The Dual Account Strangle

[Wicked_Daddy]

I have been an equities options trader for many years and recently began working on my Forex trading. My options strategy has always included strangles and straddles. For those that don't know, both strategies employ the buying of both put and call options that effectively cancel each other on both sides of the current price. In a volatile market, one will become worthless while the other will become more profitable than the opposite loss. The best time to put on a trade like this is when volatility is low and expected to increase. In a perfect trade, I have closed the profitable side, held the negative side and profited again when it turned around and became profitable as well.

I can't do this in Forex (that I know of) - buy a pair and sell the same pair and wait for one position's profit to override the other's loss (using a stop loss). OR CAN I?

I recently opened two demo accounts with different brokers. I have been taking opposite trades on the same pair; a buy in one account and a sell in the other, at the same time and same price with 20 pip stop and 40 pip profit. The best time to do this is during times of flat price action - consolidation or Asian market hours have been best. Although price action, trend, indicators and etc don't seem to matter, keeping S&R on the chart and a set of Bollinger Bands provides quick identification of good conditions for the trade(s). But I've also just randomly set these up and still got the same results. It worked really cool just before CPI data was released (kept the stop the same but set profit at 60 pips).

In fact, this strategy has been flawless.

Is anybody doing this? If so, have you been successful or has the strategy proved to be flawed?

Thanks for your input.

 

[timsk]

. . . I recently opened two demo accounts with different brokers . . .

Hi W_D,
Just to say that if your broker offers the MT4 platform you can be long and short the same instrument at the same time. The advantage to you is that you don't have to have two accounts open with different brokers and, assuming the positions are the same size, most brokers will consider your net position to be flat and this is reflected in the margin utilized - i.e. none! Obviously, you need to be aware that this will change the instant one of the open positions is closed when your sl or tp levels are hit.

For your interest, the whole issue of being long and short simultaneously was (very) hotly debated in a thread a few years ago. In between the bouts of ill-temper, the reasons for not doing this are well explained and comprehensive. Well worth a gander: Can you be long and short at same time?
Tim.

 

[Wicked_Daddy]

Hi W_D,
Just to say that if your broker offers the MT4 platform you can be long and short the same instrument at the same time. The advantage to you is that you don't have to have two accounts open with different brokers and, assuming the positions are the same size, most brokers will consider your net position to be flat and this is reflected in the margin utilized - i.e. none! Obviously, you need to be aware that this will change the instant one of the open positions is closed when your sl or tp levels are hit.

For your interest, the whole issue of being long and short simultaneously was (very) hotly debated in a thread a few years ago. In between the bouts of ill-temper, the reasons for not doing this are well explained and comprehensive. Well worth a gander: Can you be long and short at same time?
Tim.

Thanks Tim! I will definitely check that out. Very interesting!

 

[Wicked_Daddy]

I've read though that thread and the conversation discusses options as well as a Forex strategy that uses long/short positions in a hedge fashion across different time frames - for scalping and for longer term positions. Many are confused by this and I can see why it was so hotly debated.

What I'm doing is simplistic by comparison.

I took the trade in the attached chart while I was reading the other thread. I just entered without regard for whatever was going on at the time (just to test my point again). The chart below is a 15m, completely naked chart. You will see aqua blue cross hairs that show where the trade was entered - a long and short simultaneously with a 20 pip SL and 40 pip TP. The red lines mark the short trade parameters and the green lines mark the long trade parameters.

You will see the trade resulted in a 20 pip profit in approximately 40 minutes. Although I placed the trade at a completely random moment, I'm sure the consolidation at the bottom of that 8 hour downtrend helped. I've done this now 14 times without a loss on the EURUSD. (This method proves unsuccessful on a pair such as EURGBP due to the low volatility and often +/- 25 pip movement in the current conditions.)

I'm not suggesting this is an iron clad strategy but the results so far have been very compelling.

 

[timsk]

. . . I'm not suggesting this is an iron clad strategy but the results so far have been very compelling.

Hi W_D,
I guess that sooner or later you're going hit a string of trades that take out your sl on one leg, but fail to hit your tp level on the other leg before reversing and hitting the sl on that leg too. Essentially, this will happen if you enter trades near turning points and, by the same token, can be avoided by entering them mid way through a clear and clean trend. However, I suppose some members would argue that if you can spot these points at the time you open a position, you're better off going for the straight directional trade as your profit will be double on the winning trades.

Whilst I'm happy for your 14 consecutive winners (if you're trading real money), this is way too small a sample to get too excited about IMO - and could just be luck. I recommend you do a thorough back test to get more conclusive results. If you're entering completely at random, then a test of 1,000 trades or more - ideally across several markets - might indicate how robust it is. If you're adding any entry criteria, then the back test need not involve quite so many trades - but I would think at least a hundred on the 15M timeframe is required to produce results that are statistically meaningful.
Tim.

 

[Wicked_Daddy]

Hi W_D,
I guess that sooner or later you're going hit a string of trades that take out your sl on one leg, but fail to hit your tp level on the other leg before reversing and hitting the sl on that leg too. Essentially, this will happen if you enter trades near turning points and, by the same token, can be avoided by entering them mid way through a clear and clean trend. However, I suppose some members would argue that if you can spot these points at the time you open a position, you're better off going for the straight directional trade as your profit will be double on the winning trades.

Whilst I'm happy for your 14 consecutive winners (if you're trading real money), this is way too small a sample to get too excited about IMO - and could just be luck. I recommend you do a thorough back test to get more conclusive results. If you're entering completely at random, then a test of 1,000 trades or more - ideally across several markets - might indicate how robust it is. If you're adding any entry criteria, then the back test need not involve quite so many trades - but I would think at least a hundred on the 15M timeframe is required to produce results that are statistically meaningful.
Tim.

I totally agree Tim. And if anyone could get this to fail, I can... LOL. I've been trading it across two demo accounts. USA brokers do not allow hedging so I opened two demo's. But since you mentioned it I opened a demo in a non-USA broker and that certainly makes it easier to test. I WISH these weren't demo trades but as you say, better to test it thoroughly. I've entering the trades in mostly consolidated conditions but I've also entered trades at completely random moments like the one in my previous post, although coincidentally it was a turn in the short term trend. I'm sure luck has a lot to do with those.

I'll update in about a week more of testing...

 

[timsk]

. . . I'll update in about a week more of testing...

Hi W_D,

Based on my knowledge and experience of the markets - such as it is - a random entry strategy can't possibly work in the long run, i.e. it can't generate a positive expectancy. The reason being that the approach is so simple that anyone could do it, as it involves little skill beyond learning how to use a trading platform. If it worked, then the world and his wife would be doing it already and making a killing. And, if that happened, the market would auto-correct to bu88er up the strategy! If it didn't, the winners to losers ratio would reverse - leaving only the retarded who don't trade the strategy making a loss. So, this brings us full circle, i.e. it almost certainly doesn't work to start with.

However, the minute you introduce any entry criteria - such as getting in during a period of 'consolidation', then you're introducing market knowledge and skill - assuming you get it right. Then the market may be able to accommodate the strategy in much the same way that it accommodates trend traders who identify a trend and enter trades based on little more than a simple MA crossover. So, I predict a test of random entries will not be profitable in the long run, but a test involving other entry criteria could be.

Just my $0.02 worth of course - I look forward to your testing results.
Tim.

 

[wackypete2]

Hi W_D,
Just to say that if your broker offers the MT4 platform you can be long and short the same instrument at the same time.
Tim.

As far as I know none of the US based mt4 brokers allow this anymore. the NFA banned it in the US.

Peter