Hedge Grid Trading System

[essar168]

i have been doing demo with this strategy…and with some good results but not confident enough to go live…can somebody who believes in hedging throw some light on this…hedgetrade.pdf (288 KB)…

[essar168]

hedgetrade.pdf (288 KB)hedgetrade.pdf (288 KB)

as an exponent on hedge strategy, i would like to have your comments on the strategy…please see attachment…

[essar168]

[QUOTE=rhodytrader;522733
. They will do fine in ranging markets but have serious - potentially financially fatal - problems when the market is trending. s.[/QUOTE]

hi rhody, please have a look at the post i just made…if every trade is protected by a hedge trade, the potential loss is limited to the difference between a buy and a sell…we close a buy and a sell together taking 100pips profit and 30 pips loss as shown in the attachment, when the market price is far from the closing pairs…true in a ranging market we can close many times with profit, in a trending market we need to wait until market reverses, with limited exposure…please comment

[mynameisfez]

Awesome! Quick question though, how do you determine if a pair is moving sideways? Do you use any indicator for that?

[essar168]

hi fez…no indicators involved…pure price action…no matter how the market moves there is opportunity to close trade with profit…movement of gbpusd/eurusd works well…in trending markets you wait longer until price reverses to close positions with profit…floating loss will be limited if you choose the right method / trades to close a buy and a sell with profit and re-open pending orders and also open new pending orders in the same ratio towards the direction of the movement…you could have an ea or script to open pending orders…but for closing positions and reopen / new orders, manual system is better…i am not a programmer or a coder, so i cant think beyond this method…but the system needs more research as i cant backtest…i am still doing forwardtest on demo …cheers

[rhodytrader]

hi rhody, please have a look at the post i just made…if every trade is protected by a hedge trade, the potential loss is limited to the difference between a buy and a sell…we close a buy and a sell together taking 100pips profit and 30 pips loss as shown in the attachment, when the market price is far from the closing pairs…true in a ranging market we can close many times with profit, in a trending market we need to wait until market reverses, with limited exposure…please comment

I’m struggling to understand the strategy described by the spreadsheet. Can you just describe it in written form like “I start by opening both a long and a short with an X pip target and a Y pip stop. I then…”

The “wait until market reverses” bit is the one that will punish you very harshly with this type of strategy if the market shifts into trend mode. These “grid” strategies were quite popular during the middle 2000s when the markets were quite narrowly trade, but got slaughtered starting in 2007.

[PipMeHappy]

Let’s put it in numbers. You’re both long and short EUR/USD from 1.30. You have a 100 pip take profit limit for each and a 50 pip stop loss limit for each. This is in line with what you’ve described, right?

If the market moves up to your long TP at 1.3100 it will have triggered your short stop at 1.3050 along the way, so you’d have a 50 pip loss on the short and a 100 pip gain on the long - excluding the spread cost incurred by initially putting the trades on in the first place. This is the same as if you just waited and put a long position on at the 1.3050 level, without the initial spread cost.

I’m not sure where the “Sell entry” bit comes in since you were already short to begin with.

Every grid system I’ve seen is a mean reversion strategy. They will do fine in ranging markets but have serious - potentially financially fatal - problems when the market is trending. They can also be more efficiently executed using simple counter trend single trade entries (e.g. long when the market goes up 100 pips) than with these long/short straddle type “hedge” positions.

Thank you, Rhody: I think you are experienced and I should take heed - but, as the rebellious teenager, I feel that I should go and try things out for myself… You have every right to say “I told you so” if/when I come back battered and bruised, Forexically speaking!

[Trading4000]

Hey Im trying a system almost cloned LOL. I profit In the rage and in the consolidation. I Started a week ago and Im still under backtest, the only diference is the way I get in. I use GBP/JPY only and I use Bollinger Bands (20) and Stochastics 14,3,3 to look for retracements signals and then as soon as a signal take place I buy and sell at the same time and wait for a wide amount of pips like 200 and then I start looking for an entry wich suggest a reverse. Then I close the position with profit, let the loss run, and open two new position (buy and sell) waiting for the market to retrace to the breakeven point of the runing losses. So I exit with profit. If the price keep going in one direction instead of reverse I do the same when I get the same range that I used before. (the gap change due to the entry signals). I hope this help a little bit with the srategy and keep doing researches. I will post my backtest results as soon as I finish.

Best regards
Dachel Miqueli

I think the system from Dachelm is very good! The risk is limited and you have a system witch fits optimal the market.
I have read the full thread now in June 2014, i hope some people from this thread are here in 2014.
My idea is to open 2 trades in opposite direction and close one leg if the market turns, you can use MACD, Stochastics or others. But i think its not necessary to open two new trades, only wait until the second negative leg comes enough back. Even if the market goes a bit longer in the first direction, but then turns later back. You can make win even when comes only 20% back for example. Maybe the first leg is +100pips, the second leg is -80pips then you have 20 pips win! I think its better to use bigger timeframes H4 or daily then shorter, but needs patience this way, but the risk is smaller then in M15 charts. What you think all traders?

