【Twice Monthly Development Story Part 4】Why hold buy and sell separately — “Two Moons” and the hedging account
Earlier, I explained why I chose the euro-dollar as the arena. This time, it’s about the very origin of the name Twice Monthly. Twice Monthly refers toholding one long and one short position independently; the name “Two Months” comes from here. Why not consolidate into one, and how does this relate to account type? I will explain step by step.
As discussed last time, Twice Monthly is a contrarian strategy that captures extremes in both directions. “Buy when oversold” and “Sell when overbought” — these two judgments occur at completely different timings and independently.
In range markets, it repeatedly overshoots up and pulls back, overshoots down and rebounds. In this process, it is common for a new buy decision to be issued while a prior sell decision’s path is still active. Conversely, a sell decision may be issued far away while already holding a buy position. The two judgments are separate events.
Here, I’ll consider intentionally combining. Treat buys and sells as a single exposure, and when a new sell judgment appears, reduce (or reverse) the existing buy — at first glance simple, but this approach has non-negligible side effects.
Buy judgments include profit-taking and stop-loss calculations for buys. Sell judgments likewise have their own calculations. If you consolidate into one, later judgments forcibly cut off the previous judgment’s “progress.” The buy may not have reached its profit target, but as soon as a sell appears, it gets swept away. Each judgment cannot be followed through to its natural conclusion according to its own calculations.
※Illustrative diagram. Actual price ranges and timing vary with the market.
We want each judgment to be followed through to its own calculations. Therefore, Twice Monthly holds at most one buy and one sell position independently. Buys move by buy profit-taking, stop-loss, and trailing stops; sells move by sell profit-taking, stop-loss, and trailing stops. They do not interfere with each other. Two independent positions — this is the origin of the name “Twice Monthly.” By the way, there is no averaging down or up (no martingale). Each side is kept simple at a maximum of two positions in total.
MT5 accounts are broadly categorized into two types: a “hedging account,” which can hold long and short positions separately at the same time, and a “netting account,” where buys and sells automatically offset each other.
Twice Monthly is designed to hold one long and one short independently at the same time. If operated in a netting account, buys and sells cancel each other outside the system (on the MT5 side), preventing Twice Monthly’s intended two independent judgments from forming. Therefore, for Twice Monthly to operatea hedging account is essential. This is less a constraint and more a prerequisite for this design to function.
- Judgments of “oversold” and “overbought” occur at independently timed moments
- If consolidated, later judgments cut off earlier judgments
- Therefore, hold at most one buy and one sell independently — the origin of “Two Months”
- To make this design work, a hedging account is mandatory
Next episode will cover “How to measure overextension — How to use RSI.” I’ll discuss how Twice Monthly judges oversold/overbought and what it contains. I’d be glad if you stay with me until the end.
※This article is for information purposes and is not investment solicitation. The performance results shown are past performance and do not guarantee future profits. Forex/CFD trading involves risk. Please make investment decisions at your own risk.