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The VESBOLT Semi-HFT Strategy
The market has a very large selection of completely different trading strategies that were built on different principles and it is not so easy for an investor to figure out which ones to choose and which ones to bypass.
You can find a lot of tips on the Internet. How to choose strategies, what you need to pay attention to, this is why here we will describe specifically our experience.
We do not recommend using strategies that are based on Martingale principles since they all have one end and this is not the type of strategy that will make it possible to confidently increase profits since you are sitting on a powder keg and do not know when it will explode either tomorrow or after 2 years but it will explode!
In general, professional investors bypass such strategies.
It is vitally important to always limit your losses to a certain level. Those who do not limit losses and do not set stop losses are doomed to lose investment in 100% of cases. I hope these basic principles are simple and clear to everyone.
Choosing among many approaches, options, everybody is looking for where the best risk/reward ratio is, as this gives us every chance to survive all the crises and see the account profitable after 10 or more years. In the best strategies, every trade is protected by a stop-loss order.
Having many years of experience and having tried countless strategies, approaches, options, making many back-tests for today, VESBOLT Semi-HFT strategy is our flagship and attractive to many investors, as it demonstrates a high risk-adjusted return.
VESBOLT Semi-HFT is a scalper built on the principle of mean reversion.
Mean reversion basically means that price would revert to its average. But for greater efficiency, the strategy does not trade for all 24 hours, but only during the Asian session, when the market is calm, with this approach, the results are much better. As you can see on Myfxbook monitoring, risk/reward ratio is at a good level.
VESBOLT Semi-HFT has a system of dynamic stop-loss control, which uses a hard stop loss combined with the dynamic one which significantly increases the stability of the algorithm.
How do we handle a drawdown
“VESBOLT Semi-HFT” is a portfolio of 35 strategies, all of them are based on the mean reversion principle. Contrary to what many may think, this is not a single strategy.
We manage risks using three parameters:
– Risk per trade
– Max signals per basic currency
– Max drawdown
We can change these parameters to either increase or reduce profitability and risks.
How do we manage the strategy during a drawdown?
Basic conditions:
• Risks 1.5 / 3 (1.5% – risk per trade, 3 – max signals per basic currency)
• We take the FXCM account as our basis benchmark. With other brokers, the drawdown could be lower or higher, as the strategy is sensitive to the broker’s trading conditions.
With this risk, the working drawdown should be within -6%. When entering a drawdown of -4-5%, we conduct a deep analysis of the situation and identify the reasons for the drawdown. These can be: market situation, market changes that need to be taken into account, slippages, deterioration of trading conditions, force majeure, etc. As each drawdown has unique properties, our task is to identify weak points and eliminate them.
A drawdown of -7.5% is the critical drawdown level at which we rebalance the portfolio: we consolidate strong points of the portfolio and eliminate weak ones. In this situation, our main task is to recover with minimal risk, making changes to the portfolio while giving preference to strategies that have been the most stable according to past performance history. At the same time, the total risk in the portfolio decreases. That is, with a drawdown, we always exit at a lower risk in order to prevent a deeper drawdown.
How we work every day:
PREPARATION FOR TRADING: ANALYSIS OF THE MARKET SITUATION
NEWS
30 minutes before the start of trading, an analysis of the market situation is carried out, important news in the calendar is checked:
– if there is scheduled news for a currency pair, the strategy automatically pauses 3 hours before the news
– if we have an open position, 5 minutes before the news, we close it (positive or negative trade implies no difference)
FUNDAMENTAL BACKGROUND:
we analyze whether there are any serious events in the countries of the big 7. In the event that there are or were within the last day, we stop trading.
VOLATILITY SP500
if volatility is high 1 hour before trading, we cannot trade.
VIX
we take into account the VIX readings i.e. there should be no significant rise or fall.
MARKET
on each currency pair, the presence of momentum, volatility, spreads, and the current profitability of the currency pair are taken into account.
TRADE
In the trading process, the main work is done by the algorithm, but remains under the control of a person at all times. In case of a force majeure, we can stop trading within 5 seconds on ALL accounts by pressing the “red” button.
During the course of trading, we pass through several markets, when the United States closes, when the United States is not open, or when the entire market is closed on rollover–each has its own nuances. Rollover is the riskiest moment in the trading process. Since there is little liquidity, significant slippage can occur for stop orders, therefore we attempt to proceed through rollover with minimum volume of trades. We can close the position before the rollover if it is potentially risky.
At 00:05-00:30 CET am, most of the positions are closed. In general, if we see that the day is profitable and positions are in profit by 00:15-30 CET, we try to close everything in profit and leave the market.
From our point of view, this is one of the most effective approaches to dealing with drawdowns and risks in general.
Broker’s trading conditions are important.
The broker must have a raw spread and low commission since the broker’s high trading costs reduce profits, so we are interested in minimal trading costs. There are brokers on the market that have a raw spread and 2-6 USD Round Turn commission, low slippage while the broker has respected regulation (Prime of Prime brokers). We recommended that customers use these brokers for the best results.
Even the same broker can have different conditions. We even help to choose/select servers, there may be different liquidity pools. But it is worth noting that the strategy can work with a higher commission, but it is always better when the trading costs are minimal this reduces the drawdown and increases the return.
Why VESBOLT Semi-HFT on Myfxbook has different results.
There are a few reasons :
1. Different trading conditions
2. We use different settings
3. The strategy is spread sensitive
Algorithmic Trading
The strategy is fully automated, but in times of crisis (high volatility in the market ) we can manually turn off trade or lower risks if we see danger and sometimes it is better to be outside the market. For example, we did this in March 2020, when we did not trade for a month due to high volatility, and when we launched in April, we reduced the risk in three times,… for a while (the strategy continued to work on a demo account in March and showed high profitability, but we did not regret that we turned it off because in uncertain market situation it is better to be outside the market)
The strategy is not scalable
This means that there is a limit on the amount of money managed on one account, and this is $250,000-500,000. Therefore if you want to invest $1,000,000 you need to open 2-4 accounts of 250-500k each, otherwise, the slippage will be large.
Fact and Advise
Many investors chase high returns while forgetting about risk management and eventual periods of drawdown. Moreover, as experience shows, most investors are not ready to tolerate a 10-30% drawdown and start panicking. They fall short of believing in the strategy and leave. As a result, they finally stop investing in FX. Therefore, our strong recommendation is to work only with conservative risks! If you are planning long term investments, this is the wisest and least stressful approach.
BY VESBOLT Semi-HFT Team