Capitalizing on Failed Trades - Idea

[sunny747]

This is a fantastic idea. So many times my trade failed and shot back to the opposite direction . I'm gonna try this. Thank u dale. U r a scientist.....

 

[TheForexGuy]

Can you please explain using lots example? rather than 1R or 0.5R, it is confusing

To help you understand, think of 1R as $100. So 0.5 is $50, -1R is -$100 etc...

 

[exterior]

I've got another question. With this method, you won't take extra risk, that's good. But am I right, that you have to cut your position size since the SL on your initial position (the short one in your example) is way bigger than it would be without this method?

 

[bull375]

Dale, Nice recovery strategy to cover the losses and get some gains but it needs to be tested practically.
" P.S US traders, I don't think you are allowed to open hedge trades under US broker regulations. Sorry to dangle the carrot in front of you" Nice one Dale.
I think its more like dangling the bone

 

[skull]

Please make a vid about this and possible can we try it out on our ea?

 

[hafizhanif84]

great TFG..well explained here..last year im dont use stoploss strategy and after 1 year my account finally blow..luckily i made huge profit with no stop loss so i think it's just my luck to hold that account about 1 year and i do HEDGE trades..my suggestion is ONLY use this method when counter trend trades..as we know TFG method are following trend trades which have high % of possibility winning trades..it's easy than counter trend/pullback/reversal/retracement trades which are difficult and have a low % possibilities..i hope my suggestion will help this new idea

 

[exterior]

Why only for countertrend trades? Even High probability "With-the-trend-setups" can fail. Little Example:
You see a bearish signal with the trend an you set your order. You got triggered, but then there is a news-spike which would stop you out. With this hedging, you might be able to avoid that.

 

[exterior]

I would really appreciate a more in-depth example. E. g. which position is opened with which position size in the trade on the first page? I think you can't open both trades, the long and the short, with for example 1 lot per full trade (so 0.5 lot per split-trade) or am I wrong with this point? Because the SL of the short trade is bigger than the on oft the long trade.

 

[TheForexGuy]

You've raised an interesting point there exterior, that may present a flaw in the system. I will run through the math again a re-post my findings.

 

[vasude]

if the gbpjpy short signal failed with retrace entry means our stoploss has triggered ,so the signal failed ,now for example we have long pending order means it will get triggered and again we have to place stoploss at signal candle high or low . here is the classic example what TFG has posted earlier here ,if the signal failed from retrace entry ,we get -1r , after triggered either order ,we have to cover loss or you may target 1:3 .

 

[graz]

Hello all
i use hedge from 2010 and in my experience, your strategy don' t work... in your first post in second picture you have trigger a sell limit and after a buy hedge, now you have a loss given from sell to target hedge and a buy hedge in gain from buy to target hedge and it is in minor pips respect the sell loss and you have always the loss given from the difference from sell limit and buy hedge. Now you must have a bigger size in buy hedge for cover the loss at buy target, but this way some time is dangerous cause the market goes in the opposite direction and you can amplifier the total loss... or you must close the sell limit when you are confident the market go up and don' t turn down again

I always use hedge in this way:
1) example from bearish market: i put sell order with regular stop loss (instead the hedge cause if i am completely wrong i can have the hedge filled in the opposite direction i suppose)
2) if the order is trigger i delete the stop loss and put the buy hedge order at the same level of the stop with the same size
3) if the hedge is trigger i have the 2 position open in loss

Now i must recover the loss:
i can wait the price go over the hedge (the market is bull now respect the hedge)
i see the price action and if i see a short signal and i am confident (resistance ecc) i can put another sell order with same size with the (old hedge open) or i close the old hedge and open a sell waiting the market go down and recover the loss... but i always monitor the movement, infact i must be ready to open another hedge if the market go in the opposite direction.
Sometimes if i don' t see the opportunity i wait new order close in gain (in another pair too) and scale out part of the hedge time to time.
Sorry for my english not so good

 

[graz]

Hello all
i use hedge from 2010 and in my experience, your strategy don' t work... in your first post in second picture you have trigger a sell limit and after a buy hedge, now you have a loss given from sell to target hedge and a buy hedge in gain from buy to target hedge and it is in minor pips respect the sell loss and you have always the loss given from the difference from sell limit and buy hedge. Now you must have a bigger size in buy hedge for cover the loss at buy target, but this way some time is dangerous cause the market goes in the opposite direction and you can amplifier the total loss... or you must close the sell limit when you are confident the market go up and don' t turn down again

