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Hedging Strategy and whole Mathematics behind it — Transcript

by EcoEngineering · 2,296 words · 462 segments · language en · Watch on YouTube

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0:01hello guys i hope you all are doing well
0:04in this video i'm going to teach you how
0:06to use hedging strategy this video
0:09contains
0:10two different section the sections the
0:12first section is about the hedging
0:15strategy itself and i explain how it
0:17works uh the second section is about the
0:21math
0:22behind the hedging strategy and how
0:25uh to use the mathematic to calculate
0:27the lot size for each trade in each
0:30iteration
0:32so if you are already familiar with
0:35hedging strategy and you
0:38are only interested in the mathematics
0:41subject i suggest you to skip the video
0:44to the minute and second that you can
0:47see
0:48below in this video
0:51if this is the first time watching our
0:52video in our channel we speak about the
0:55algorithmic trading and
0:57different kind of strategies for
0:58cryptocurrencies forex and any other
1:01markets if you are interested in this
1:03subject i would really appreciate if you
1:06uh subscribe our channel and at the end
1:08of the video if you like it please hit
1:10the like button so uh youtube algorithm
1:13will introduce us to
1:15others who are interested in these
1:17subjects uh and if you have any
1:19suggestion for me any subjects that you
1:22want me to cover i would really
1:24appreciate if you
1:26leave a comment and
1:28give me your feedback in the comments i
1:30will read them and we'll consider them
1:33for future videos i wish you enjoyed
1:35this video and stay with us until the
1:37end
1:44imagine that the price for one share or
1:47one pair going like that and based on
1:49our strategy we decided to send a buy
1:51order here
1:53in this price and we send one lot by
1:56order uh then normally we have a take
2:00profit here uh we consider it as a 60
2:03pips
2:04and we have a stop loss that
2:06based on the fact that here we consider
2:09the risk to reward three
2:11uh it would be 20 pips lower than entry
2:14points uh normally when the price hit
2:17the establish we close the order
2:20and we lose money this is the normal way
2:24of trading but
2:25when we are using the hedging technique
2:28uh i don't call it strategy because i
2:31consider it as a technique to
2:34close the orders not uh opening a trade
2:38so
2:39uh with hedging techniques instead of
2:41closing
2:42uh
2:43the order when it hits the stop loss
2:47we have
2:48another line
2:50which
2:51in this case
2:53instead of closing the order we open
2:55another order which is in contrast with
2:59the first all order when it is by here
3:02we enter
3:05with a cell and we decide to enter with
3:081.5 large and as i mentioned how to
3:11calculate these lot size i would explain
3:14in next section here i only
3:17explain how the
3:19hedging techniques work
3:21and then i explain how to calculate
3:23these
3:24lots for each iteration so
3:28and
3:29after opening another order
3:33in the other direction we have another
3:36line here
3:38this line would be take profit for the
3:41sales orders
3:43and establish for
3:45buy orders and the line here
3:48would be take profit for buy orders and
3:51stop loss for
3:53sell orders we call these two line the
3:56blue one would be by lines which
3:58whenever we cross it
4:00uh based on its iteration we will buy
4:04and send a buy order and whenever we
4:06cross
4:07uh the red line which is uh
4:09corresponding to the sell line we would
4:11send
4:12a sell order so
4:15and both of these uh sections are 60
4:18pips and here it is 20
4:20pips but uh this is just an
4:23example and it can be any pips just we
4:27must do it based on our risk to reward
4:30so
4:31now
4:33uh imagine that
4:36in this case price goes in our favor and
4:40go down and down and down and hit these
4:42cells
4:43take profit
4:45and by establish when we hit it
4:49we close all open orders whether they
4:51are sell orders or
4:54buy orders and in this case
4:57uh what would be our profit
4:59first
5:00uh we opened
5:03uh we opened 1.5 lot
5:06sell order here which it gained 60 pips
5:09and it would be 60
5:12multiply 1.5 lot
5:14and plus
5:16minus 80 multiply one why because we
5:19have a buy order which
5:21its value is one lot and it has lost
5:2680 pips so it would be minus 80 multiply
5:31one and the result would be 10 units
5:36so
5:37in the normal way of trading when we hit
5:41the take but the establish actually we
5:43would have lost