[harisbinh]

I think this is a ranging hedge grid strategy. If a strong trend will came without a retrace or reversal this strategy will fail for sure.

But lets think about Trending grid strategy that combines with this system so it makes a winning strategy
(While ranging we earn profits but when trending we have no losses but no gain too)

I tested those types of strategies but again it fails sooner or later. maybe run for a huge capital accounts for making very small profits, so now i am thinking its not worth the time. maybe in forex trading too

[Astrahan]

The Hedge Grid System assumes that the market will move sideways, since this is true most of the time the system will work well.
Basically we will open buy and sell orders (entry or pending orders) at the same price (hedging position) this two orders will have set a TP price. So as soon as one orders closes with profit we open two more orders (buy and sell at the current price, again this orders are entry orders). And create an entry order replacing the one that closed with profit. Here is a grid setup:

GBP/USD

SELL ENTRIES

ENTRY LOTS TARGET
2.0600 1.0000 2.0464
2.0460 1.0000 2.0324
2.0320 1.0000 2.0184
2.0180 1.0000 2.0044
2.0040 1.0000 1.9904
1.9900 1.0000 1.9764
1.9760 1.0000 1.9624
1.9620 1.0000 1.9484
1.9480 1.0000 1.9344
1.9340 1.0000 1.9204

BUY ENTRIES

ENTRY LOTS TARGET
2.0604 1.0000 2.0740
2.0464 1.0000 2.0600
2.0324 1.0000 2.0460
2.0184 1.0000 2.0320
2.0044 1.0000 2.0180
1.9904 1.0000 2.0040
1.9764 1.0000 1.9900
1.9624 1.0000 1.9760
1.9484 1.0000 1.9620
1.9344 1.0000 1.9480

These are pending orders, assuming 4 pips spread. For example lets say the current bid price is 2.0039 ask price is 2.0043, when the bid price reaches 2.0040 the ask price will be 2.0044, triggering a SELL at 2.0040 TP 1.9904 and a BUY at 2.0044 TP 2.0180 (tp are configured at 140 pips). We will call this ORDER 1.

ORDER 1 SELL 2.0040 TP 1.9904 BUY 2.0044 TP2.0180

Lets assume the price moves upward and reaches the next level (bid price 2.0180 ask price 2.0184) at this point the BUY order will close taking 140 pips profit. We open a second group of orders: SELL at 2.0180 TP 2.0044 and BUY at 2.0184 TP 2.0320. The current status is:

ORDER 1 SELL 2.0040 TP 1.9904 (Open -140 pips) BUY 2.0044 TP 2.0180 (Closed +140pips)
ORDER 2 SELL 2.0180 TP 2.0044 (Open) BUY 2.0184 TP 2.0320 (Open)

Cashed in pips: +140

Since we have 1 closed order, we must enter the same order at the same price (BUY at 2.0044 TP 2.0180) to mantain the hedge.

Lets assume the price falls to 2.0040 (bid) 2.0044 (ask). SELL #2 closes with profit. Since we have one sell currently open from the very beginning at this price only one pending order will be executed (BUY order). So the current status will be:

ORDER 1 SELL 2.0040 TP 1.9904 (Open 0 pips) BUY 2.0044 TP 2.0180 (Open)
ORDER 2 SELL 2.0180 TP 2.0044 (Closed +140 pips) BUY 2.0184 TP 2.0320 (Open -140 pips)

Cashed in pips: 280 [B][U]Net profit: 140[/U][/B] (280 minus 140 from open orders).

So this is basically the idea behind the concept of trading the grid. We setup pending orders at different level prices, so when price reaches a level a BUY and a SELL order will be executed, once one closes at TP price, we only replace the one closed.

Like I said before Im demoing this system, and will do for at least a couple of months since this is a medium-long term strategy. The trick here is to use Daily chart as a reference of the price movement, and choose an appropiate grid gap size, for this example I used 140 pips on GBP/USD. Other currency pairs will need more or less grid gap sizes.

So, when will be the right moment to enter the grid?

Since this system doesnt work well if the price is trending and the original system rules didnt tell me when should I enter the grid, so I use RSI(100), when the level touches 50 I think is a good moment to enter, and RSI must be between 45-55, if RSI goes off this boundaries we should exit ALL positions. Another way to exit will be if you reach a 3rd or 4th level in your grid, but again, Im demoing and thats the reason I start this thread, to post my results.

I encourage you guys to demoing (if you havent done it yet) this system, and lets see the results. ok?

I will be posting my current grids status at night when I came home.

Regards

Isidro

Hello
This seems to be very good but i believe that must be automated.
Is there an expert advisor for this?

Thank you

[Investeffex]

Hi nzpenny,

Just wondering if you are still active on Babypips and still trading the Hedge Grid System? I trade in a similar style and live on the Sunshine Coast QLD. Cheers mate!!

[QuantumNinja92]

What do you use as Market Entry in the Grid Strategy ?