I have been experimenting with placing parallel hedge-orders next to my main-order (ie; if the main-order is a sell, the hedge-order is a buy, and visa-versa). My practice has been to make the hedge-order SL identical to the main-order’s TP and visa-versa.
This is my understanding of the “spread” in the forex market: Sellers want to get as high a price as possible while buyers want to pay as low a price as possible, therefor the price sellers are willing to sell at will always be slightly higher than the price buyers are willing to buy at. Therefore it will always cost me slightly more to buy something than it would to sell the exact same thing – this is the spread. Brokers make their money by padding this a bit, increasing the difference between buy & sell.
In my most recent batch of experiments, the following thing happened twice:
The SL on one order was filled but the TP on the other order (which was set as identical) was not filled. In both cases, according to my understanding of the spread, price should have passed through the TP before it passed through the SL. Also in both cases, the incident was to my broker’s advantage and my disadvantage.
On the surface, it would seem possible for the TP orders to have been filled while the SL orders were not, but impossible for it to happen the other way around.
If you have a take profit order (TP) and stop loss (SL) order set for the same price, then the stop loss will be hit first, because of the spread. Furthermore, if the market barely reaches the price of your stop loss, it’s possible for it to trigger and your take profit order to remain unfilled, again because of the spread.
What currency pair were you trading? At what price did you set your stop loss and take profit orders? What time was your trade stopped out?
That should address the question of the spread, but the bigger question is how you expect to make money with this approach?
The only valid reason to be simultaneously long (in a buy position) and short (in a sell position) a given currency pair, is because you are running two different trading strategies that use different buy and sell signals. Even then, it might be best to run these two strategies in different accounts, so you can track their individual performance.
If you are long and short simply because you lack the conviction to choose a direction, then you are better off being flat (having no long or short positions), because then at least you will save yourself the transaction costs.
I am a beginner so I am using a demo account. The purpose of these particular experiments is solely to learn capabilities and limitations. The play money makes no difference to me in this case, in fact the buy-or-sell decisions for this particular set of trades was random.
Hey @Rawlie, Spread +1 may not get the job done… Price action from most MM’s is malevolent…
I rest my case… So you will find that it will still trigger the SL and still not close out your TP… especially if price spikes (small) through that zone… You may need a few more pips… but hey, give it a try.
Attempting to profit from a position that goes from A to B and trying to repeat it successfully over and over again against this market is definite signs of insanity…
@rrram2 or @Dennis3450 threads may open you up to some strategies that can be applied to FX.
I understand your rational behind the strategy you are trying to achive… so I have highlighted a thread that may be of interest to you…
I took a look at Absolute’s “Modified Grid Hedge Method” in the link you sent me. There’s a lot there. I look forward to going through a few pencils logic’ing that one out on paper.
I’ll also check out rrram2 & Dennis3450. I’m new here and I appreciate the direction given.
…But may I ask?.. Absolute says you need to find a broker that allows hedging orders. Is that a concern? Are there really brokers who won’t let you hedge?
Hey @Rawlie, Not so much concern, you just have to find an account type that includes hedging…
The US disallows hedging accounts so US based traders are hand tied because of the Dodd -Frank regulations .
Australian and most European Brokerages do include hedging on small retail accounts.
Hedging is deemed as a Black Art in the BP Forums… what @FOREX.com has posted is all true…
It’s more for risk management / capital preservation than as an actual profitabile strategy…
If you search through the threads about Hedging, you will come to realise that very few traders here grasp the concept of how it should be applied and therefore it gets shouted down.
When you take a look at rram2’s strategy it also becomes clearer why the US banned Hedging and the EU lowered the bar on leverage…
It’s not to protect retail (any) traders, it’s to protect the financial institutions involved…