I always use hedge in this way:
1) example from bearish market: i put sell order with regular stop loss (instead the hedge cause if i am completely wrong i can have the hedge filled in the opposite direction i suppose)
2) if the order is trigger i delete the stop loss and put the buy hedge order at the same level of the stop with the same size
3) if the hedge is trigger i have the 2 position open in loss

Now i must recover the loss:
i can wait the price go over the hedge (the market is bull now respect the hedge)
i see the price action and if i see a short signal and i am confident (resistance ecc) i can put another sell order with same size with the (old hedge open) or i close the old hedge and open a sell waiting the market go down and recover the loss... but i always monitor the movement, infact i must be ready to open another hedge if the market go in the opposite direction.
Sometimes if i don' t see the opportunity i wait new order close in gain (in another pair too) and scale out part of the hedge time to time.
Sorry for my english not so good

Sorry
Now i must recover the loss:
...i see the price action and if i see a short signal and i am confident (resistance ecc) i can put another sell order with same size with the (old hedge open) or i close the old hedge waiting the market go down and recover the loss...

 

[graz]

I don't think you can do this on MT5 as for some reason, they locked out hedging on that platform. You can't open multiple positions and you cant go long and short and the same time with good old MT5.

I really don't know why that coded these restrictions in.

If any MT5 uses can let us know otherwise, please do.

On MT5 you can hedge position only with high correlation pair... read this article:

http://www.investopedia.com/articles/forex/05/051905.asp

 

[tjenarvi]

Hi guys I am trading like this for month... and it works very well. Actually I am working in shorter timeframes but the idea is the same... I think it is the most propper way to trade. To use stops is like giving your money away anyway. Since I stoped using stops in a traditional way but used opposit order as a stop, I started to make good money.

interesting to know more how does it work out for your in lower time frame?

 

[tjenarvi]

Here's my humble opinion. No matter how you cut it, you are diverting from your current price action strategy. I really don't think you want to create a system that opens positions because "your main signal is wrong". Like Micheal said, the candle in this setup screams buy, this is what you should be trading, not your failed signals.

I don't think this is a bad idea.
TFG is talking about a management strategy of our trades, not technical analysis strategy (pin bar/engulfing,etc.)

TFG, I have a question:
- If you have already the EA for this strategy already, I would like to know whether we can set our stoploss level and the buy stop hedge order at any price we like?

 

[tjenarvi]

Can you please explain using lots example? rather than 1R or 0.5R, it is confusing

I think, TFG, you will need to make good example, with more details:
- We can use EUR/USD pair, as 1 pip for 0.1 lot is as easy as $1
- Lot 0.1 as example
- What signal we use, pinbar?
- What price we use for Entry, Stop Loss level, Split management level?
- What price we use for "buy or sell stop hedge" ??
- and continue....

 

[TheForexGuy]

I re-ran the scenario and I did make a mistake in my calculations with this, it will still work, but you're max risk is 2R. I am back on the drawing with this one to try come up with a better system. This was just an idea I thought I would share with you guys and get some feedback on initially anyway.

 

[fxpower31]

@TFG Just a little bit confusion.. when we set split trades we set two trades with equal lots..here you show one trade..and I am also confused here "0.5 Risk" what is this? as i understand you set Sell Limit Stop loss at 1.5 R Level? if yes then you not mentioned in the strategy about it?? plz reply

One kind of strategy that I've pondered with over the years is one that centers around failed trade setups. By this I mean stop loss trigger events on price action trades, then market just keeps going.

I've been trying to figure out a strategic way to capitalize on these counter trade breakouts.

Generally where I advise to place a stop loss in the price action protocol course is the 'threshold' for a price action signal - once it's breached, price has the potential to explode in the opposite direction, which we've seen it do many times.

Just like electricity, price likes to moves along the path of least resistance.

Once our stops are hit, price has generally overpowered a critical level in the market - once that area has been overcome, there is little resistance for price to blow up in the other direction.

Some other War Room traders have started to also raise the question: "Why don't we just place an order in the opposing direction".

I've thought deeply about this many times, but the idea of just blinding going in the other direction does not seem very strategic, and is more of an impulsive action - "feeling of missing out" "chasing price" kind of knee jerk reaction.

Here is something else I've thought about a lot - hedging.

The other day I sat back and thought to myself, maybe hedging could be the work around solution to working around failed trade setups. So I will pitch my idea to you guys and see what you think.

First an example of a failed trade setup...

View attachment 1374

This GBPJPY rejection candle trade is a very good example of how failed trades can be a trade opportunity within themselves.


The Hedging Idea

For those who don't know, hedging means to open up other positions that mitigate the risk of others. In the stock market hedging is a little more complicated, where hedge funds will buy stocks that will help reduce the risk of others.

