The PX strategy is suggested to be used with flat markets where consolidation is expected due to lack of volume, news, timing and so on. Also, it can be used as an additional movement to avoid a stop loss generated by other hedge strategy like P1 (http://www.combusca.com.br/en/hedge-strategies/p1/) or complementing when a huge number of contracts starts impact the margin and risk management becoming harmful to account.

 

Basically, PX consists in adding contracts doubling (x2) the position already executed complementing and incrementing an extension to current range. Hence, when price cross the range, we can increment it adding orders using an external range or even the middle of current range to create a route to avoid stop of lack of margin for P1 or P3 strategies.

 

Below, image attached describing the process when starting with P1 during a consolidation:

 

 

The order to buy 0,10 at price 11200 has been executed initially. The price fell to 11100 and another order to sell 0,20 at price 11100 was executed. Thereby, the difference between buy order and sell order is the range of 100 points (10 pips). The price rose again and a buy position with 0,30 lots at price 11300 was executed. Just realize that an additional range of 100 points were added, in total, we have 0,40 lot buying and 0,20 selling with 200 points of range, in fact, range has increased 100 pts.

 

Profit will happen when the price moves more than 200 points, it means, if the price goes up to 11500, the balance will be = zero, because, we have 0,40 buying and 0,20 selling respecting the range of 200 points, but, if the prices move up more 200 points (11600), would have profit of 100 points with 0,20 lot, because, we have the total of 0,40 buying and 0,20 selling with 100 pints of range (difference). Thereby, we would get the total movement of the price 300 pips – 100 pips (range) =100 points with 0,40 buy – 0,20 sell = 0,20 lots.  

 

Similarly, below another example/image attached describing the process when 200 pts of range was not reached:

 

 

The order to buy 0,10 at price 11200 has been executed initially. The price fell to 11100 and another order to sell 0,20 at price 11100 was executed. Moving on, price rose again and a buy position with 0,30 lots at price 11300 was executed. However, price has not increased enough to close the position with profit and price fell again to 11100 where another sell order has executed to balance the hedge and keep 200 pts of range; in total, we have 0,40 lot buying and 0,80 selling with 200 points of range.

 

Nonetheless, there are also an alternative putting order in the middle of the range set. Thereby, there will be a Hedge inside another Hedge. Below, image attached describing the process:

 

 

The order to buy 0,10 at price 11200 has been executed initially. The price fell to 11100 and another order to sell 0,20 at price 11100 was executed. Moving on, price rose again and a buy position with 0,30 lots at price 11300 was executed. However, price has not increased enough to close the position with profit and price fell again and a sell order has executed to balance the hedge. Note, that sell order has been executed in the middle of initial range instead of be executed at price 11100. Thereby, there would be a hedge inside another hedge (HIH); in total, we have 0,40 lot buying and 0,80 selling expecting to get a profitable trading or at least, closing/eliminate orders avoiding huge drawdown.

 

Risk ?

 

Certainly, like any other strategy created and being used in stocks, Forex markets, there are a lot of risks associated. The main risk using hedge strategy would be the lack of stop loss; yes, there is no stop loss. When should I use stop, then? Using P1 strategy, literally, the stop will be executed when the trader figure out that stop is needed due to margin, number of lots executed, negative balance and so on. Hence, we can go over through some emotional and psychological concerns, but it is not the focus at this moment. 

 

Make certain to respect the size of the lots and margin always, because, one stop loss can be enough to blow up your account.

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