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Hedge a losing position? 62 replies

Take a loss in a losing position or wait for it to turn around? 16 replies

Money Management - Losing Position 5 replies

How to rescue a losing position?

You mention a good RR of 3+1!!!
Hard to believe,(consistent) that belongs to the very, very few heroes in trading history....
A consistent 0,5+ to 1 can make you a millonaire in just a couple of years, starting with 1000 bucks..provided you get enough opportunity to play your dice...just do the math or excell....the truth is most make a negative RR, the better ones a" little negative", the real good ones (few indeed) survive and make some nice cash, and the top ones take the pot....

3+1 is dreamland....(unless you are a brokerhouse.)

Quoting auxesis
There's no one formula to answer the question as everything is risk defined, the best answer is the obvious; losing positions should have been exited long ago. However there are times when you're buying the dip or selling the rip, to borrow the phrase, you enter on what you think is the level or time, only to find price putting you in the rears, what to do? How many times have you been washed and rinsed stopped out only to see price quickly back in your direction and your scrambling to reenter, or the flip side wishing you'd had that stop...
Quoting cuchuflito
BUT how about combining rescue with hedge...itīs starts to open new roads..
Have to disagree that "hedging" offers any benefit.

As was pointed out earlier in the thread, and likewise in dozens of other threads:
--- when you have equally sized short and long positions open, it's the same as being out of the market (if fact, you consume less margin, and pay less swap, by simply being out of the market).
--- when you "unhedge", that's just the same as opening a position from scratch, at the same point.

Hence it's always possible to make exactly the same number of pips, by having just a single position open, at any point along the way.
It's the timing that determines your P/L.

Think about it.

If you're still unconvinced, I (and others) have attempted to explain the math behind the "hedging" illusion in the following threads:
http://www.forexfactory.com/showthread.php?t=163814
http://www.forexfactory.com/showthread.php?t=137836
http://www.forexfactory.com/showthread.php?t=163467
http://www.forexfactory.com/showthread.php?t=264690
http://www.forexfactory.com/showthread.php?t=174626
http://www.forexfactory.com/showthread.php?t=351191
No point in repeating myself.

BTW, I put the word "hedging" inside speech marks, because being long and short simultaneously in the same pair really has nothing to do with proper hedging. It's a misnomer.
I'm taking a rest from forums. Please don't expect replies to your posts.
The thing is I think recouping your loss is easier through a range bound market as I see 30-40 pip swings retrace 15-20 at least most of the time some 10 yr+ trader told me 80% it retraces by 50% of initial move then makes a new trend either for or against the initial move. However, if you know you're in a trend based day/week I would not try for a comeback get out instantly when you feel uncomfortable and trade a new session as I understand the big boys reset the daily targets in a new session.
'Let The Market Guide You To Trade' MWMW
Quoting XharpScalper
there is no way to rescue a losing position , cut your losses short and let wining run my friend.
Cut your losses short and let your winners run.

Cut your losses short = how do you know if the price not run back in your way ?
let your winners run. = how do you know if your winner not turned into depleted ?

salaam

Quoting mr.kho
Cut your losses short = how do you know if the price not run back in your way ?
let your winners run. = how do you know if your winner not turned into depleted ?
This is the job of a profitable trader ...

There's no 100%, but with experience and patience you will find the best way.
MT4 EAs/Indicators/Alerts coder
Quoting FerruFx
This is the job of a profitable trader ...

There's no 100%, but with experience and patience you will find the best way.
There's no 100%, but with experience and patience you will find the best way.
Quoting cuchuflito
All true!
BUT how about combining rescue with hedge...itīs starts to open new roads.. you run many positions both ways, with a clear position size system (OANDA , no lots or minis, unless youré rich!!) ... sound method and trading strategy....it can be done....last week I started risking 1R...5 min chart...went both ways ,up and down the rollercoaster, finally next day I closed the "campaign" with 6 R profit...
Again not recommended for the faint in heart, at one point I was - 10 R down, market wants to scare retailers...guns all the stops...

