FREEDOMROCKS - conflicting views

forex101

Newbie
1 0
I use the freedomrocks software...

I'm not sure you have a good grip on what it is all about...

You trade the Eur/USD vs the USD/CHF they are almost exact mirrors of each other. Big moves don't theoretically effect you because when the Eur/USD goes one way almost immediately the USD/CHF goes the other way. they have deviated by something like .96% or .04% over the last few years. So the money is made through the interest you are earning when you own the paris. The 400:1 leverage makes that interest quite significant. Of course if the pairs deviate in your favor you can capture the gains and start again compounding the new amount at that same high interest rate. It is a steady way to earn good money. The system sets limit orders so that you are buying and selling small amounts to balance out your position. It has worked for me so far.

You can try it for as long as you want in a demo account to test it out for yourself http://freedomrocks.com/23223
 

tradeartist

Newbie
6 0
Freedomrocks

I'm not doing Freedomrocks but I have discussed it at length with several of their users. The reason there is no stop loss is because it is a hedging strategy. You don't need Freedom rocks to do it but for $100 per month they provide a simple software and system to follow.

It is not trading. It is more of an investment strategy for people who have given up on learning to trade. When one of the hedged currencies moves at a greater velocity than the other and your profit goes positive you do "cash grabbing" which is taking profit. Of course if you were trading instead the cash grabbing would be much bigger. They purpose of the hedging is strictly to get the difference in the carry over interest with profit on trades being a secondary source of income.
 

pssonice

Established member
900 12
unaccessible website, needs java script to stripe information from your harddisk

be the first to know if this is true
 

a_gnome

Well-known member
434 15
forex101 said:
I'm not sure you have a good grip on what it is all about...

You trade the Eur/USD vs the USD/CHF they are almost exact mirrors of each other. Big moves don't theoretically effect you because when the Eur/USD goes one way almost immediately the USD/CHF goes the other way. they have deviated by something like .96% or .04% over the last few years. So the money is made through the interest you are earning when you own the paris. The 400:1 leverage makes that interest quite significant. Of course if the pairs deviate in your favor you can capture the gains and start again compounding the new amount at that same high interest rate. It is a steady way to earn good money. The system sets limit orders so that you are buying and selling small amounts to balance out your position. It has worked for me so far.

You can try it for as long as you want in a demo account to test it out for yourself http://freedomrocks.com/23223

Why don't you just trade the very liquid EURCHF cross rate? If you are long (I think) this pair then you gain the difference between the EUR and the CHF interest rates on the leveraged amount. Why bother with the two major rates? Or am I missing something?
 

zupcon

Experienced member
1,162 322
A Dashing Blade said:
So this is a positive carry trade "system" yes?

yes, its a positive carry trade system.

They also operate as a multi level marketing program

regards
mick
 

smarties

Newbie
2 0
a_gnome said:
Why don't you just trade the very liquid EURCHF cross rate? If you are long (I think) this pair then you gain the difference between the EUR and the CHF interest rates on the leveraged amount. Why bother with the two major rates? Or am I missing something?


A_Gnome.

It's great if you hold the EUR/CHF long and earn the interest but the fact is, you cannot predict when it is going up or down. As you cannot benefit from a Long position in a down market and the interest earned wouldn't be very valueable if your account keeps dropping.

So Freedomrocks uses the EUR/USD to Hedge against the USD/CHF. With a very close correlation it's the closest thing to hedging a single currency pair.

It's a Correlation trading method that Freedom Rocks uses. Probably on a Larger Scale the big financial institutions use similar types of Correlation techniques for hedging.

The FreedomRocks system simply allows the average person to get into the markets with a hedging strategy that doesn't require them to spend hours upon hours at their computers reading charts and signals looking for the next big break.

There is more to it then that and unless you have all the facts about any type of trading system, it's really difficult to make a blanket statement about it. It's like me saying "Candlestick formations are crap and don't tell you anything". I wouldn't say that of course because I have only had the luxury of using them only a few times throughout my trading.

Anyway, that's my 2 cents.

Cheers!
Rick M.
 

a_gnome

Well-known member
434 15
smarties said:
A_Gnome.

It's great if you hold the EUR/CHF long and earn the interest but the fact is, you cannot predict when it is going up or down. As you cannot benefit from a Long position in a down market and the interest earned wouldn't be very valueable if your account keeps dropping.

