I've been searching on FF for a little while today and haven't found exactly what I'm looking for. Any help or discussion is appreciated. I'm posting in the rookie section simply because I have no evidence to back it up that the strategy will work. If anything it's just theoretical right now.
Essentially what I want to do is trade many correlated and inversely correlated pairs such that at a single time I may have many trades open which hedge one another. If the currencies were directly correlated then my risk would be zero. We know currencies aren't 100% correlated though.
There will be no TP or SL on any of the trades. The risk is mitigated by the hedge. What I'm looking to do is to immediately close all trades once the profit of the basket reaches a certain point. This would occur when the volatility of some pairs exceeds their correlated counterparts or perhaps even just makes their move briefly before the other pairs.
For example, say I am trading six pairs and I want to make 1% on a $1000 account balance. I would open hedged trades and once the profit/loss equals +$10 then all the trades are closed simultaneously. The P/L for each trade could be something like +40, -50, +20, 0, +60, -60.
Now that we've exited the trades it allows us to 'reset' the system such that we immediately reenter the same trades with new P/L of 0,0,0,0,0,0. This allows the trades to work themselves out once again. Perhaps the trades that were all at loss in the first set are now those which run to profit.
My thoughts are that we would allow the trades to run indefinitely as the hedge protects us from any massive drawdowns. The more correlated and inverse correlated pairs we trade the more that risk is leveled out. We obviously would hope for the profit goals to be hit sooner than later such that we can keep resetting the trades back to zero such that the immediate correlation between pairs stays strong.
Has anyone seen anything like this before? Feel free to interject with what you think.
I believe the characteristics of the system are that it is possible for the volatility to take us into carrying a negative balance for quite some time as we wait for the hedge to correct itself. I think it would be interesting to see if the hedge typically will stay within a certain profit/loss range such that we are more likely to hit a 1% profit target 90% of the time and a -5% loss 10% of the time. Simple math would mean we make 9% and lose 5% in 10 trades for a total profit of 4%. If we accept to close the basket when we hit 1% then we might want to accept to close the basket and reset once we hit -5% so that we can get back to hitting 1% profit 90% of the time.
Just some thoughts I'm mulling over right now. Please push me in the right direction.
Thanks,
Matt
Essentially what I want to do is trade many correlated and inversely correlated pairs such that at a single time I may have many trades open which hedge one another. If the currencies were directly correlated then my risk would be zero. We know currencies aren't 100% correlated though.
There will be no TP or SL on any of the trades. The risk is mitigated by the hedge. What I'm looking to do is to immediately close all trades once the profit of the basket reaches a certain point. This would occur when the volatility of some pairs exceeds their correlated counterparts or perhaps even just makes their move briefly before the other pairs.
For example, say I am trading six pairs and I want to make 1% on a $1000 account balance. I would open hedged trades and once the profit/loss equals +$10 then all the trades are closed simultaneously. The P/L for each trade could be something like +40, -50, +20, 0, +60, -60.
Now that we've exited the trades it allows us to 'reset' the system such that we immediately reenter the same trades with new P/L of 0,0,0,0,0,0. This allows the trades to work themselves out once again. Perhaps the trades that were all at loss in the first set are now those which run to profit.
My thoughts are that we would allow the trades to run indefinitely as the hedge protects us from any massive drawdowns. The more correlated and inverse correlated pairs we trade the more that risk is leveled out. We obviously would hope for the profit goals to be hit sooner than later such that we can keep resetting the trades back to zero such that the immediate correlation between pairs stays strong.
Has anyone seen anything like this before? Feel free to interject with what you think.
I believe the characteristics of the system are that it is possible for the volatility to take us into carrying a negative balance for quite some time as we wait for the hedge to correct itself. I think it would be interesting to see if the hedge typically will stay within a certain profit/loss range such that we are more likely to hit a 1% profit target 90% of the time and a -5% loss 10% of the time. Simple math would mean we make 9% and lose 5% in 10 trades for a total profit of 4%. If we accept to close the basket when we hit 1% then we might want to accept to close the basket and reset once we hit -5% so that we can get back to hitting 1% profit 90% of the time.
Just some thoughts I'm mulling over right now. Please push me in the right direction.
Thanks,
Matt