Why would ANYONE want to HEDGE a position?

either you have no control on your risk exposure at which point you want to keep neutral to suffer no market risk...................these is not our case, we CHOSE when and how exposed we are and to which markets, short or long.

you want to keep neutral and collect a financial gain while not suffering price fluctuation risk................a good example of this would be to be NET neutral , with no speculation nor risk to price fluctuation but you are collecting DIVIDENDS.


IF however you are speculating on price movement and you hedge your exposure in such a manner that you are NET NEUTRAL, you just payed a double spread and possibly differential in swaps AGAINST you to be for all intents and purposes OUT OF THE MARKET.


now if you are properly hedging by keeping a portfolio with very low standard deviations, but your POSITIVE swap will pay for your SPREADS, then it would make sense.

if I hedge and I AM NET NEUTRAL in exposure to price fluctuations BUT BY BEING VIRTUALLY OUT OF THE MARKET, I collect money..........this is properly hedging.


incurring double costs and paying out swap for being out of the market is called................STUPIDITY.
AVT INVENIAM VIAM AVT FACIAM
Quoting mr.kho
Cut your losses short and let your winners run.

Cut your losses short = how do you know if the price not run back in your way ?
let your winners run. = how do you know if your winner not turned into depleted ?

salaam

How about take the profit quickly and continue the fight on the loss.

Imagine you are in a boxing match with an opponent of equal strength. Every time your opponent scores a point in the fight, the round is ended and awarded to him. However, if you score a point, the round is not stopped, but as soon as he overshoots you during the round, it is ended and again awarded to him. Finally the entire match is ended. Who do you think has won the match?

Although not directly comparable to forex trading, it gives you an idea why I prefer to take the profit off the table quickly while we continue the struggle over the losing trade. Like FerruFx said- you get better with experience and patience.

...take the profit quickly and fight with the loss.

King.
Quoting kingsurfer
How about take the profit quickly and continue the fight on the loss.

Imagine you are in a boxing match with an opponent of equal strength. Every time your opponent scores a point in the fight, the round is ended and awarded to him. However, if you score a point, the round is not stopped, but as soon as he overshoots you during the round, it is ended and again awarded to him. Finally the entire match is ended. Who do you think has won the match?

Although not directly comparable to forex trading, it gives you an idea why I prefer to take the...
Good one
Quoting the redlion
Why would ANYONE want to HEDGE a position?
I guess it's theoretically possible that there could be a situation where one br0ker pays out more in positive swap on one pair, than another b0ker charges in negative swap on the same pair. Then you could potentially take opposite positions with the two br0kers, with the pip gain on one position offsetting the loss on the other.

As the swap differential accumulates, it would gradually pay for any spread, commissions, slippage, pricing inequities between the br0kers, and any fees needed to transfer money between accounts if/when a margin call approaches on one of the accounts. The latter is a real possibility, as you'd likely need to use high leverage to make a decent return.

You could potentially use the same idea using triangular or circular "hedges", by sizing the positions carefully, to achieve the necessary balance. But the calculations would quickly become complex, as would the logistics, if there were several br0kers involved.

However, I doubt that this would work very well in reality. For one thing, br0kers can change their swap rates without any warning. And I doubt that br0kers would allow a money bleed of this kind to continue for too long. No doubt there are other pitfalls that I haven't thought of.

But it's possibly the closest that a retail trader could get to achieving a genuine (and profitable) "hedge" in spot forex.

Quoting the redlion
incurring double costs and paying out swap for being out of the market is called................STUPIDITY.
Agreed.
I'm taking a rest from forums. Please don't expect replies to your posts.
Quoting kingsurfer
How about take the profit quickly and continue the fight on the loss. ......
King,

I'm not saying that you're wrong in fighting with the loss. But what I don't understand is the apparent compulsion to try to make every trade profitable. If your trading is overall profitable, then you'll soon make up for the loss, and more, over your next few trades. In other words, rescue your account rather than risk digging yourself deeper into loss by attempting to rescue a bad trade.

David
I'm taking a rest from forums. Please don't expect replies to your posts.
I understand, if you are "equal" size both ways...you just pay interest ....itīs hard for most to grasp cause we are all so used to the "traditionall way"...