So Freedomrocks uses the EUR/USD to Hedge against the USD/CHF. With a very close correlation it's the closest thing to hedging a single currency pair.

It's a Correlation trading method that Freedom Rocks uses. Probably on a Larger Scale the big financial institutions use similar types of Correlation techniques for hedging.

The FreedomRocks system simply allows the average person to get into the markets with a hedging strategy that doesn't require them to spend hours upon hours at their computers reading charts and signals looking for the next big break.

There is more to it then that and unless you have all the facts about any type of trading system, it's really difficult to make a blanket statement about it. It's like me saying "Candlestick formations are crap and don't tell you anything". I wouldn't say that of course because I have only had the luxury of using them only a few times throughout my trading.

Anyway, that's my 2 cents.

Cheers!
Rick M.


Thanks for the reply Rick.

Firstly let me say that all I am wanting to do is to understand properly what is going on. Please don't take any of this personally.

I'm afraid that what you are saying about hedging doesn't make sense. Let me illustrate using the example in the Freedom Rocks promotional video (which I have now watched). It says go long 50 lots EURUSD and long 50 lots USDCHF. You then aim to take 1 lot profit 100 pips above yoru entry price if it moves in your favour or to buy another lot if it moves 100 pips against you (with a view to selling it out again once it moves back to your entry price).

Now long 50 EURUSD and long 50 USDCHF is equivalent to long 50 EURCHF. (EDIT: this is actually only true if the sizes traded are for the same USD amounts but it is pretty close otherwise). The reason why you are "hedged" is because the EURCHF rate doesn't move very much (have a look at a chart) compared to the USD major rates and you are completely hedged against the USD (for example you will find that at major news releases for example your position won't change since the EURCHF rate doesn't budge). You do have an outright EURCHF position though and the associated risk if it should move against you.

There see to be two components to the strategy:
1. the carry interest - you earn the same amount by holding the EURCHF position as you do if you leg in with the USD components.
2. the grid trading - this basically assumes that the market does not trend very much (which is true for EURCHF) so you are probably selling and buying at 1 standard deviation intervals from your entry price. You could put the initial position on in EURCHF and trade the 1 lot grid trades in the USD legs just as easily or you could do the grid trading part just in the EURCHF instead.

I can see how this strategy would work and for the EURCHF pair you are probably not going to get into any serious trouble unless it starts moving in a straight line in one direction. In such an instance you will end up on the wrong side of the move and losing. What is the strategy in the grid trading component if the market keeps going against you? The usual policy is to keep buying or selling at the next grid line (sometimes doubling up) until it moves back in your favour or until you go broke. If you are using high gearing then the going broke part will happen for a smaller straight-line move than with smaller gearing.

In conclusion I can see the underlying basis of the method now though I wonder how many of the FreedomRocks users actually understand the risks that they are taking on and how and when it can go wrong.
 
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smarties

Newbie
2 0
a_gnome said:
Thanks for the reply Rick.

Firstly let me say that all I am wanting to do is to understand properly what is going on. Please don't take any of this personally.


No worries. :) I'm enjoying this conversation. It challenges me to better understand the markets. I appreciate your point of view.



a_gnome said:
I'm afraid that what you are saying about hedging doesn't make sense. Let me illustrate using the example in the Freedom Rocks promotional video (which I have now watched). It says go long 50 lots EURUSD and long 50 lots USDCHF. You then aim to take 1 lot profit 100 pips above yoru entry price if it moves in your favour or to buy another lot if it moves 100 pips against you (with a view to selling it out again once it moves back to your entry price).

Now long 50 EURUSD and long 50 USDCHF is equivalent to long 50 EURCHF. (EDIT: this is actually only true if the sizes traded are for the same USD amounts but it is pretty close otherwise). The reason why you are "hedged" is because the EURCHF rate doesn't move very much (have a look at a chart) compared to the USD major rates and you are completely hedged against the USD (for example you will find that at major news releases for example your position won't change since the EURCHF rate doesn't budge). You do have an outright EURCHF position though and the associated risk if it should move against you.


