Friday, December 9, 2011

Optimization of the USDCAD Hedging Strategy


“Nevertheless, psychologically, it's necessary that you trust your intuition. You need to evaluate what you personally know about how the markets will behave. Since history repeats itself only when it does, and conventional wisdom is right only when it is, you must trust your personal intuition. In the final analysis, the buck stops with you. You may be wrong or you may be right ─ only time will tell. But from a purely psychological vantage point, you have to trust yourself and make a decision. As long as you protect yourself through risk control, you can't hurt yourself too much.” – Joe Ross


I’ve written at least, 2 articles about this wonderful USDCAD Hedging strategy, yet it remains my secret. This is a method that brings constant survival in the market in which both buyers and sellers could easily be stopped out. In order to enhance the performance of this strategy, some changes were made. Since the USDCAD is invariably caught in equilibrium zones, some optimization was carried out in simulation mode to determine whether the profitability of this strategy could be improved by reducing the fixed target per trade by 35 pips. Nonetheless, this kind of reduction would make less sense in a strongly trending market.

There are some characteristics peculiar to the USDCAD which make this trading method ideal on it. The Greenback and the Loonie have always been in some cut-throat struggles against each other (Canada is the largest trading partner of the United States). Resistance and support levels on the USDCAD are more conspicuous, recalcitrant and effective. This pair may move up by 300 pips in a month, only to reverse all those gains and ultimately fall far lower than the previous entry level. It is not rare for the pair to drop by 100 pips or 130 pips or even 200 pips in a week and later rally – going up again. I have seen the market going up by a certain amount of pips on a candle and later coming down by the same amount of pips on the next candle; enabling a trader to make more money from the winning trade than the losing one. Results from this kind of trading method ought to be quantified on annual basis, not on quarterly or monthly basis. Besides, persistent patience is needed to use this strategy successfully. If you like to go for fast profits, you may discover that this strategy does not fit you.

Bringing the USDCAD to Subjection

This does not mean that the pair in question can be controlled by you: it simply means that you can gain some profits from its movement anyway. This non-directional trading system is used on the USDCAD with consistent annual profits (no matter how small or big). The minimum monthly profit target is 30 pips and the maximum monthly profit target is 400 pips. You would seek to open both long and short positions on this pair at an optimum time i.e. the beginning of a trading week. For me, the weekly total trade management time on this pair never exceeds 30 minutes. Albeit, this trading logic works well only for the USDCAD, it is extremely difficult to find other pairs/crosses on which it works successfully on a long-term basis. The only issue in using it on the USDCAD is that profits may not be closed on weekly basis if the market is in a tight consolidation phase; they may be closed every fortnight or three weeks. During a consolidation phase of this market, it may take a long time for one of the open trades to hit its target. Whatever the market does would not be worrisome to you, knowing that you have both long and short trades.

Strategy Snapshot

Strategy name: The USDCAD Hedging Strategy

Trading type: Swing-cum hedging

Time frame: Non-timeframe specific

Entry: To be made available soon – free of charge

Exit rule: To be made available soon - free of charge

Alternative exit: To be made available soon – free of charge

Position sizing: 0.04 lots for each $1,000 (thus making it 0.4 lots for each $10,000 and 4.0 lots for each $100,000

Stop: To be made available soon – free of charge

Take profit: 150 pips for each trade

Trailing stop: Not necessary

Hit rate: To be made available soon – free of charge

Annual returns: Approximately within 10% to 35% per annum


As I said earlier, this strategy remains my secret, but it’s high time I revealed it totally free of charge to interested people. I’d soon show some examples of recent trades taken with this trading method. At that time, I’d give readers the chance to posses this strategy. It’ll be in form of an easily understood and do-it-yourself format. It comes with simple explanation, entry criteria, exit criteria, alternative exit, stop loss, effective trade management and other valuable hints. It’ll also contain recent trades and their accompanying charts. Please get ready to get your own free copy.

I conclude this article with a quote from Joe Ross. It has to do with a normal trading mindset all winning traders must have.

“When you are having a bad day, it's hard to not get bogged down. All you can think about is the current trade you are about to make, and how you desperately want it to be a winner. It is at these times, however, that it is useful to think of the big picture. Rather than looking at the outcome of a single trade by itself, remember that it is merely one trade among the many that you are prepared to make. All that is important in the end is to come out ahead across a series of trades. Looking at the big picture can do a lot to make you feel better when you are in a slump or are about to make a trade. By remembering it is just one trade among many, you can feel more calm and relaxed while you execute a trade.”

NB: Please watch out for my coming articles with these titles: ‘Making Money out of Losses – A Blessing in Disguise,’ ‘Achieve a Better Hit Rate with Gap Trading (Using the Logic Yourself),’ ‘Play the Markets Victoriously with Nano-cent Accounts,’ ‘Why It’s Difficult to Do the Right Things in the Markets,’ ‘How to Identify a Sideways Market – Be Safe!’ ‘A Negative Expectancy System – Pushing Against the Wind?’ ‘Trading Signals,’ ‘An Intraday Moves Catcher – A Wealth Generating System,’ ‘Unlock the Power of Everlasting Triumph in the Markets (Parts 1 - 12),’ ‘How to Handle Uncertainties in the Markets,’ ‘The Issue of Stops (Come Back! Oh Come Back!),’ ‘A Hedge Funds Strategy,’ ‘My Hedge Funds Strategy Update,’ ‘Experiment with Different Exit Tactics,’ ‘Mastering the Market Equilibrium Zones – A Time-sensitive Method,’ ‘How I Apply Risk Management – Part 3,’ ‘A Simple Positive Expectancy System – Trading Effortlessly,’ ‘Testimonies from My Subscribers,’ ‘Resist the Lure of High Risk – Part 4’ ‘Worst-case Scenarios – Facts Are Sacred,’ ‘Effective Swing Trading in Forex,’ ‘Gap Trading Revisited,’ ‘3 Recent Gap Trades,’ ‘Developing the Right Attitude towards Losses – Part 4 (Losses Aren’t Abnormal) ,’ ‘The True Holy Grail – The Long Sought for,’ ‘Forex Trading Vocabulary,’ ‘ Clarifying Some Issues – Part 6,’ ‘Navigating Turbulent Markets – A Double Timeframe Analysis,’ ‘Before You Open that Trade,’ ‘Cogent Trading Biases,’ ‘Overview of My Signals Strategies – Can You Become a Super Trader?’ ‘The Cost of Discipline,’ ‘Monthly Market Review,’ ‘Uncertainty Has Become My Ally – An Interview with a Dogged Market Speculator,’ ‘2 Examples of the USDCAD Hedging Trades,’ ‘Annual Trading Update (2011) – The Big Picture,’ ‘You Are a Blessing to the World of Trading - A Debt of Gratitude,’ ‘Annual Trading Results (2011) – I Was Perfecting My Trading Skill,’ ‘2012 – Another Year of Victory in the Markets,’ ‘Monthly Trading Report (December 2011),’ etc.

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC


Yahoo! Messenger ID: saazalmu

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