5:44uh money but in this case we gained even
5:48a little amount of money although
5:50the purpose of this strategy is not
5:52gaining money it is
5:54preventing to stop to losing money
5:57so
5:59now imagine that after
6:01this iteration
6:04price does not go in our favor and it
6:07again
6:08goes back and go higher
6:11and again hit this by lines
6:15in this case
6:16we send another by order for example
6:19here 1.1 lot and i explain how to
6:21calculate this lot here it is not
6:24complicated it is simple
6:27and
6:28after sending this 1.1 by lot the ma the
6:32price goes in our favor
6:35and hit the buys take profit or sells
6:39establish
6:41what would be our profit in this case
6:43here we have two open buy orders one of
6:46them is one lot and other is
6:481.1 and both of them gain 60 pips
6:53plus
6:54minus 1.5 multiply 80
6:57and the result would be 6 unit and still
7:01still
7:02we would gain
7:03some money
7:05again the next iteration if
7:08the price does not go in our favor and
7:10goes back and hit
7:12the cell lines we again send another
7:15sell order with 1.6 lot and when it
7:19continues in our favor
7:22our profit would be
7:2580
7:2618 units
7:28so basically this is how the
7:31hedging technique
7:32works
7:33theoretically these techniques help you
7:36never lose money but it's not possible
7:38to to
7:39hedge forever and in one point because
7:43you are paying spread you are paying
7:45commissions you are playing paying swaps
7:48in one point uh your margin would be
7:51limited and uh the broker will not
7:54uh or would not let you to send another
7:58order
7:59so it is very important that you know
8:02that whenever you are using these
8:04techniques to close your orders actually
8:06you are risking
8:08your whole balance for being margin
8:12called
8:13although it is rare to be margin call
8:17but it would happen some things in these
8:19markets may not happen in three years
8:22but once they happen
8:24they will margin call your account so
8:28you must be very careful and uh
8:31of course it's better to start
8:33hedging with very small lots your when
8:36you are using these techniques your
8:38first order must be very small
8:42uh it is important to notice that uh for
8:45us it is better to
8:47uh only open one order and the first
8:49order that we open based on our strategy
8:51hit the take profit because in this case
8:54we would gain the maximum amount of
8:56money but when we are implementing
8:58actually the
9:00hedging strategy hedging techniques to
9:02close the order it means that our our
9:04first
9:05uh pre-consumptions regarding
9:08the entry points and the signal that
9:11gave us to send the order was not true
9:13and we were wrong so
9:16we don't want to gain money we just want
9:18to close the orders without losing money
9:27so in this section i teach you how to
9:29calculate the lot size for each
9:32iteration in
9:33edging strategy
9:35to this point we know that we have a
9:37byline
9:38bias line and sales lines here
9:41and two
9:43different
9:44line
9:46that
9:47here this line would be the take profit
9:49for buys orders and establish for
9:52sales orders and uh vice versa here we
9:55this line would be the take private for
9:57all cells order and stop us for by
10:00orders this distance would be a as you
10:03can see in the formula the a
10:06would be it can be anything and it
10:09doesn't matter because
10:10uh you have a division that all a's
10:13would be simplified together but you can
10:14see
10:15it
10:17in the
10:18next section
10:20and this distance would be risk to
10:22reward multiply a
10:26for the previous example we considered
10:28here 20 pips and here
10:30three
10:31times
10:33bigger and it would it was
10:3660 but
10:38generally
10:39it is rich to reward multiply a and here
10:43again it is risk to reward multiply
10:46a
10:47so if the price goes goes like that and
10:49we enter here with
10:51uh the lot size of first buy
10:56and price goes down and we enter with
10:59the lot size of
11:01first cell
11:03and
11:04uh when the price goes in our
11:07favor
11:08in order to stay in profit this
11:10non-equation must be
11:12true what is that
11:14uh lot size of first cell multiply
11:19this this distance which is rich to
11:21reward multiply a
11:24must be greater than
11:26lot size off
11:27first
11:28by
11:30multiply
11:31its distance which is this distance
11:35this distance plus this one a plus risk
11:39reward multiply a and then
11:43uh
11:43it would become this one here a plus
11:46history what a divided to reach through
11:48our multiply a the a would be simplified
11:51together and ls one must be
