has comission, standard has slightly bigger spread and no commission, so i would use a standard one. the reason is simple, say things go bad and you opened 6 hedge position resulting in 84 lots in my example above, you gonna pay commision for all of that..while when you win, you win 60 pips for the 0.5lot only....its not worth it... and besides that, you can offset the spread with you TP, for example i use 57 instead of 60pips, so i have a 3pips buffer zone.
swap: this is not a big deal, if the trades goes well, not needing too many hedging positions, your initial position lots are small, the swap fee wont matter a lot. if a few hedging positions are opened, normally one offset the other(say positive for long, negative for short, or vice versa) for GBPJPY the most expensive swap fee i backtested after offseting was 120eur i think... so not a big deal.
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"Hedging" in Forex trading -Why do it?
Keith Watford, 2017.01.19 01:09
if I may offer my opinion.....
Hedging is a method to limit risk.
Consider this scenario.....
You may consider an investment in ABC Oil to be a good as you feel that it will outperform the market.
However you know that the whole oil sector can be volatile, so if the sector falls, ABC Oil will fall with it, even though it is a solid company.
So what you do is you Buy ABC Oil and at the same time you short the oil sector.
This limits your risk as if the oil sector falls, your short will gain and as long as ABC Oil outperforms the other oil companies, you will have a net profit.
This is hedging.
There is no such thing as true hedging in Forex.
True hedging is not opening an opposite trade in the same instrument, yet that is exactly what so many traders do.
There is no logic behind this at all, so I do not understand why it is so common.
Say you have 1 lot Buy open with EURUSD and it goes 100 pips in loss.
So you "hedge" it with an opposite 1 lot Sell.
You are now in a position where if the EURUSD falls another 50 pips, the Buy order now shows a loss of 150 pips and the Sell a gain of 50 pips. A net loss of 100 pips. EXACTLY the same as if you had simply closed the Buy order. No matter whether the price goes up or down, the net position will always be a net loss of 100 pips.
Also, should the trades be held overnight, swap charges will be applied (maybe triple swaps), so now the loss is bigger than it would have been if the Buy trade had simply been closed.
Not all brokers offset opposite orders in the same instrument against margin requirements, so there is a risk that there may not be enough free margin to open the "hedge". In an EA, this could leave you exposed to more risk than you are comfortable with.
If there is not the intention to "re-enter" the Buy by closing the "hedge", then you also incur additional spread/commission
charges.
So it is not just my opinion that "hedging" in Forex is unproductive and pointless, it is a fact. When swaps are taken into account, "hedging" actually loses more money.
My advise to anyone when considering "hedging" in Forex is "Don't do it". You are not hedging, you are opening an opposite order in the same instrument.
Now there will be some who will say "Ah yes, but what if instead of Selling 1 lot as the hedge, I Sell 1.1 lots?"
Again, don't do it, there has to be a reason to Sell. If you have a reason, then close the Buy and open a 0.1 lot Sell. It has the same result, but without additional charges.
hi enrique,
thank you for your reply.
the thing is, there is this "martingale" hedging which involves having open positions the whole time, regardless of where the market moves. and there is another hedging strategy which keeps the losing position unclosed, hence floating the loss.
the above hedging strategy or maybe some othere hedging strategies' goal is to take advantage of the market volatility and constantly open/close positions to slowly accumulate daily win (or win in general), but the strategy that i am testing is based on a very specific tp and sl, so either way a trade will be closed, just the target here is be on the right side of the trend when it happens.
so in a sense, i am not hedging here to bet on which pair or which direction of the trade out-performs the other, instead, this is a strategy to board with the trend when it happens.
cheers
and as for the spread-comission-swap issue, i have also suggested my solution.
again the thing is ,the hedging strategies the author of the thread you posted suggests, are strategies without specific profit target and stoploss, ppl using that kinds of strategy in my opinion intends to go in and out as frequent as possible to accumulate profit over time.
and as for the spread-comission-swap issue, i have also suggested my solution.
again the thing is ,the hedging strategies the author of the thread you posted suggests, are strategies without specific profit target and stoploss, ppl using that kinds of strategy in my opinion intends to go in and out as frequent as possible to accumulate profit over time.
