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.