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If you are able to make 100% on a max risk 3% per trade from here until the end of 2015. You are an excellent trader.
Regaining your equity with only 10% left will force you at some point, whether you like it or not to use excessive amount of leverage. The psychological pressure will be immense, especially after a streak of good trades. My advice to you is to try to set aside the loss and consider profiting on what you have, just focus on the next trade and not recovering the loss. If it is to difficult to implement (trust me, it is) I am afraid the leverage will at some point get the better of you.
10% remaining equity.
means . 10 % x profit % = X USD initial balance. said your initial balance are 10.000 USD
10% x profit % = 10.000 USD.
profit % you should collect are : 1000%.
Taking higher risk(leveraging) without the knowledge and experience will make this task straight out impossible. From what i can see, the OP doesn't have the knowledge or the experience to recover. The existence of the thread is proof of this.
He'll need a #@!* tin of luck and many other things. Only an act of God will get this done.
I'm on his side for the win, but i won't put any money on it.
No, sorry, my comments are definitely NOT based on the assumption that we make perfect calls, but instead that any hedging/locking/freezing “strategy” can be replicated without using the hedge. You can capture exactly the same pips, and make the same P/L, all without “hedging”, in EVERY conceivable scenario. All you do is maintain the same net position as the hedged trader at every point along the way, like this:
1. Whenever the hedged trader is hedged, his net position is zero. Any pips that the gains on one position, he loses on the other position. I achieve the same P/L (zero) by simply being out of the market. (Also, if the hedged trader’s positions are open at 1700 New York EST, he pays net swap to the br0ker, whereas I don’t).
2. Whenever the hedged trader unhedges, leaving himself long or short, I simply open a single buy or sell position of the same size at exactly the same time, again replicating his net position. Now we are both net long or short, hence we capture exactly the same pips, and make the same P/L.
3. Whenever the hedged trader re-hedges, he is effectively banking his P/L. So I close my position at exactly the same time, likewise banking the same P/L, bringing us back to step 1. Rinse and repeat.........
When the NFA banned hedging, I re-coded an EA for a trader to do exactly that, i.e. simply keep track of the net position, and maintain a single position of the same size/direction at every point. It makes exactly the same pips as it did before, while meeting the NFA’s “no hedge” rule.
Now my argument is this. If I can make the same pips and P/L without hedging, then the strategy can’t exist within the hedge itself. The strategy is all about the timing of when I change my net position, relative to the turns in the market, and hedging is merely a different way of effecting these changes. I gave two fully worked examples here, that address the very same question you're asking. In the first example, both the hedged and unhedged traders make perfect calls, and both gain 150 pips. In the second example, both make less than perfect calls, and both gain 130 pips each. So where exactly is the monetary benefit from the hedging? If you want to understand my reasoning, please work through these examples step by step.
Hedged traders pay more swap, and occasionally more spread also, as explained in Merlin’s example here. If you can save yourself money, and still make the same pips, surely that’s a good reason not to hedge?
There’s another good reason not to hedge IMO, and that’s that it can lead to poor trading psychology, i.e. an unwillingness to embrace losses. For example, suppose I sell at the top of a range, but price initially moves against me, so instead of closing at a loss I buy to “hedge” the position. Now I have bought at the worst possible time, i.e. at the top of a range. Now suppose price falls to the bottom of the range, and then trends beyond it. My sell position gains pips, but I get no benefit from it, because my buy position simultaneously loses the same number of pips. So now I close my sell position for an apparent ‘profit’. But if price continues to fall, it may be several weeks/months/years before I have the opportunity to close my buy position at breakeven; meanwhile, the loss grows. Hence the hedged trader can end up taking small profits on his winning trades, while accumulating big floating losses which, given that he’s not willing to close them, he must continually shore up by more hedging. This is the antithesis of prudent trading, i.e. closing winning trades as soon as they are profitable, while simultaneously accumulating big losses. Especially as I could have avoided this whole fiasco by simply closing my original sell position for a small loss (and then re-entering when price started to fall once again).
Of course people will reply “f--k off hanover, that’s not how I use hedging!” but, if I understand correctly, that is exactly the situation that the OP has gotten himself into: he is stuck with number of buy orders while EU continues to fall. If he wants to profit from his sells, he must either close the buy orders at a loss (to leave himself net short), or add more sell orders. If price then rallies temporarily, he will (if he repeats his past behavior) hedge those sells with more buys, which will accumulate additional loss if/when EU falls again (which seems highly possible — some pundits see it falling as low as 1.20), a process that will eventually consume his remaining margin and blow his account.
