last time we made a video where we
traded forex using a hedging strategy
that we purchased from some forex
trading guru who claims that it works
all the time back then we used it to
trade forex and we've made some profit i
was extremely skeptical about it but as
usual the best way to know whether a
trading strategy is successful or not is
back testing and that's what we're going
to do today using an expert advisor to
get the most accurate results with that
being said let's get into it
[Music]
as usual we'll begin by describing this
strategy with some examples then back
test it and finally analyze the results
there are plenty of so-called forex
gurus who are selling strategies and
signals but it's important to be
skeptical all the time
i mean if you find a strategy that works
all the time would you share it with
others
i'll let you think about it
so hedging is a strategy used to protect
one's position in a currency pair from
an adverse move
it's typically a form of short-term
protection when a trader is concerned
about news or an event triggering
volatility in currency markets
hedging in the forex market is the
process of protecting a position in a
currency pair from the risk of losses
there are two types of hedging direct
and indirect
the direct hedging strategy consists of
taking a position opposite in the same
currency pair
for instance if an investor goes long on
euro usd they short the same amount
while waiting for the trend to develop
once developed the trader begins
reducing the volume of the losing
position and increases the volume
towards the direction of the trend
and that's pretty much what we'll be
doing today
the second method is known as indirect
hedging strategy which is similar to the
first method except that you trade two
currency pairs with a strong negative
correlation
let's say you go long on the aussie
dollar and short on gold which will
allow you to reduce the risk of high
market volatility this is an interesting
strategy that we'll discuss soon on this
channel
with that out of the way let's review
the hedging strategy again
we first choose a currency pair with
high volatility
then we place two pending buy and sell
stop orders which are 10 pips away from
each other we'll aim for 150 pips profit
in both cases
let's say if the buy stop order is
triggered and the price continues its
uptrend and hits the take profit we
close all the orders and exit the market
but what happens if the buy order is
triggered and the price goes down
in this case we update the volume size
of the sell stop order so if the second
take profit is hit we close the two
orders and exit with profit
to sum up we'll be opening orders in
both directions with a higher volume
each time until we exit the whole setup
with a profit the expert advisor will
calculate and update the volumes
automatically
to make this feasible we're going to use
our recommended low spread broker
i'll leave a link in the description for
those who are looking for a tier 1
regulated forex broker
other than that to avoid rollovers we
can choose a pair with a positive swap
or simply close our positions before the
end of the trading day
in the previous two videos we've tested
the strategy in live market conditions
and exited with some profit
but today we'll be using an expert
advisor which will give us more accurate
results
this is our expert advisor we'll begin
with the euro usd pair the time frame
doesn't matter here as this hedging
trading strategy is price based for the
time interval i'm going to choose one
year regarding the initial balance let's
use one thousand dollars
regarding the other settings we'll
adjust them according to the strategy we
discussed earlier
i'm thinking to try this strategy during
the asian market which is considered the
prime time of the day though it's
frequently ignored as it's not volatile
and liquid compared to other significant
trading sessions its unique
characteristics tend to attract scalpers
we'll run this strategy 24 7 this time
let me know in the comments section if
you're interested in any specific market
session
let's double check everything again then
hit on start the process would take a
couple of minutes
while waiting don't forget to subscribe
if this is your first time here and hit
on the thumbs up for the youtube
algorithm
hedging is a very sophisticated trading
strategy that can make you a successful
trader if you master it the rest is all
about protecting your initial balance
the hedging trading strategy we are
reviewing today is extremely basic and
it doesn't take into consideration
elements such as fundamentals which is a
factor that has strong importance in
forex trading
we demonstrated that when we back tested
the so-called 100 no loss trading
strategy
you can always submit your trading
strategy if you want us to give it a
shot
we'll either trade it manually or use an
expert advisor
let's look at the results now
we can see that we've lost a big portion
of our initial balance we recorded a
significant drop in terms of equity in
these two periods
by looking at this graph we can also
notice that the successful trades didn't
contribute much in covering the losing
ones
right after this we'll redo the same
test with an increased take profit level
to compare the final results
we've had a total of 536 trades and the
drawdown is 19.36 percent which is high
actually but we can notice that the
success rate is 67.35
the number of successful trades is
higher than the losing ones
this confirms what we noticed earlier
when we saw the equity graph
what if we do another round of back
testing but instead of aiming for a 15
pips take profit we'll opt for a higher
risk to reward ratio this time
we'll position our take profit level 60
pips away from the entry
let's make the necessary changes to the
expert advisor settings and run the back
testing process again the other
preferences remain the same
once done we can hit on start
it's important to backtest any strategy
multiple times using different settings
the most crucial element for any trading
strategy is protecting your trading
capital
saving enough money to fund a trading
account takes a great deal of time and
effort
it can be even more difficult if you
have to do it twice
it's necessary to note that protecting
your trading capital is not synonymous
with never experiencing a losing trade
all traders have losing positions
protecting capital entails not taking
unnecessary risks and doing everything
you can to preserve your trading account
great we've just completed the process
we can see that we didn't lose our
balance this time
when we check the graph section we can
find two lines
the blue one represents the real time
balance and the green is for the actual
balance when you're back testing a
strategy it's important to monitor the
real time balance
we can see that we ended up making some
profit at the end of the day
we can notice an important drawdown here
where the real-time balance dropped by
50 percent
but the hedging strategy was able to put
us on track again and we exited the
setup with some profit
the total number of trades this time is
156
the success rate is 56.41
the drawdown is almost 25 percent which
is extremely high and the number of
winning trades is higher than the losing
ones
we've made a profit of 110 dollars and
grew our trading account by 11
the successful trades were able to
compensate for the amount of money lost
in the losing ones
but does that make it a safe trading
strategy
choosing the wrong broker or forex pair
could make this strategy extremely risky
but if we're stuck in a never-ending
consolidation phase that will consume a
big portion of our capital and we might
end up in a situation where we don't
have enough balance to open new trades
i believe that this strategy is a bit
risky but it will perform perfectly in a
trending market let's say during the
london or new york market opening
what do you think about this strategy
let us know in the comments section
at this stage it's important to review
the losing trades to evaluate the true
potential of this strategy and that's
what we're going to do next
happy trading
you