The P2 strategy is based in equalization of the balance using hedge and martingale. It has some benefits involving control of the losses and orders during a hedge cycle. Also, we can use as second, third chance instead of stop loss initially.
Using this strategy with caution and paying attention in critical points where there would be some volatility is crucial to keep financial and tracking alive.
- Control of stops and losses
- Daily limit target
- Better capital management system
- High margin required if we get some consolidation
- Bad for flat markets
- High number of contracts can be used; which required a better margin
Basically, we work hedging position and when closed it, using martingale to close order opened against the initial movement.
We set up the first order to Sell 1 lot at price 3700 and another hedge order “pending” at 3705. So, in this case we have the range of 5 points. - Range is the space between both orders.
Now, some conditions should be analyzed. If price goes to 3695 , we can close our sell order normally like a normal trade. However, if the price goes to 3705, our hedge order to buy 1 lot will be executed. Thereby, we would have two orders opened, one to sell 1 lot and another one to buy 1 lot. It means, our balance is negative in 5 points with 1 lot.
Likewise, if the price move to 3710, we would be able to close our buy order with profit of 5 points and put another order selling (first martingale order) same lot initially set.
If the price back to 3705, our current balance will be =0, because we have sell order lot 1 at price 3710 with 5 points gain and sell order at price 3700 with 5 points of loss. Hence, if we close both sell orders, we would have profit of the buy order already closed only.
On the other hand, if the price kept moving after hedge buy order be placed at price 3715.We need to wait until one order close-eliminate one order. It means, next order will be placed only when buy order close last martingale order with profit or martingale order close initial sell order; If it happened, the balance needs to be perfomed again, this time, buying 2 and putting a pending order to sell 4. Total will be two orders to buy 2,2 and a pending order to sell 4.
However, in our example, the price kept moving on to next level of the 5 points of range, 37222, because, we use 2 points of difference between hedge buy order and last martingale order placed at price 3710 eliminated, both closed due to elimination.Thus, another martingale sell order should be plaved, now doubling our intitial order. So, sell 2 at price 3722 and pending hedge order x2 last margingale order, in this case, buy 4.
Keep the logic for the next cycle, martingale order will be x3 initial order for third cycle and hedge order x2 martingale order and so son.
The problem is, there will be a diffence between hedge buy order and sell orders. In our example the difference is 2 lot, from total of buy order 6 and sell orders 3. So, here is the golden rule:
- We need to balance to equalize the orders, if we have in total buy 6 lot, and sell 3 lot, we will need to sell 2 lot using same price as last maringale order (x3). Hence, we will get buy 6 lot, and sell 6 lot.
- How to close ? We will close the cycle when sell orders achieve the difference between first sell order and last sell martingale order with profit, so we can close all sell orders and put a buy (martingale) order with 6 lots and a pending hedge order will be 12 lots.
The strategy itself seems to be easy and very profitable. In fact, it is, but, make certain to respect the limits of margin and volatility of the Symbol that you are trading, or it can cause several issues to your account.