The hedged trader can end up with a number of buys and sells at all different levels, to the point that he is thoroughly confused as to whether he wants price to rise or fall. The solution is to accept losses. Keep the accounting, and your thought processes, simple! Let your strategy be dictated by an objective analysis of the market, rather than your P/L, which the market takes no cognizance of; or specifically your desire to wait for every losing trade to return to profit, before you close it. Hedging (in the same pair), recovery trading, averaging down, martingale variants — they are all rooted in the basic human desire to avoid loss.
Whether the OP is for real or not, it’s still a great example of the dangers of hedging — how NOT to do it. Just my opinion, of course, and no doubt I'll get bashed for expressing it, LOL.
Sure, it's possible to make money hedging, if your analysis, and your timing, are good enough; after all, it's just another way of altering your net position, and anything that leaves you net long while price is rising, and net short while it's falling, more often than not, will always be profitable. And it's 100% true that hedging potentially gives you the opportunity to close out both trades at a profit. But it still doesn’t alter the mathematical fact that you can capture exactly the same pips without hedging, as I explained before, and without the added br0ker costs and potential psychological pitfalls. Re the math behind counting the pips, I posted links to more worked examples in post #97. Please feel welcome to study them.
For instance if a trade gaps past your stop and you then have a choice of taking a huge loss or trying to manage your way out. Or in my situation with silver - these are future contracts so there is no swap/cost and I am happy to garner some profit on the way down knowing that they will eventually come good and I don't really have to worry about the turn(which I might miss anyway.. Participation is also key - being flat is a no win/ no lose position, whereas with hedging you have the ''potential'' to gain both ways at zero risk.
The numbers are just hard to believe because they're so large.
The only way you'll gain both ways is if you trade perfectly with every market movement. And if you can trade perfectly with every market movement, you won't need the hedge.
Zero risk. What is that?
The purpose of a hedge is for protection/insurance , not speculation.
I see many only getting a false sense of security/control. A hedge isn't a blanket to cover a lack of knowledge, experience and understanding.
Before anyone throws a hedge on, they need to ask themselves why. What are my objectives and what am I trying to accomplish?
Hanover explanation of the non benefice of hedging by taking an inverse position in the same instrument is SPOT ON and o so well explained. The only conceivable advantage I see to that kind of strategy is to give the trader the impression of never taking a substantial loss. This feeling of comfort however comes at a price:
1. like explained in the comment above, you have the swap that will invariably be negative. You are basically paying for a position to go nowhere and at same time not making any interest on your balance...
2. Your cash is strapped to one position that once again, does nothing... You may have to forfeit other trading opportunities if you are not willing to close your hedged position. In the case you are willing to give up the hedged position you will have pay the swap and the spread/commission of the hedge for absolutely nothing.
3. It prevents you from facing the humbling experience of taking a loss.
Hedging can be useful but not when the objective is to completely kill a position until it hopefully comes back in profit. As Hanover explained so brilliantly there is no monetary advantage to be gained from it, at that point you would be better off just closing your position and buy some t-bills... Hedging is usefull when you want to isolate and control a SPECIFIC risk.
For example, let say you bought a stock (or currency) and now it is reaching a significant level of resistance and you don't know if the price will break it or be rejected by it.
Now, you are not certain of the future direction of price i.e. the directional risk of your position is becoming an issue therefore you want to hedge against it. However you are expecting strong volatility in the future because you think that the said resistance may spark a rise in activity that might create unpredictable swings. You still want to profit from volatility.
You now decide to hedge yourself by buying a put option. If price is rejected by the resistance level and goes down you lose money on your stock but gain money faster on the option because it takes in the rise in volatility in its price. Directions becomes a non issue and you gain money from an increase in volatility. However if the price breaks through like a rocket you make money on your stock but lose less on your options because the rise in volatility absorbs a little bit of the loss coming from the directional move. Also you do not need to use much of your equity doing so because the total value in dollar of the option hedge is only a small fraction of your initial position.
Hedging can be a useful tool for certain type of traders/investors in certain well analyzed situations but it is no magic bullet, you need to be exposed to risk to make money and hedging is no way around that fact.
But atm its going south and I'm in dd - so rather than realise the loss I might as well bank some profits with the hedges until it turns, which it will.
It's maybe not zero risk but while I'm hedged my dd is static at least and because it's a futures contract there is no swap.
When you mentioned "participation" it reminded me of pipEASY's millipede thread. That's a good example of a strategy that necessitates placing multiple orders, both buy and sell, each with their own SL, at different key levels. As such, it is best operated as a kind of "multi-hedge", assuming that one is willing to accept the additional costs in placing the multiple orders. The only feasible alternative would be to have a complex EA keep track of everything, and maintain a single net position. So, while I would still pedantically contend that hedging is not a strategy in itself (), there are situations where hedging is probably the simplest way to implement a given strategy. Hope that makes sense!
This is where I am with my silver trades atm.
Don't alwaays trade this way but it helps sometimes.
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