ReticoloFX: Strategy Unveiled 29


Salve a tutti,

last week I wrote a couple of posts (+6593 Pips In 3 Weeks… And Counting! and ReticoloFX: Another Great Day With +750 Pips Profit… So Far!) showing you the performances of our new completely automatic strategy named “ReticoloFX“. I also started telling somethig about how the strategy works but this time I’m going more in depth.

Before I start describing ReticoloFX here is the latest performance update that many of you asked about – we are now at more than 9.000 pips in less than a month of trading with a floating DD actually lower than 5%:

As you know, we always describe in details our strategies so that it’s easier for you to understand what’s happening and what you can expect from them.

First thing we have to say is that the strategy can’t be traded manually and it has started since day one as an EA. It is an hedged trading grid strategy with some very peculiar features.

What does “hedged grid” mean?

A grid EA is an EA that does open trades at specific pips steps. Let’s say we open a long trade at 1.20000 and we have a step of 50 pips. Depending on how the strategy works we’ll open the next trades at 1.19500 or ar 1.2050. In any case at 50 pips distance from the last trade. At that point the next trade will be opened at another 50 pips from the last one and so on.

An hedged grid means that we trade both long and short trades depending on the where the price moves from the very first trade.

There are really many many different approaches to grid trading. You may open additional positions when you have loosing ones in order to “average” them or you can add positions to those that are already winning to improve profits. My CrescendoFX basically uses the first approach while ReticoloFX uses the second :)

So grids are quite “simple” approaches but it’d be too easy to make money with them if that was enough. There are grids that work well in “ranging” markets, and grids that work well in “trending” markets.

ReticoloFX prefers trending markets but can do well in ranging markets as well. It all depends on how wide the range is. And by hedging the only thing that really happens is that it can have periods when it is not making profits. Then when the trend gets stronger it closes all the positions in profit. The good thing is that it doesn’t matter in which direction the trend is. We are bidding in both the directions :) We’ll go with the stronger one.

Let’s see what ReticoloFX does. When you start it, it does nothing more than recording the price level when it has been started. It doesn’t open any trade at the moment. When the price moves “a step” up or down then it opens the first order in the direction of the first “break”. Long if the price goes up, short if the price goes down. If the price continues to go in that direction it’ll open additional orders. If the price reverses and goes in the opposite direction breaking the initial level plus or minus the step, it’ll open a trade in the opposite direction. And in this case it’ll hedge. Hedging is made to “lock” losses so that they don’t get larger. Now depending on where the trend develops it’ll open additional orders in one direction or the other.

So, when you start the EA it’ll record the price level and that will be your initial “watershed” between long and shorts. If the price goes above that level it’ll open long orders every step. If the price goes below that level it’ll open short trades every step.

Now… we have a couple of very peculiar things about ReticoloFX that make that “simple” strategy quite smart. The first thing is that we “adapt” the step based on the market volatility. The more volatility, the wider the steps. The lower, the smaller.

The main question now should be: when we close the orders?

This is one of the most important point (probably the most) in ReticoloFX and it comes from our multicurrency trading experience. ReticoloFX trades on multiple currencies at the same time (3 or 7). Each one trades using the described hedged grid trading strategy indipendently, but all the charts talk to each other and when the TOTAL value of all the open orders on all the “linked” charts reaches the target profit, all the trades on all the charts are closed and ReticoloFX re-starts as we described above.

Here the key is choosing the right set of pairs. We decided to take two approaches, both profitable and both with pros and cons.

The first approach is the “basket” one. We trade 7 pairs at the same time all linked by the fact that they all involve the same currency. We actually trade two baskets: the USD and the JPY baskets.

The USD basket is made of the 7 major pairs with USD: AUDUSD, USDCAD, USDCHF, EURUSD, GBPUSD, USDJPY and NZDUSD.

On the other hand, the JPY basket is made ot the 7 major pairs with JPY: AUDJPY, CADJPY, CHFJPY, EURJPY, GBPJPY, USDJPY and NZDJPY.

The other approach is the “ring” one. A “ring” is made of the 3 pairs made by the possible crosses between 3 currencies. We have found 6 profitable “rings”. For example, one of them is EUR/USD/CHF. All the possible crosses among them are: EURUSD, EURCHF and USDCHF. A ring is a particular “formation”. It is a sort of autobalanced set. If one or two of the pairs go up then the other goes strongly down and vice versa. Or one goes up, one goes down, one stands still. In any case there’s always a balance.

The “basket” approach usually leads to more profits but also to possible larger draw downs.

The “ring” approach is less risky as it has less profits but also lower flotating drawdowns.

One of the most important things to remember in Forex is that everything is scalable. So the “risk” depends much on how much you trade… the lot size! This is very very very very important.

We actually found 8 sets of pairs to be traded: 2 baskets and 6 rings. Each basket is made of 7 pairs (and so charts). Each ring is made of 3 pairs (and so charts). If you want to trade them all at the same time you’ll trade 7×2 = 14 (baskets) plus 3×6 = 18 (rings) for a total 32 charts. Meaning that you’ll have 32 pairs trading all the same time. It may be a lot of orders and a “lot of lots” if you don’t choose the right lot size. Start using the lowest possible lot size and remember that you DON’T have to trade them all. If you want you can trade only the “rings”. Or only the “baskets”. Or create your personal “mix” of them. Or just one ring or one basket.

