ok so this may be a dumb question and i am sure its not a good strategy, seeing as how i just thought it up 10 minutes ago and haven’t tried it. but just for fun i thought i would post this on here. what would happen if you shorted and longed a currency pair at the same point. as long as you had lets say trailing stops of 10 pips for both of them. wouldn’t you be able to make more money on your win then you do your loss. as long as you had good risk management it seemed to me that it could work. but then again it seems to easy to be true. im sure someone on here has thought about this. itd be fun to hear from anyone who tried it out or thought it through.
i am new here but what first pops into my mind is the pips you lose on the spread on both deals puts your S/L closer to 6 on each trade so do you think there is that little price flucuation that you could hit the center of trade each time?
well…haha yea i hadnt thought about that. and im sure thats one of many reasons why this would rarely work. it was just a funny idea i had. that and i dont think you can buy and sell a currency at the same time on one account. you would have to have to different accounts.
What you’re referring to is hedging, and most broker won’t allow you to do that…
I’m not too familiar with the trade set up you’re talking about… but with the spread, it should be a net loss each time… correct me if I’m wrong.
Clark
Certainly we can envision a scenario where this would work: Imagine a ranging market, nearly flat, that suddenly and strongly breaks out. In that situation it would surely work; one would be a runaway success trade.
We can also envision a scenario where it won’t work: Imagine a rather choppy market whipsawing back and forth, that never breaks out. Both trades get caught out by the whipsawing and lose, or don’t win enough to pay for the spread.
If you could identify the market conditions and times when your strategy would work, you may have a winner. But that could be kind of difficult. I’ve thought about much the same with regard to almost certain breakout conditions, such as news… but look at the typical reaction even when news hits. A series of large moves both ways.
Perhaps a backtest expert could share some wisdom with regard to this. I’d think that if the strategy was viable, someone with fancy computers would have discovered it and optimised the strategy long ago. But then, quite a bit is overlooked in almost every field of study; people are still discovering rather large plant and animal species that we’d have thought would be known to science over 100 years ago.
Here’s a tip, learn to make profit from one trade at a time before even contemplating if you can make money from putting two on at the same time.
I almost posted my hedging strategy but then decided not to so nevermind… . There are some around here who say you can’t make any money hedging but you can. Not the way you describe though.
Years ago, when I knew no better, I used to dabble with a hedged type strategy which basically cut losses on the losing leg, and pyramided into the proftable leg. Out of academic interest, I revisited this problem at the time that the proposals for the new NFA rules on hedging came into being.
I initially thought that such a strategy would no longer be possible, however, after thinking about it, I realised that exactly the same trade could be synthesised with unidirectional trades, and with a significant saving on the spread. I remember reading the discussions on forex factory about this point, and I’ll happily admit that it took me quite a while to get my head around this problem
The key point to realise is that you can only be net long, net short or flat, so if at some point in time you have 10 units long, and 8 units short, you might as well have just taken 2 units long.
I also agree there are ways to make money from hedging, but its well worth the effort in trying to work out if you can synthesise the same thing and save the spread.
Sorry if a bit off topic, but it might help someone.
A true hedge on the same pair is not a good idea. There are many strats around that use correlated pairs to create hedges. Depending on how long you hold trades and the direction of the trades the swap rate can help with the spreads.
As a personal opinion, you may find it easier to trade correlated currency pairs such as Cable and Fiber, buying or selling into both of these currency pairs when the situation arises. I just look for simple divergence/convergence between the two correlated currency pairs by over-layering the price feed from both. You would be surprised how often these correlated currency pairs both make the big moves together in the divergence direction. I heard from a friend on Babypips that this is in essence an aspect which is looked at in the ICT thread. However, I simply use it to open trades as opposed to providing confirmation which ICT considers.