I understand what you are saying in the paragraph above. I looked at a chart. (Included below). It seems to me that the EUR/CHF trends similar to the EUR/USD. The USD/CHF has an opposite trend. The range since 1997 on the EUR/CHF is around 2000 pips which is considerably less of a range compared to the appx 5,000 pips of the EUR/USD and the 8,000 appx of the USD/CHF. So I can understand what you mean by the fact that the EUR/CHF rate doesn't move much. Although the trend still goes in a similar fasion as the EUR/USD.


Your last point is the point that makes the Freedom Rocks trading system work better with 2 currency pairs. In your scenario, if I am Long EUR/CHF and the market continues to drop, then I will continue to drain my account.

In FreedomRocks. if I am long EUR/USD and Long USD/CHF, they are closely correlated in opposite directions. So if the market is going down for EUR/USD then on average the USD/CHF is going up. And if the EUR/USD keeps going down in a straight line, you are buying EUR/USD lets say 1 lot at a time for easy numbers. Well because of the close correlation, the USD/CHF is going up in a straight line on average and you are Selling 1 lot at a time capturing profits on the USD/CHF.

That's where the hedge comes in and why there is an advantage of holding both currency pairs.





a_gnome said:
There see to be two components to the strategy:
1. the carry interest - you earn the same amount by holding the EURCHF position as you do if you leg in with the USD components.
2. the grid trading - this basically assumes that the market does not trend very much (which is true for EURCHF) so you are probably selling and buying at 1 standard deviation intervals from your entry price. You could put the initial position on in EURCHF and trade the 1 lot grid trades in the USD legs just as easily or you could do the grid trading part just in the EURCHF instead.


1. You're right. The carry interest is the same. However I feel the risk is higher if you're holding this pair long alone instead of hedging like I explained above.

2. For the same reason above, with your scenario only, if the market moves in the down direction you could get caught in the cross hairs. :cheesy:




a_gnome said:
I can see how this strategy would work and for the EURCHF pair you are probably not going to get into any serious trouble unless it starts moving in a straight line in one direction. In such an instance you will end up on the wrong side of the move and losing. What is the strategy in the grid trading component if the market keeps going against you? The usual policy is to keep buying or selling at the next grid line (sometimes doubling up) until it moves back in your favour or until you go broke. If you are using high gearing then the going broke part will happen for a smaller straight-line move than with smaller gearing.


As indicated above the pseudo hedge of the 2 opposite currency pairs is what gives you a cushion for this type of situation. Unless there is some pretty drastic news out of switzerland that doesn't affect the EUR or vice versa these two currency pairs have generally been closely correlated and work in opposite directions.




a_gnome said:
In conclusion I can see the underlying basis of the method now though I wonder how many of the FreedomRocks users actually understand the risks that they are taking on and how and when it can go wrong.



Every Forex trading system comes with risk, the FreedomRocks system doesn't guarantee risk free trading either. But based on your scenario with just trading the Cross Curreny there is great risk if the market moves against you but it is clear that the FreedomRocks does not work the same as if you were trading only the EUR/CHF. because of the pseudo hedging of the 2 currency pairs.

I encourage more people to get involved in this discussion an put your points forward.

Cheers!
Rick M
 

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a_gnome

Well-known member
434 15
smarties said:
No worries. :) I'm enjoying this conversation. It challenges me to better understand the markets. I appreciate your point of view.

Glad to hear it. Likewise I am enjoying the discussion.

smarties said:
I understand what you are saying in the paragraph above. I looked at a chart. (Included below). It seems to me that the EUR/CHF trends similar to the EUR/USD. The USD/CHF has an opposite trend. The range since 1997 on the EUR/CHF is around 2000 pips which is considerably less of a range compared to the appx 5,000 pips of the EUR/USD and the 8,000 appx of the USD/CHF. So I can understand what you mean by the fact that the EUR/CHF rate doesn't move much. Although the trend still goes in a similar fasion as the EUR/USD.