11:54greater than risk to reward plus one
11:57divided risk reward multiply lot size of
12:03uh first
12:04by
12:06so this is
12:07the final equation
12:08for the first iteration
12:11uh
12:12as an example
12:14if the
12:15lot size of first by b1
12:18and the risk to reward b3 then based on
12:21this formula lot size of first
12:24cell must be greater than
12:271.34
12:29and
12:30in order to cover the
12:32commission spread and swab
12:35i usually multiply it to 1.1 so it would
12:40be
12:40uh
12:4210 percent higher
12:44and lot size of first cell would be
12:471.48
12:48of course you can use for example uh
12:51your
12:52percentage maybe 1.2 or
12:551.05 five percent higher than that but i
12:58prefer based on my
13:00broker i prefer to multiply it by
13:031.1 and
13:05and consider it 10
13:07higher so
13:09now we continue our
13:11uh
13:12equation
13:14imagine that we heated this line several
13:17times
13:18and here it would be the large size of
13:20first buy let's say the first cell lot
13:22size of second buy plus size of second
13:25cell lot size of third
13:28bi
13:29and here lot size of
13:33n minus 1 cell lot size of
13:37ends
13:38by
13:39here is the lot size of
13:42ends sell
13:44so
13:46we continue we write the calculation
13:49again
13:50in order to stay in profit
13:54the sum of
13:56all cells lie a lot
13:59multiply
14:0060 or risk to reward multiply a here i
14:04wrote 60 to be
14:06uh to seems uh simple
14:08more
14:09simple
14:11must be greater than
14:13the sum of by lots
14:16multiply 80 but of course
14:19here is risk to reward multiply a
14:23and here is a plus
14:26risk to reward multiply a
14:31so
14:35it would change to this non-equation
14:38which it means
14:41lot size of ends l must be plus lot size
14:44of my n minus one
14:47cells
14:48plus lot size of second cells plus lot
14:51size of first cells
14:53must be greater than risk to reward plus
14:56one
14:57divided which to reward
14:59multiply
15:01lot size of ends by plus let's size of
15:06third by
15:08plus let's size of second by and plus
15:10the size of first
15:12by
15:15and
15:20if
15:21we transmit this practice here because
15:25all of these lot size are known for us
15:28because we calculated them in previous
15:31iterations
15:32except
15:33this one
15:35lot size of ends
15:38sell
15:39this one is known this one is known this
15:41one is all of them are known because we
15:42have calculated them in previous
15:44iterations so we transmit the
15:46parenthesis here we want to find out
15:50the value of this lot size so
15:53lot size of ins
15:56cell
15:57must be equal to
16:00risk to reward
16:02plus one
16:03divided risk reward
16:07multiply the sum of open buys
16:11lots all the buy slots
16:13which are open right now
16:16minus
16:17the sum of
16:18open sales lot
16:21here
16:22this blue one means the sum of all of
16:25these lots
16:26and the red one means the sum of all
16:28these lots
16:32and in order to cover the commission and
16:35the spreads and swaps
16:38i multiply whole of this equation
16:41by
16:421.1
16:44so consider the lot size 10 percent
16:47higher
16:48and this is the final formula for
16:51calculating the lot size of
16:55uh the cell
16:58and if
16:59instead of
17:01calculating the cell lot size we are
17:04crossing the bias line and we want to
17:06calculate the by
17:08the lot size of by order
17:12the formula
17:13would be
17:14exactly vice versa and
17:17uh the lot size of n spy would be raised
17:21to r plus one multi divided by risk
17:24reward
17:25uh multiply
17:27sum of open cells lots
17:30minus sum of open buys
17:33lots
17:34and in order to cover the expenses we
17:36multiply them by
17:391.1 to consider it 10 percent higher
17:44so i used this formula to implement my
17:47expert advisor and use algorithmic
17:49trading
17:51to implement the hedging strategy
17:53because hedging strategy is a little
17:55sensitive and
17:57it's not efficient to sit down in front
17:59of the your computer and
18:02uh always check whether it's time to
18:05open the next order or not and it must
18:07be done
18:08by algorithmic trading
18:11this formula is
18:12the formal that i
18:14always use in hedging
18:17techniques i hope you enjoyed this video
18:19please
18:20do not forget
18:22to introduce us to your friends those
18:24who are interested in these subjects and
18:26if you like the video please hit the
18:28like button so the youtube algorithm
18:31would introduce us to others who are
18:33interested in this subject
18:36i wish you had a good
18:38day goodbye

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