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Using a hedge when trading is ensuring that you make money by reducing the risk or effects of losses. If you were to buy a currency and at the same time sell the same amount of the same currency you would totally hedge your trade which of course would be a waste of time as you would make neither loss nor profit. However, a partial hedge spread over two currency pairs is a different matter.
An example of hedging in everyday life, the concept of the need to find a hedge against inflation, is well understood. Inflation will compound against you over time in the same way that compound interest works against you if you owe money and for you if you lend money. In trading, few traders have ever effectively worked out a way to reduce the inevitable losses by employing a hedge technique so that losses do not compound against you as your trading proceeds.
In CHTrader there are several very effective hedge operations, all working along side each other to greatly enhance the price analysis and compounding management of your funds growth, always automatically at work in the CHTrader automated system.
Verification of the hedge effect in action can be seen in the performance results for CHTrader between November 2006 and May 2008 where the percentage of profitable trades for each currency (approximately 64%) was lifted to approximately 70% profitable of the hedged pairs (GBPUSD and USDJPY) traded concurrently. This trade by trade part of the hedge operation in CHTrader lifted overall profitability about 10%.
In addition to this there is a long term hedge in operation in CHTrader.
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The USDJPY and the GBPUSD are chosen for the hedge as the UK economy is reasonably independent from the Japanese economy in terms of time zone and trading geography. For example when the UK economy and currency is structurally distorted in relation to the USD then chances are the Japanese economy and currency will be less so.
This was the case in October 07 through March 08 where the GBPUSD trading in CHTrader was responsible for only about one third of the overall CHTrader profit due to structural problems with the Pound. During these months, CHTrader used the temporarily easier to analyse USDJPY to hedge the temporarily problematic GBPUSD.
Two influences cause ongoing currency price movements to unfold. They are ongoing “innate” technical structure and random fundamental events. The later are the traders’ nightmare.
CHTrader capitalises on the fact that these random events affect the GBPUSD at different times than they hit the USDJPY. Therefore if the GBPUSD is distorted making it difficult to trade, then chances are the USDJPY will not be distorted concurrently and therefore easier to trade and vice versa.
CHTrader uses thousands of mathematical algorithms (neural networks) to study the live relationship between the GBPUSD and the USDJPY pairs to detect this non-correlated distortion. CHTrader uses this information to create the hedge enhancement of trading results by trading these two currency pairs concurrently.
The result is a very unique and effective way of automatically trading currencies with a greatly enhanced result over non hedged trading.
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