I'm afraid that you are still not fully understanding the nature of what a cross rate is. When you talk about EURUSD and USDCHF being closely correlated you are correct. However the extend to which they are correlated is dicated by the EURCHF pair. That is in fact what the EURCHF pair is. If you are long equal USD sizes of EURUSD and USDCHF then BY DEFINITION you are long the EURCHF pair. For example when a bank needs to do a large trade in an illiquid cross rate they do the appropriate sizes in the USD rates for each side of the cross rate pair since those two trades are identically equivalent to the cross rate.

smarties said:
In FreedomRocks. if I am long EUR/USD and Long USD/CHF, they are closely correlated in opposite directions. So if the market is going down for EUR/USD then on average the USD/CHF is going up. And if the EUR/USD keeps going down in a straight line, you are buying EUR/USD lets say 1 lot at a time for easy numbers. Well because of the close correlation, the USD/CHF is going up in a straight line on average and you are Selling 1 lot at a time capturing profits on the USD/CHF.

That's where the hedge comes in and why there is an advantage of holding both currency pairs.

You say that if the EURUSD is going down then on average the USDCHF is going up. The degree to which the USDCHF is going in the opposite direction is dictated by the EURCHF rate - this is in fact what the EURCHF rate means. If the EURCHF rate doesn't change at all then you will be perfectly 100% hedged and what you say about making on one what you lose on the other is correct. If on the other hand the EURCHF rate shifts then you will only be partially hedged - the more that the EURCHF rate shifts the less perfect your hedge is.

Let me illustrate with some actual figures. Currently as I write EURUSD = 1.2945 USDCHF = 1.2535 and EURCHF = 1.6227. Note how 1.2945 x 1.2535 = 1.6227 exactly as this is the definition of the cross rate.

Let's go long EURUSD and short USDCHF in equal USD amounts (which may not be exactly what you do in Freedom Rocks but serves for the purpose of this discussion).

Scenario 1.
EURCHF rate is unchanged. EURUSD goes up by 2% to 1.3204. We can work out the corresponding change in the USDCHF from the EURCHF rate. Since the EURCHF rate is unchanged the USDCHF rate = 1.6227 / 1.3204 = 1.2289. Note that this is a 2% drop from the starting level of the USDCHF. We are therefore perfectly hedged since the 2% rise in EURUSD is counteracted by the 2% drop in USDCHF. If the EURCHF rate doesn't change then you are completely hedged.

Scenario 2.
EURCHF rate drops 2% to 1.5902. EURUSD goes up by 2% to 1.3204. How much does the USDCHF go down in response to this move? The answer is USDCHF = 1.5902 / 1.3204 = 1.2043 a drop of 4%. So in this scenario our hedge is not so good with a 2% loss. Note how the 2% loss is exactly equal to the move in the EURCHF pair (since that is effectively the position that you have).

In conclusion you are only hedged to the extent that the EURCHF rate doesn't change.
smarties said:
In your scenario, if I am Long EUR/CHF and the market continues to drop, then I will continue to drain my account.

Exactly! The truth is that you DO have a long EURCHF position together with all the associated risk. Of course if the EURCHF rate goes up then you will actually gain money from your "hedge" but there is no escaping the fact that you have a EURCHF rate position whether you do it in one trade or as two seperate USD trades as Freedom Rocks suggests.

I hope that this clarifies things.
 

qclown

Newbie
3 0
I think something that may be getting overlooked here is that when you are trading the two pairs rather than just the EUR/CHF you can adjust you position and exposure to either side. The FR video shows a balanced pairing but notes that is a situation that almost never occurs. The fact is that no position I have ever seen FR take can be duplicated using the EUR/CHF. The reason for this that you can't trade the single pair without being locked into the "carry trade". By breaking it up, you can take advantage of the differences in each currency.

Another reason for trading the two pairs rather than just the single is that the individual currencies don't track perfectly and you can sell off one that is overheating and/or buy one that is getting oversold. This changes the entire balance of your portfolio and moves you further away from the EUR/CHF trend.

Overall, trading the single pair locks you into trading that trend. Breaking them up allows you to limit loss and profit from gains in a way that wold otherwise be impossible. That's why FR works much, much better than you would think by just looking at the EUR/CHF.
 

qclown

Newbie
3 0
A quick warning. I know a large number of posters here also post on the TalkGold Forum. That forum has been hacked. Posts are disappearing and false posts are being inserted under other peoples names. I had a third party post a note warning that there was a problem and these same people pounded the Warning Bot until the account was eliminated. If you have any personal data in the UserCP I would remove it right now. Email addresses, anything with personal ID.

The Administrator has been informed but it may be a while until order is restored. Until then I would be very careful.
 
 
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