Lately I have had some success in trading with a hedge involving the US500 and US30 symbol. This is a somewhat of a scalp trade, lasting minutes to a few hours. It can be done on US accounts since its technically not "hedging" in the traditional sense as you are using 2 different symbols. I guess this can be done with futures, CFD's, etc etc.
First a bit of background:
- Over the last 10 years, the US500 index has outperformed the US30 index almost every year.
- On most timeframes from H1 upwards, these two symbols remain above 90% correlation.
- With a simple backtest on cTrader using these 2 symbols - Buying the US500 and selling the US30 then closing out both positions when equity reaches a certain level, then repeat, you end up with a nice profit for at least the past 3 years.
So with the above in mind, the method is simple:
- Simultaneously Sell X amount of indices (depending on your account and leverage) and buy 10 times that amount of US500 (this is how my broker sizes positions, your may be different). So example for 200:1 leverage with $2000 margin, you Sell 0.1 lot US30 and Buy 1 lot US500.
- When Equity reaches balance + X amount of profit (generally 10% of total margin used for the trade for me maximum) close both trades.
Some things to consider before placing trades:
- If markets are up, Make sure US500 is up slightly more than US30 for the day (eg: at 0925 New York time, US500 is up 0.4% and US30 is up 0.3%). If markets are down, then check that US30 is down slightly more than US500 (eg: at 0925 New York time, US500 is down 0.3% and US30 is down 0.4%)
- Best time to place this is during US market open hours, preferably right at open. Spreads are lowest during trading hours
I have a basic cBot written for cTrader that places these trades when I click start, then automatically closes out both trades when Equity reaches a certain level. Sometimes it takes 3-4 hours, but I set it and go to bed as the market only opens 22:30 in my local time. Each morning I have woken up with the trade closed, either from the US500 rising slightly faster than the US30 during a market-up day, or from the US30 falling slightly faster than the US500 during a market-down day.
Give it a try on a demo account and tell me what you think. It seems to work most nights with the above market conditions, only thing I haven't decided is whether or not to close out both trades the next day if they didn't close in profit or just let them ride another night, or double down and place the 2 trades again and close them out when they all hit an average profit target (technically a grid, but only 4 positions deep).
Have a play around with it and see what you think. Would be interested to hear feedback, specifically if you can refine this system to make it even more profitable