Positioning and Scaling

As many of you know, we use a lot of order book analysis (our primary trading) that is all systematic and uses a lot of methods for scaling and calculating risk.

However our new order book methods – that we trade manually and you can proxy – are very simple when it comes to scaling in and out, and certainly worth understanding.

Essentially we use hedging accounts, which means we can go long and short in a currency pair at the same time (most brokers will allow this but worth ensuring you can).

The process we then run uses two key indicators

  1. Regression of Order Book Values
  2. Psych Indicator

Essentially we trade these independently of each other with 50% of our position for that currency pair, then use the differences between them to act as a natural hedge through choppy periods.

Scaling EURUSD

As this chart shows above, we would have got short by two positions in the account on the initial signal as both Psych and the Regression crossed below their signal lines.

Then on the 8th of August the Regression gave us a long signal, we therefore switched this position to long and are running one short and one long position.

On the 11th however it switched short again, and we are now back to running two short positions. We did, however, manage to book on the initial Regression short and a small profit on the long.

This means that when we get into choppy conflicting signals we are naturally hedged with one long and one short position meaning we don’t lose any money (we technically could make or lose money on the overnight swap), and if the trend does turn we are able to capture the majority of it.

This is a similar technique whereby we wait for confirmation of two signals, however we find this method allows us to react quicker should the trend change; allowing us to close out losing trades quickly.

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