hey guys , ricardo here . It feels good to be apart of a community like this . Now i am very new to forex but i have been trying to create a trading strategy for my self and i was hoping that i could get someone with expert advice to critique this strategy for me .
Indicators : 8 Ema , 20 Ema
Pair : Eur/USD
Time Frame : 5 min -15 min chart
Entry : Moving average cross
Exit : 100 Pips TP
Starting volume : 0.05 lot
[U]Strategy Process [/U]
Place Trade based on moving average cross over , only take profit of 500 pips . If 500 pip TP has not been reached , hold trade unit you receive another EMA cross in the opposite direction . This time enter the trade with a lot size 3X the original . In this case we have hedged our initial position with 0.15 lots in the opposite direction .
Primary conditions still remain , Take profit =500 pips . So , hold both trades open until 500 TP. This process will be repeated until a TP of 500 has been achieved . If another EMA cross occurs before another TP , then the new hedged position will 0.30 lots and the next … 0.45 ,0.60,0.75…
Theory
Market tends to find zones of contraction and then experience moments of explosive movements . EMA cross overs work at least 30 % of the time , however it has its limitations in choppy markets . This is why we hedge . We hedge for the purpose of factoring the wrongs signals that we will get ; combined with a semi martingale theory . The idea is to protect the overall account position and recover losses quickly . So , every hedged trade will grow 3X as fast as the previous hedged trade is depreciating .
Based on back testing , i have only had to hedge a trade 13 times based on the signals received by the EMA cross until the 500 pip TP had been reached . With , this the demo account has not been risking more than 5 % . I make $50 daily on the demo account and the starting account balance was $2,000.
I hedged because mentally i cannot deal with losses and i do not use stop losses.
I hope that wasnt too much , im new to this .Please ask as many questions as possible and please critique it !!! i need all the feedback , especially the bad . Thanks guys , peace and love from Jamaica .
Your maximum gain per final trade is +500 pips. Your maximum loss per individual trade is presumably -499 pips. So that’s potentially 1 x 500 pip gain on the final trade plus multiple smaller gains on earlier parallel trades, let’s say 1 pip each, but losses of potentially 499 pips each on all the opposing trades.
The point of hedging is to eliminate risk from the worst case scenario. But what’s to stop the above scenario playing out?
Thanks for the comment man . Based on testing the outcomes have always been the same. Eventually , the màrket always moves strongly in one direction . So i keep hedging until i hit the 500 pip tp or i close all positions once i have a positive overall account balance based on all open trades . My only problem is i close the trades way too early and i always miss out on more pips. By hedging by 3x lots , i reduce the amount of pips required for the new positoon to move in order to exceed the loosing position . So for every pip that the lossing trade experiences , the hedged trade will always move 3 pips . i hope that makes sense. please remember i am a newbie , so if this strat wont work in long run , please let me . Thanks
I would be more concerned that you are always paying spread with every transaction which will diminish your potential returns. Margin will also be eaten into very quickly which means that you wont be able to place trades (even though you have an available balance left). However, the most important issue you [B][U]WILL[/U][/B] have is that brokers are now not allowing hedging in the same currency pair. You have to close a long before opening a short - the opposite is true. This hedging ‘rule’ is becoming very popular with all brokers, and I don’t see why it wont be the same for every broker in the near future.
I’ll be honest, martingale does not work long term - but I also think it’s good for you to do the workings to see this. This is at the end of the day how we all learn - rather than being told the answer straight away. You’ll probably learn more about trading as you carry this out too, which is always a benefit.
Yes, I agree that any forex pair price will eventually move 500 pips from any given point. But there is no clue from the TA as to when that will happen and how many times you might need to hedge in the meantime. It could take years from some given signals. So the maths will end up giving this a random result.
Interesting theory but I would personally go for something with a bit more certainty if risking money.
Thanks guys . I appreciate the advice . Since its a no good ill have to change it . i would normally just go for swing trading on the higher tf like 4hr , but it takes way too much brain power to analyse and then in the end ii may probably be right or wrong . as for hedging i do it because i hate taking losses , the semi martingale waa only usee to recover losses faster . But thanks guys , you are the experts . So if i do away with this strat , could someone give me a strat that i could go practice that has less risk . Id really gladly appreciate it .
Same here … (I just define “long-term” rather differently from you! :8: )
More seriously, in general, it’s when people try to “copy something that just ‘works’,” that all the accidents tend to happen, in my opinion.
There are many different reasons for that, but these three would generally be included among the most significant ones …
(i) Different things are going to suit different people, depending on their own outlooks, experience-level, available trading-times, and objectives;
(ii) The realities of trading, and especially the realities of online “information” about trading, tend to predicate that trying to copy lots of different systems until each fails tends to lead to people having “one month’s trading experience repeated 36 times over” rather than geninely “having 3 years’ real trading experience” as they sometimes imagine;
(iii) It’s a poor substitute for education, developing skills and analysis, and being able to learn to design your own methods that suit your own parameters.
However, having said all that, if you want to look at three different trading systems that “work” in the sense that for people who know how to trade, understand the basics of trading-related statistics and probabilities and are both able and willing to apply the necessary patience and discipline to trading them, these three are all based on very sound and reliable parameters, and in my opinion are certainly among the very best “easy systems” outlined here at BabyPips …
[B]this one[/B] (my own knowledge and experience of the method explained in the post linked to, here, have increased considerably since I originally mentioned it, and it can [I]very[/I] beneficially be combined with a very long, very slow MACD indicator used as a “[I]directional bias indicator[/I]”, seeking to identify potential long positions only when the MACD-line is above both its signal-line and its midline, and short positions only when it’s below both). I’m [U]not[/U] an “indicator trader”, at all, myself, but since my original post on the subject I’ve further been very impressed with this method’s backtesting results and its forward-testing outcomes. Actually, it might even be the best “simple, indicator-based method” I’ve ever seen. So I’m happy to mention it again, anyway.
Thanks guys , peace and love from Jamaica .