Shed Hedging idea

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Well this idea has come to a dead end for now. The idea is workable, i just have to work in some variables for the trading and what to do with the lots i do close out. I will get back to this idea when i have it more defined for everyone to take a look at.

Spider~

 

you are ignoring the spread which is very important factor.

 

Well for the overall idea i ignored the spread to get the idea across thats all. I know the spread will always be a factor in it.

 

yes, spread can be big factor in P/L. BTW you cannot test it with an EA. There is a bug in MT4 backtest. When u close part of the trade (in backtest only) it will do that but the order will be close. Sad as it is

 

Yeah i know this is not possiable to backtest. I have some code similar to this idea but nothing to what i want it to do. I wish backtesting could show mutiple pairs but that might come later on in the future. (Hopefully)

But first i just need to get some ideas going to see if im just blowing steam out my head with this idea or am i onto something? Dunno*

Spider~

 

Hi,

I hate to play the spoilsport but I hope you will get the big picture that seems a bit hazy to you right now.

Firstly you are considering a pair which is not perfectly closely related, better would be to take eur/usd and usd/chf.

What seems perfect in theories fizzle out in real world trading I am sure that you must have heard about the LTCM Corp. story. They comprised of nobel prize winning economists, super traders and MIT graduates. After running millions of simulations on their theories, they were said to be the next big story on wallstreet. What happened was they were wiped out in a scenario which according to their simulations could happen only one in a million times. They single handedly brought financial ruin to a sum unprecedented in wallstreet and Billions of dollars were lost. You can google for "when genius failed" to read their story.

Coming back to your strategy, some months back there was a scenario where the Gbp went up by over 100pips and the Eur instead of following the gbp actually fell. This was because of some heavy speculation in the Gbp/Eur by German traders ( thats what I was told, I dont know the real story).

This can happen many times. How do you handle worst case scenario? Moneymangement is crucial and backbone of this system without which you will be wiped out.

You have for now disregarded the spread,, you are down 4pips at start of every trade. For a 10pip move, you have already lost 40% on every trade.

Gbp moves much more faster than eur.

For example gbp move 25pips against you and eur move just 10pips.

You are still negative.

At news release,, say NFP...Gbp moves 100pips in 5minutes and eur moves just 50pips.. again you are in the negative.

There are so many scenarios that make huge holes in your theory.

Try out demo for a week,, if you still can make money off it... we can try and plug in the gaps.

You havent included unrealized losses for open positions.

Cheers

I have the link here...

http://www.harvardmagazine.com/on-line/0101117.html

Very interesting story.

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