No, the author points out that hedging same pair does not have any benefit, no matter the strategy, no matter what specific SL/TP values.
The sure-fail strategy is well known, *specific* SL/TP levels does not make it any different.
But good luck!
No, the author points out that hedging same pair does not have any benefit, no matter the strategy, no matter what specific SL/TP values.
The sure-fail strategy is well known, *specific* SL/TP levels does not make it any different.
But good luck!
yes, in his opinion, any results one wishes to achieve via 'hedging' can also be achieved without 'hedging', so from there he concludes that hedging is pointless. but this doesnt make any hedge-involved strategy invalid.
you have a strategy corporating ema, i might be able to use ma to achieve relatively same result, that doesnt disqualify ema itself. the mindset behind the strategy is the same, it is just the different approaches different ppl take.
yes, in his opinion, any results one wishes to achieve via 'hedging' can also be achieved without 'hedging', so from there he concludes that hedging is pointless. but this doesnt make any hedge-involved strategy invalid.
you have a strategy corporating ema, i might be able to use ma to achieve relatively same result, that doesnt disqualify ema itself. the mindset behind the strategy is the same, it is just the different approaches different ppl take.e
especially if you look at the argument he had with this 'marco' guy, the conclusion is 'i can achieve the same result applying similar strategy without hedging'. so again, it is not a proof that hedging causes loss. you might come up with an idea which works similarly as the sure-fail as you like to call, but how does that disqualify the strategy itself?
if he provided scenarios or real cases that hedging would have failed, then for sure i would gladly agree with his idea, or come up with different hedging method to avoid such a failure.
BR
yes, in his opinion, any results one wishes to achieve via 'hedging' can also be achieved without 'hedging', so from there he concludes that hedging is pointless. but this doesnt make any hedge-involved strategy invalid.
That is not my opinion, that is fact. Fact that was proven in my topic that Enrique linked to.
"Hedging" is pointless as it is mathematically impossible to make additional profit by opening an order with the same symbol in the opposite direction with the same lot size.
The surefire (or sure-fail as Enrique puts it) cannot make any profit from the "hedging" element. It is the martingale element that makes a profit (or blows the account).
Anybody who believes that "hedging" can make a profit are dreamers, coupled with martingale, their dreams can often turn into nightmares!
especially if you look at the argument he had with this 'marco' guy, the conclusion is 'i can achieve the same result applying similar strategy without hedging'. so again, it is not a proof that hedging causes loss. you might come up with an idea which works similarly as the sure-fail as you like to call, but how does that disqualify the strategy itself?
if he provided scenarios or real cases that hedging would have failed, then for sure i would gladly agree with his idea, or come up with different hedging method to avoid such a failure.
BR
I never said that "hedging" causes loss, just that it cannot increase profits. Swaps and spread can increase the loss though.
I never said that "hedging" causes loss, just that it cannot increase profits. Swaps and spread can increase the loss though.
hi keith, didnt expect to see you here lol.
thank you for the comment.
'The surefire (or sure-fail as Enrique puts it) cannot make any profit from the "hedging" element. It is the martingale element that makes a profit (or blows the account).'
i agree with you that the word is being misused in this context, but what i intend to bring up for discussion is the concept rather than the name. if putting a different name makes it valid, then sure, i will call it other names from now on.
well, 'hedging' (or using martingale) can't increase profit, so i assume you mean at best it gives roughly the same result as the ones without it, like you managed to come up with a strategy giving same result as Marco's without the 'hedging' element. but while that strategy might be your preference, maybe the one with 'hedging' element is marco's preferred style of trading.
the way i see it is, as long as it is not the main reason to cause loss, then pointless or not, it is just a matter of personal preference.
cheers
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Hi everyone, hope you guys are having a wonderful day.
so the reason why i am writing this thread is, i have tried to stick to a few indicators as my trading strategy, and i usually use higher timeframes (above 1h, usually 4h or daily), because i dont want to spend a whole lot of time screening (and that would probably be the case if using small timeframes. like when using higher timeframes, either there is a setup or there isnt, no need to sit and wait). i understand strategies and indicators improve one's winning rate to above 50/50, yet never 100, having that in mind, i wasnt very pleased with the results my strategies are giving me, or so to say, my ways of execution. so i thought to myself if i could have a different approach to it, and thats when i came across with strategies involving hedging.