In Forex, generally hedging just means to open an opposing trade to your current position. You can hedge a AUDUSD sell position by opening a AUDUSD buy position.

I know there are some wild, and overly complicated hedging strategies in Forex but as usual I like to keep things as simple and logical as I can.

Even though I am aiming to keep things simple here, it's still going to have the next level of complexity than our normal trading with a little bit of math involved.

I mentioned before, I don't feel great about ...




The reason is, you run the risk of just being stopped out by a few pips then the trade continues as planned. A problem which a lot of traders run into on the USDCAD.

So if you opened a trade in opposite direction, you would have taken two quick full losses.

My proposed hedging strategy is to utilize the split money management system with hedging.

I will use this gbpjpy example to share my idea to you...

So we're looking at a rejection candle sell trade with hedge risk mitigation.

The sell trade is setup using the 50% retracement entry including split money management like normal, but we don't set the stop loss for the sell trade at the normal price.

Instead, where we would normally place a stop loss for the sell trade - we set up a bullish breakout order, also setup with split money management setup.

Is your mind blown?

Before this gets any more confusing, I will draw out the structure of the trade setup.

View attachment 1375

Take a moment to study the trade above and see if you can get you can work out how it all works.

Situation 1: Trade Plays out as Planned

Your trade plan plays out as anticipated. Your 1:1 R 'risk free' split target is hit. No hedging needed, all hedge trades are canceled and the stop loss level is adjusted on your trade to it's classic position.

In the case above.

• The retracement entry is hit, the market sells off and hits your 1:1 target.
• The buy hedge trade order is removed
• Your sell order stop loss is adjusted back to its classic position - above the signal candle high.

This ends up just being business as usual, with a split money management trade playing out in it's mimimal ideal scenario - a risk free trade.


Situation 2: Trade Idea Fails - Hedge Trade Triggered

Your trade didn't work out as planned, and normally your stop loss would have been triggered.

But in this case, a trade is opened in the opposite direction, with the split money management system also applied.

Now you have a buy and a sell trade open at the same time.

• Your buy trade's stop loss is set at your sell trade's 1:1 'risk free' target
• Your sell trade's stop loss is set at your buy trade's 1:1 'risk free' target

Situation 2A - Sell trade knock out

View attachment 1376

Here we have the situation for when our trade setup fails and the hedge trade kicks in.

• The hedge trade hits it's 'risk free' 1:1 target
• The original trade idea is completely stopped out and taken out of the equation.

This leaves you with an open trade with 0.5 R left to potentially make a return for you.


Situation 2B - Buy trade knock out

View attachment 1377

In this situation, the hedge trade is triggered, but the hedge trade never hits its 1:1 'risk free' target.

The original trade idea is back in the money again, and comes back to hit it's 1:1 risk free target. At this point in time, the hedge trade is taken out of the equation and the sell trade's stop loss is moved back to the classical position.

Once the hedge trade is triggered, either Scenario 2A or 2B MUST become true.

So instead of taking a full loss (-1R) on your original trade idea, you're left with a floating 0.5R trade in either the buy or sell direction which has the potential to make you money.

To break even you will need your final floating trade to reach 1:2, and beyond that you will make money on what otherwise would have been a loss.


Situation 3: The Worse Case Scenario

View attachment 1378

This is the worst case scenario - which all good traders plan for.

The worse case scenario is when both the original trade idea & the hedge trade fail. This will generally be caused by choppy markets.

Even in this 'doomsday' stop out scenario here - you're only going to walk away with a total loss of -1R... which you would have walked away with if your trade failed without the hedge trade setup.

The advantage of this hedging strategy is to give you a chance to avoid a loss, and actually make some returns on a failed trade.

The disadvantage is the hedge trade needs to move more to turn the over all scenario into a profit, and will probably need to be a longer term trade.

Because the hedging strategy has a lot of moving parts, it would be idea to have a script, or an Expert Adviser to control the whole thing.

The War Room money management tool for MT4 could be upgraded to control this hedging strategy.

First I am looking forward to other war room trader's thoughts on this.

P.S US traders, I don't think you are allowed to open hedge trades under US broker regulations. Sorry to dangle the carrot in front of you.

 

[TheForexGuy]

If you read my post above, I made an error in my calculations which effected the outcome of the strategy. This was just an idea I put out - 'food for thought'. 0.5 risk comes from the split money management strategy.

This is meant to be a combinations of failed trades, hedging and the split mm system.

 

[fxpower31]

Its mean above you set sell limit stop loss at 1.5 risk level.. right?