That is not only because you’ll have a high number of charts, but because you have to think about the margin each order will use and the potential floating drawdown you may have with all the strategies running.

So as a rule of thumb I’d say that you should have $500-$1000 for each ring or basket traded if using microlots (0.01 lots). So in order to trade them all you should have as a minimum $4000/$5000 on your account. The more the better.

Performance can be phenomenal but you have to give them “room” for trading. It is crucial.

That’s all for today.

We worked hard in the past days so that we’ll be able to release it next Thursday May 24th! So just a couple of days more of wait.

A presto,
Andrea


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29 thoughts on “ReticoloFX: Strategy Unveiled

  • Joe

    Good explanation Andrea. Any chance that this EA will doom an account? I assume you have done extensive backtesting?

    Also, I’d imagine the DD would grow substantially transitioning from a low volatility period going into high volatility period, of which the EA would then open more trades in the favour of the new trend and hopefully able to achieve the profit target and close out all trades, is that right?

    Regards
    Joe

    • Andrea Post author

      Hi Joe,

      the EA prefers high volatility periods. You’ve seen how many thusands pips it made in a couple of days of strong trends. In low volatility it doesn’t make much… not gain much but also not loosing much. The EA increases the DD when there are continuous change of trends…. long, short and then long and short again but also with increasing volatility. That is the “only” situation when the grid hedging strategy can increase the DD. Based on our test we’ve seen that this happens quite rarely and usually on certain pairs. The multicurrency approach is made to get out of “mud” more easily.

    • Andrea Post author

      As expained the strategy uses the price level at the moment of the EA start as the beginning of it. That means that if I start a backtest from day 1 and another backtest from day 2, I’ll probably have different results. So we can’t give you absolute results but we have to “average” them.

      We have an average PF that is around 1.30-1.50 with an average monthly profit that is the same as the average maximum DD. That for every single baskets/rings. That means that after the first month your profts should cover the possible floating DD value. That is a very good result for a grid trading strategy.

  • Dan

    Thanks Andrea,

    Along the lines of Joe’s comment I’m also interested in the worst case DD scenario. For example, a CHF or JPY bank intervention. How would the EA handle a situation with a trend of many hundreds of pips without a retrace? Is there a need for a shutdown of the EA at a certain % loss in that event? And do the different baskets and rings hedge each other out reducing overall account DD?

    I had a thought around the practical issue of applying the EA to so many individual pairs within the basket or ring – would it be easy to have it work by applying the EA to just one chart for each basket or ring? For example, If one was to run all 8 strategies with 2 sets of TPs that would be 64 charts to run which could be cumbersome. If it was one chart per strategy it would be 16 charts.

    I can also see a nice global Reticolo dashboard coming in handy here so one can view the current status of each open basket and ring and how close they are to TP or SL.

    I know i make a lot of requests but it doesn’t hurt to ask :)

    • Andrea Post author

      Hi Dan,

      when you have strong trends is when you make easy money. So welcome hundreds of pips moves! :) We are thinking abou adding a max DD stop loss but if set bad (too close) it will avoid the EA from making money. So we are still deciding :)

      Worst case scenario is very difficult to calculate as it’s impossible to test all the possible interaction between all the baskets and rings etc. The lot size/account value ratio suggested ($500-$1000 for each basket/ring with 0.01 lots) it’s quite conservative as we don’t want to loose money and we don’t want to have large DD in %. So we suggest you to strictly follow the suggested “ratio”.

      We’d really like to have one chart managing the orders for many currency pairs but we can’t. MT4 doesn’t allow that. An EA can open and close orders only for the pair it is applied to. So an EA on EURUSD can only open/close orders for EURUSD. That is a huge limit that force us to put the EA on each of the pairs involved in the strategy.

  • Neil

    Hi Andrea,

    Can you confirm, does it all have to be on one terminal? IMO using 32 charts on one mt4 is jsut playing with fire and asking for trouble. Could you put the baskets on one terminal, then load the ea and put the rings on another temrinal? And them still work as one?

    Also will the EA have auto-money management? basically so that the position size either increases or decreases as the balnace changes in proportion to this?

    • Andrea Post author

      Hi Neil,

      Yes I confirm that you have to put the EA on each chart. What you can do is “clone” your MT4 installation and make all the terminals work on the same account. So you have multiple MT4 running but all with the same login/password. That makes everything much more stable. Not only with ReticoloFx but this is a “general” rule specially when trading multiple EAs at the same time. Probably tomorrow I’ll write about that… You gave me a nice idea 😉

      The EA doesn’t have an auto-lot size feature… For now. But it’s not that difficult to add. And it’ll probably be part of one of the first upgrades.

      The important is that all the pairs part of a ring or of a basket run on the same terminal.

    • Andrea Post author

      If your US broker allows hedging you’ll have no performance loss.