Just punch in in these new variables in the equation:
-time, position, size, and doors opened both ways (so called hedge)...the whole game changes dramatically....and believe me, there are ways of exploiting the rythm....the idea is to make, in time, profit both ways...sooner or later, as the market shows itīs hands...you should have more winners than loosers either or both ways...and close all, wash, rinse and restart..provided you know what you are doing...

Letīs go to extremes, Iīve been trading EURUSD for 10 years now...If I would have had the capital and patience...I could have closed almost all the trades in positive, sooner or later....granted, some would have taken years to return, and thereīs also interest to be payed...and of course just the leverage would have margined me a long time ago...This is just an extreme example..

...time is so important, simply because we are going to die...that is why BE is better than loosing, but it is still .. a waste of time / life...
You can be sure thereīs many out there making money hedging ...(and of course, many loosing too)..you all know that, that is way this thread is still on.

"Forex Las Vegas" is open 24 hours...many games to be played, different tables...lotīs of money being squandered...for Broker Daddy, business as usual...
Heīs in love with sweet retailer boy...and wishes all of us Happy Christams and Happy trading for next year...jingle bell...jingle beeeellll...

PS: my sugestion to all, stay away from hedging, but pay special attention to stop hunting...better still...try to create systems around the stop targeting zones.
Amongst others you will find many brokers are "reluctant" (out of laziness right ?) to fill your orders automatically in those areas , most times you have to do it manually...why?... cause they are waiting there hidden in the silence...and donīt want you to hunt besides them!!!!...I had the experience sometimes: market going through my order in those areas , through up and down by many pips...nothing, no fill...interesting right?...guess what would have happened to a normal STOP...BINGO, Broker pockets filled right away.

Quoting hanover
Have to disagree that "hedging" offers any benefit.

As was pointed out earlier in the thread, and likewise in dozens of other threads:
--- when you have equally sized short and long positions open, it's the same as being out of the market (if fact, you consume less margin, and pay less swap, by simply being out of the market).
--- when you "unhedge", that's just the same as opening a position from scratch, at the same point.

Hence it's always possible to make exactly the same number of pips, by having just a single position open, at any point...
Quoting cuchuflito
Just punch in in these new variables in the equation:
-time, position, size, and doors opened both ways (so called hedge)...the whole game changes dramatically....and believe me, there are ways of exploiting the rythm....the idea is to make, in time, profit both ways...sooner or later, as the market shows itīs hands...you should have more winners than loosers either or both ways...and close all, wash, rinse and restart..provided you know what you are doing...
With respect, there are no new variables, and no game change. Sure, it's possible to make money from "hedging", but it's also possible to make exactly the same pips without "hedging" (and without the extra costs). I will try once again to explain why.

I know that, if you look at it in a certain way, having two positions open seems to give you more opportunities for making choices, but it's really an illusion. Why? Because at every point along the way, you can only ever be net long, net short, or "hedged". And you can always achieve exactly the same thing without "hedging": net long, net short, or out of the market. Either way, by adjusting your net position at exactly the same time, you make exactly the same pips. The "hedge" adds nothing (except additional costs); as redlion says, it makes no sense.

Work your way through a "hedging" scenario [edit: see my next post — #137], making exactly the decisions that you'd normally make. Then, at each point along the way, write down your net overall position: long, short or "hedged". Then ask yourself why you couldn't simply be long, short or out of the market, at each of these points. It's the same thing.

It doesn't matter how long you've been trading. This is a mathematical, not a trading, issue. People either see it or they don't.
I'm taking a rest from forums. Please don't expect replies to your posts.
nedging offers one, and only one, potential benefit. it has the potential to stop you from continually opening orders over and over at the same price where you keep getting stopped-out. with a nedge you have an incentive to actually sit on your hands and wait until the market finally gets off its ass and moves, instead of you just churning spread.

it's a pretty crap benefit.

anyone who thinks nedging is much more than a mental crutch needs to take a long cold shower and wake up. it's not even a hedge. it's zero exposure, but probably with swap costs charged for the privilege of being flat! it's just monkey accounting within the mt4 ticketing system.
Quoting nubcake
nedging offers one, and only one, potential benefit. it has the potential to stop you from continually opening orders over and over at the same price where you keep getting stopped-out. with a nedge you have an incentive to actually sit on your hands and wait until the market finally gets off its ass and moves, instead of you just churning spread.

