Hedging system is very dangerous
I 100% agree with you
I for one like to know why it would be very dangerous.
Also there are many forms of hedging.
Some can actually protect you from larger economic events by acting as a shock absorber.
Break even isn't good enough, because then you will just stay flat, but slightly positive could make you Millions.
Breakeven would be the worst case scenario, you would have 6 trades in recovery before that in order to make money. At number 7 it would be your breakeven so you don't run out of margin and don't lose all your money. Man I wish I could code.
do you have MT5 version?
Question: Would you be willing to trade any system or strategy you want on your $10000 account and turn every trade you take into a win trade (of $200 or $20) or a breakeven trade and have only a small theoretical chance of losing let's say $600 in worst case scenario?
Some traders would probably say no, if your answer to this question is also NO, then have a nice day;) If your answer is YES or MAYBE, then before you will jump out of your seat thinking you just found a holly grail of trading, please read carefully all stuff below and download and test a demo version of my newest EA, because it might also work for you!
So everything started with the following simple question:
"Is it possible to design a recovery system that is using a smart hedging mechanism able to "beat" the forex market? - and also your broker "
Apparently and surprisingly the answer to that question is YES*.
(*= of course only under certain conditions)
So to prove the statement above, I've coded an EA that is using "back-and-forth" hedging mechanism (it's NOT a martingale system), which I'll explain in the pdf manual. This trading technique is probably not new and maybe it is also discussed many times on this forum. However, I couldn't find any EA for it so I've coded my own.
Thus, just for the illustration let's say you have just entered a "sell" trade and you are now waiting to see what will happen next. Let's think about this situation for a moment. For sure we cannot predict the upcoming market events with a 100% accuracy. Then what can we say regarding the future market direction? Unless you are an extremely experienced trader, the answer is of course: not so much! However, the one and the only one peace of reliable information, that we have at that moment, is that the market will eventually go "up" or "down" w.r.t. the current price level. It can take a day, a week or even a month but the market will move up or down, simply because it has to!
We can take this one peace of reliable information and use it to our advantage. And here is how:
At any point in time, any price level we can open a "buy" or "sell" position and add several new positions by anticipating to new market movements. Thus, when the first trade is a "sell" order and market moves several pips in the opposite direction (up), then we could open a new "buy" position, and vice-versa. While doing this back-and-forth hedging we could also calculate the new Lot size required to cover for our previously opened trade(s) at our original TakeProfit, but ALSO at our original StopLoss level! By doing some simple mathematical calculations we can easily discover that the Lot sizes of our new recovery trades are not necessary always bigger than the previous ones. This is so much better than a martingale system which will just blow up your Lot sizes just within a few trades.
Of course there are some constrains, w.r.t this trading methodology. For example we need to make sure our open trades will not eat up our freemargin, which we will use to open new trades in case of market direction change. So this automatically means (unless you have a $100000 account) that we need to trade only with small lot sizes, e.g.: using mini lots (0.1 of standard Lot size) but also not to small e.g.: micro lots (0.01 Lot size) because of calculation errors that are introduced by the "MODE_MINLOT and MODE_LOTSTEP" restrictions. Furthermore our account size needs to be large enough to be able to cover for some equity dips and the required margin. Our StopLoss and TakeProfit levels need to be carefully chosen to minimize the resulting recovery lot sizes. We also need to make sure the system can survive several recovery attempts, when market will be ranging. (The wise recommendation for ranging condition is to exit at the best price and take some small losses). Furthermore, we need to add some on-the-fly correction for our spreads, slippages and swaps and commissions. To help the system a little bit we will also add a BreakEven with a TrailingStopLoss mechanism and will also automatically close all positions when our pre-set ForceTakeProfit target is hit.
Nevertheless, this type of trading could have some potential for success when positions are opened manually or according to a proven trading system. How about the risks involved in this kind of trading? It depends on several factors like: account size vs lot size, spreads and slippages, selected recovery levels, etc. As I said before the most important is to avoid ranging markets and assuring our account has sufficient FreeMargin for opening new trades. Otherwise the system will not be able to recover and it will take a loss. The only way to find out the limits of this system is to play
with it and adapt the parameters according to desired trading behavior. Please try it first on your demo account or in strategy tester (99% modelling only!) When the settings are properly chosen you will see, that it is really very very hard to lose money with this system.
Link to this EA:
Link to the manual:
I can develope the strategy to be an ea.
If you need it as an ea you may contact me: https://www.mql5.com/en/users/a123456
All the best,
Hedging is not dangerous as an approach.
But Martingale(for which this topic is about) definitely IS.
Boyan, yes I agree that Martingale systems can be dangerous, but only when not managed properly. You definitely do need to have safety mechanisms in place when using martingale type EAs.
I came across a free EA recently and it seems to be quite profitable in both demo and real accounts. I have only just started using it in my real account for a couple of weeks now and is quite promising. It is very profitable when the market is ranging, but can get into a large drawdown when the market trends in one direction, and can come good if the market turns back again, so I need to be careful when trading. Even though it does have news filter and trend and spike protection settings, I would like to know how I can possibly detect trends myself or if there is an EA out there so I can manually intervene and turn off the trading before it goes into a heavy drawdown.
Any help would be great!
Have you thought of maybe attaching an ATR Indicator to your EA. Maybe that will help in detecting an oncoming trend. I would be very interested in testing this EA. Would you like to share the EA please?