I think if you heard of hedging, you might have heard of the strategy called 'sure-fire' (if you havnt heard of it, you may try googling it), and i would like to talk a bit about it and hopefully getting some ideas from you guys.
so, the strategy is essentially openning positions after positions until the price stops sidewaying and makes a move and hit your take profit area. the common argue i heard regarding this strategy is 'if the price continues to bounce within range, you would end up opening trades after trades, till you can't open any more positions and eats you up real bad....especially the positions sequence goes like this: 1-3-6-12-24-...
what i have in mind is, here we need to define the 'range', of which it bounces and new positions are opened. for sure you dont want to make the range size too big, because you would have very little trades per month lets say; at the same time having small range size can easily cause the 'ranging' to happen, which results in you opening trades one after another.
i am not saying that i found the holygrail config of this strategy, but this is what i did and how the result looks like:
*pair: GBPJPY, 4hr, the setups might be pair-specific, so it only works on this pair.
**hedging sequence i use: open a trade in a way that gives you ability to open 6 hedge trades. say if i can open 100lot in total, then i will do a 0.5 to start with, if things go bad my next trading sizes would be 1.5-3-6-12-24-48 (=85lot in total)
1-Opening of the trades: i open trades only at 9am and 9pm of my local time, which is when the 4hr candle closes. no specific reason for this, it is just preferred timing, 2 times a day. I dont look for specific setup to open trade, i simply look at the previous candles (i do also have bollinger band and rsi on my chart, but what i meant to say here is, i open a trade anyway, either there be a setup or not) to decide going long/short. (of course, if i already have a opened position, then i wouldnt open a new one here)
2-After opening a trade, i open a pending order (buy stop/sell stop depending on what my position is), my chosen size on this pair is TP 60pips and SL 120pips
3-i get notification on my mobile app when pending orders get executed, so i can manually open another one on my mobile, or check it twice a day from my pc.
Result:
i manually backtested it from jan19 till aug19(i did it candle to candle,drawing where my trades would have started, if it would have reached tp or triggered the pending orders), and if there were any confusions i would then confirm the result looking on lower timeframes for the candles of question:
jan:25trades (0lose), feb:15trades(0lose),mar:21trades (0lose), apr:13trades(0lose),may:16trades (0lose), jun:8trades(0lose),jul:12trades (0lose), aug:17trades(0lose) (i have duration of each trades documented as well as how many hedge i would have needed to open)
with tp 60pips and sl 120pips, out of totally 127 trades, 115 of it didnt require a third position (2nd hedge position), 12 of them did, which out of these 12 trades, 8 were having 2nd hedge, 3 were having 3rd hedge, and 1 having 4nd hedge.
the potential profit if played from jan is 127*60pips=7620pips.
So above is basically what i have done. i am forward testing it on a demo account for a few days now on gold and it resulted me in 2 wins this week (1 no hedge opened, 1 opened a hedge). bottom line is, with decent money management and size choosing, i think this strategy might not be a bad one afterall. I would really like to hear about any ideas or questions you may have.
2 tips:
1- you do want to have an ea that closes the pending order when tp is reached, if any one needs it, i will post the link here.
2- the tp is 60 pips, but i always put it as 57-58pips actually, because when your TP and SL are on the same level, due to spread difference, either up or down, the SL always gets triggered first, the worst scenario is that you get stopped out, but TP wasnt triggered and price reverse. putting it as 58pips, firstly ensures you get the profit, if trend continues then your SL gets triggered too after 2 pips, so no worries but if price reverse after hitting your TP, it is actually in your favor because now you get to close the losing trades with smaller loss than your SL.
Cheers
Leonard