it's a pretty crap benefit.

anyone who thinks nedging is much more than a mental crutch needs to take a long cold shower and wake up. it's not even a hedge. it's zero exposure, but probably with...
since this 'brand new forum' is even more broken to hell than normal i can't edit... so, addendum :

the same 'benefit' could just as easily be achieved by dropping one or 2 horizontal lines on your chart to mark an area where not to keep trying to make pips and overtrade and churn spread. as with all touted 'advantages' to nedging it turns out that there is a smarter, better, more efficient, more logical, SENSIBLE alternative. nedging is delusion and the welcome friend to a feeble mind.
Quoting nubcake
nedging offers one, and only one, potential benefit. it has the potential to stop you from continually opening orders over and over at the same price where you keep getting stopped-out. with a nedge you have an incentive to actually sit on your hands and wait until the market finally gets off its ass and moves, instead of you just churning spread.

it's a pretty crap benefit.

anyone who thinks nedging is much more than a mental crutch needs to take a long cold shower and wake up. it's not even a hedge. it's zero exposure, but probably with...
THAT might be A GREAT BENEFIT for some people......
AVT INVENIAM VIAM AVT FACIAM
  • Post# 137
  • Quote
  • Dec 23, 2012 1:17pm | Edited at 8:50pm – added section, attached image
Quoting hanover
Work your way through a "hedging" scenario, making exactly the decisions that you'd normally make.
@cuchuflito: I’ll explain with a simple example.

You are “hedging”. I’ll show you how I can make the same pips without “hedging”, but by simply copying your net position:

1. We both decide to open 1 buy position, but then price falls by 50 pips. Now both of our accounts are -50.
At this point, you decide to open 1 sell position as a rescue “hedge”. I simply close my buy position for a loss.

2. Let’s say price subsequently rises 70 pips, so that your buy position is now +20 (but your sell position is -70). During this time you are “hedged”, so I remain out of the market.
Now you decide to close your buy position for a +20 gain, leaving yourself net short. Since you’re short, I simply open 1 sell position.

3. Then price falls 110 pips. At this point, we both close our sell positions.

OK, let’s see how many pips each of us has made:

You gained 20 pips on your buy trade, and another 40 pips on your sell trade. So your net P/L is +20+40 = +60 pips

I lost 50 pips on my buy trade, but gained 110 pips on my sell trade. My net P/L is -50+110 = +60 pips

We both ended with the same P/L. Why? Because we were both net short, net long, and net flat (you were “hedged”, I was out of the market) at exactly the same points along the way.

It’s true that you ended up making money on both positions. But how did you outperform me, by using a “hedge”? You didn’t.
We both made +60 pips and made 2 roundtrip trades, so we both paid the same spread.
But you would have paid swap interest if your position was “hedged” at 5pm New York time.

Work slowly through the above scenario, and you’ll see WHY “hedging” is an illusion. You can make up different numbers, but the results of "hedging" and "non hedging" will always be equal, no matter what price does.
_________________________________

[EDIT] Perhaps it's easier to see it in a diagram (see attachment).

The profitable area of your two trades is shown by the blue arrows (+20 for the buy trade, +40 for the sell trade).

Notice how the "hedge" (inside the yellow area) cancels itself. Outside the yellow area, you have effectively the same trades as mine (–50, +110).

Hence the end result is the same, due to both of us being net long/short at exactly the same times. The same P/L is merely distributed differently across the two trades, i.e.

20 + 40
= (–50+70) + (–70+110)
= –50 + (70–70) + 110
= –50 + 110
= a net result of +60

As I said before, you don't have to be an experienced or knowledgeable trader to see the illusion. All you need to be able to do is to count pips.

Can you see it now?
Attached Image (click to enlarge)
Click to Enlarge Name: hedging diagram.JPG Size: 47 KB
I'm taking a rest from forums. Please don't expect replies to your posts.
Quoting cuchuflito
You mention a good RR of 3+1!!!
Hard to believe,(consistent) that belongs to the very, very few heroes in trading history....
A consistent 0,5+ to 1 can make you a millonaire in just a couple of years, starting with 1000 bucks..provided you get enough opportunity to play your dice...just do the math or excell....the truth is most make a negative RR, the better ones a" little negative", the real good ones (few indeed) survive and make some nice cash, and the top ones take the pot....