      If it doesn’t then simply you can’t trade it actually.

      I’m developing a procedure that transforms every hedging EA into a non hedging one with no performance loss. But still working on it 😉 Once done it’ll be integrated into ReticoloFX and the next Crescendo Ultimate 2.0 as well.

  • Todd

    That is great new’s, not to put you on the spot,(ha ha) but how long before you do this?
    I am just wonderiing because I realy don’t want to switch brokers yet I want in on the fun.
    Like a week or two or are we talking weeks or months?

  • Eric

    Ciao Andrea,
    This seems like a smart enhancement of 4xcashcompounder? Are you also increasing lotsize in the grid on each side?

    Further, would it make sense once a set of trades got closed to wait for the stastistical next volatile ‘slot’ in the market, ie. not commence a new set on friday late in the day etc.? Just my 50 cents ^^

    • Andrea Post author

      Ciao Eric!

      We don’t increase the lot size for every order. The lot size is always the same.

      Well if you take out the classical news time like NFP etc, you don’t really know when volatility is about to rise. It’d be great but we don’t know. So the only real solution is have the EA always run and make it adapt to volatility. When there’s not much volatility the steps are closer so that we can still make money. We’ll surely do more when volatility “explodes”.

      But as for every EA, you can choose when it’s the best time to let it run and when to stop it 😉

  • Neil

    Thanks Andrea. Is this going to be a mass produced, pimped, and marketed hyped EA like that 5000 that hit most people’s emails each day? Or is this going to be more a private offering? Just curious as to the audience that this EA is goign to hit, and to how many users will end up trading it.

    • Andrea Post author

      Hi Neil,

      good question… you know that usually we don’t “mass produce” our products and we only release it by ourselves. But we’ve been literally “flooded” by requests from people that want to buy it and even by people that want to resell it.

      So what we decided to do is sell it only via our website at least for now. So it’ll be a PimpMyEA “exclusive”. But can’t guarantee that it’ll be so forever as we are really under pressure :) We are still deciding.

  • John

    How much RAM we should have to be able run all 32 charts?
    Also my broker has a min. 0.05 and my acc. has $8000
    start up capital, haw many pairs I can run.

    • Andrea Post author

      Ciao John,

      we just published a new post describing a method to run all 32 (or many) charts on multiple MT4 instances. This shouldn’t ask for much RAM. 1Gb should be enough for that.

      About how many EAs… with $8000 you could run all the EAs if you where able to use 0.01 lots, but with 0.05 you should run max 3 (like 3 rings or 2 basket and 1 ring… or whatever you want but max 3 set of pairs). Don’t go for more. You’ll add more as the account grows 😉

  • Joe

    Hi Andrea, when you say trending, what sort of timeframe is it in respect to? Like a pair can be trending on 15min but could be ranging on daily chart. I think I read somewhere that, all the trades in the demo accounts were 0.01 lot is that right? So there is no martingale here?

    • Andrea Post author

      Ciao Joe,
      no martingale. In the demo we used 0.1 lots and all the trades has been made with that size.
      About the trend… the EA has to be applied to 4H charts as the “range” and so the steps are calculated on that. So I’d look at higher timeframes like 4H/Daily.

  • Paul

    Hi Andrea,

    My broker allows a maximum of 100 open orders on an account.

    Is it likely that Reticolo could reach this number of open orders when running all rings and baskets?

    I’m thinking I may run Reticolo on its own account.

    Thank you for another great product :)

    Paul

  • Tweety

    Hi Andrea,

    you told that when you start it, it does nothing more than recording the price level and when the price moves “a step” up or down then it opens the first order in the direction of the first “break” depending on the price level when I started the EA.

    I was wondering if there are better points of time to start the EA or does it makes no difference?

    • Paolo

      Dear Oliver, the best points are probably strong S/R (support/resistance) levels, because around such levels price is going to bounce or break sharply. This is a situation of trending market that ReticoloFX loves. However discovering S/R levels with a software and testing them on multiple pairs is extremely difficult. The resulting robot would be extremely more complex than ReticoloFX and I’m not sure at all it would be more profitable than it already is :-)

  • Diane

    Hello Andrea,
    I am interested in ReticoloFX. Kindly explain why all the forward tests have not updated in recent days and weeks. Is it due to none of the open trades closing? Also, your MyFxBook account track records are unverified.
    Could you please provide access to some verified real money accounts running for more than a few weeks on mt4i, MyFxBook, or via an investor password.
    Thank you; Ciao.

  • Andrew

    Hi Andrea
    Reti is performing well – PF in your range of 1.3 to 1.5 and banked Profits exceeding DD. Question.
    If I have a $5K account I cld run all 8 EAs, 32 charts, at 0.01 lots; or I could run just 1 EA (Basket or Ring) at 0.08 lots, and be within your money management rules.
    Wld the first option be safer because of the greater diversity of pairs?
    I ask because 1 of the Baskets i my current portfolio is in a big DD but overall the DD on all 32 charts seems reasonable. But if I had had 0.08 lots on this one poorly performing basket I could be in trouble.?