3+1 is dreamland....(unless you are a brokerhouse.)
I guess I live in Dreamland....

While the outcome of any trade is never known and it's expectancy subject to change as price action plays out, the relative position of my entry now, to the point where the chart tells me I'm wrong vs. a probable destination for price to travel before the prior is easy to distinguish on the chart.......... those distances define my MM and my acceptance to risk.

If it's not at least 3:1, I prefer much higher...... I'm not interested in playing.

Our styles are completely diverse and obviously not capable of comparison.

regards
Quoting the redlion
Why would ANYONE want to HEDGE a position?

either you have no control on your risk exposure at which point you want to keep neutral to suffer no market risk...................these is not our case, we CHOSE when and how exposed we are and to which markets, short or long.

you want to keep neutral and collect a financial gain while not suffering price fluctuation risk................a good example of this would be to be NET neutral , with no speculation nor risk to price fluctuation but you are collecting DIVIDENDS.


IF however you are...
Yeah, I don't get the point of spot hedging. Why pay for the privilege of being virtually flat?

I haven't read all of the posts in the thread, but hedging with options is actually different and an excellent way to limit risk and can even result in profit on both sides of the hedge. Obviously this is needed in the plan up front, which was my whole point in my brief posts in this thread. The advantage of using something like a nadex spread option is that for the same dollar risk as your stop loss, you can have a "wider" stop that isn't triggered until you close the option or it expires. This removes the risk of getting your stop whipsawed only to see the move go in your direction. What makes options cool is that if your trade goes in your favor, your hedge option loss is capped regardless of how far out of the money it is. It's either in the money or not. Whereas a spot hedge is dollar to dollar correlated.

I'll also reiterate to the OP that while options hedging is a great strategy, it won't necessarily "rescue" a crap trade you're already in. Nor will it save you from yourself if you have a crap trading plan, crap execution, and crap discipline.
Quoting incomeideas

This thread is NOT about whether to use stop loss/hedging, but searching for some practical and feasible recovery method(s) on how to rescue a losing position.
incomeideas,

There is an old saying, "Those who can't do teach". Every time I read this forum, I read statements about how certain things can't be done...be it some indicator in MT4, or a certain consistent monthly profit percentage, or profitable automated trading, or even managing losses. I both laugh and cringe as the "experts" migrate from thread to thread harping on supposed facts to prove what can and cannot be done in Forex. They have created a new saying:

"Those who can't do are so narrow-minded they can't understand that just maybe someone else is a little smarter than them and figured it out".

Concerning managing (sounds better than rescuing) losing positions, yes it is possible to do with minimal drawdown. Some important points to consider:

- You must learn how to spread your risk...not necessarily among different trading instruments...you can just as easily spread your risk using just 1 instrument. A good way to spread your risk within the same instrument is to balance your entries among 3 different types, depending on what the market is giving you:

1) Momentum - Go with the flow - identify a trend and trade in that direction
2) Reversal - Go against the flow - pick where you think price will reverse and trade it
3) Indecision - Wait for the flow to slow to a crawl and then pickup again - trading the breakouts

- EURUSD is a great choice because of the combination of its daily pip movement and low transaction costs...but there are other fine choices
- Low leverage and high trade frequency is a good combination
- "Know when to hold 'em, know when to fold 'em". Well-timed exits are the most important concept in Forex trading. Don't get me wrong...good entries are certainly better than bad entries...but it really is all about the exits! And it is this idea that makes managing losses possible.
- The market always moves. You don't always know which direction it will move, but the one guarantee in Forex is that price will move. (I suppose you could say that the EURCHF did not move very much this past summer. You'd be correct, but I don't trade EURCHF).
- Against conventional wisdom, the markets are very efficient.

Yes, I'm being very vague here...the rest is up to you. You can listen to the experts and their hypothetical proof that managing losing positions is not doable or you can choose to explore the reality of the Forex market.

BTW...how am I qualified to give advice on such matters? Because I base my opinions on actual live trading results. And yes, I do manage losing positions (although I do take losses too, depending on the situation).

I hope it works out for you.
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