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Stop Loss or Hedge It?

  • #21
  • Jul 4, 2018 1:40am Jul 4, 2018 1:40am
Quoting DonPato
{quote} I think your question is overly simplistic. First of all you have not mentioned any reasons for your hypothetical trade. Most traders I know (myself included) open a position thinking that price will continue to go in the direction of their trade...otherwise why open the position at all. Following this logic then the placement of a stop loss is presumed to be protective in nature. Its whole concept is to protect against catastrophic loss - much like an insurance policy. The idea is you are willing to risk a small amount to realize the potential...
Well spoken
  • #22
  • Jul 4, 2018 8:05am Jul 4, 2018 8:05am
Quoting Guufuj
{quote} Well spoken
Much appreciated... thank you
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  • #23
  • Jul 11, 2018 8:27am Jul 11, 2018 8:27am
Quoting Bydyke
{quote} Hedging is for the very experienced traders. If you are not good at identifying the turns in Price Action, ie, trend change both short-term and long term, steer clear from hedging. In that case, take the Stop Loss on the chin and wait for the next set-up/trade
Hedging is not for newbie. It is a very advanced thing. When I was new, I also thought like you. But by doing so if you fall against a trend, eventually you will lose your money. When a pair is in a ranging market, this may work for some extend but not all the time. That's the reason it's not a cup of tea for newbie.
  • #24
  • Jul 11, 2018 9:42am Jul 11, 2018 9:42am
Quoting AgusKurniaw
{quote} Hedging is not for newbie. It is a very advanced thing. When I was new, I also thought like you. But by doing so if you fall against a trend, eventually you will lose your money. When a pair is in a ranging market, this may work for some extend but not all the time. That's the reason it's not a cup of tea for newbie.
sorry to say this,but hedging is only for newbie. no smart/experienced trader would do it, only people with easy programming knowledge or with not knowing basics of trading or math.

rethink diifference between SL and reopen trades against hedging and you will find it out for yourself, draw examples on paper if you need it. hedging will always be at maximum with same win then SL using, by having orders over rollover time always with less win. so hedging can never have more win then SL using. hedging is simple a very good way for a broker to earn more money.
  • #25
  • Jul 11, 2018 11:11am Jul 11, 2018 11:11am
Quoting dukas_trader
{quote} sorry to say this,but hedging is only for newbie. no smart/experienced trader would do it, only people with easy programming knowledge or with not knowing basics of trading or math. rethink diifference between SL and reopen trades against hedging and you will find it out for yourself, draw examples on paper if you need it. hedging will always be at maximum with same win then SL using, by having orders over rollover time always with less win. so hedging can never have more win then SL using. hedging is simple a very good way for a broker...
Greetings Dukas,

I don't hedge & don't plan to. I much rather win, lose or draw. For the little I know, hedging is more suited to big money where they can spread risk over several baskets. They don't expect much profit but I suppose it's an 'easier' way of securing a few % over a certain period of time. Nowadays much of this will be done by algorithms I guess...is this about right? the reason I ask is that it sounds like you say the professionals never hedge but then what do hedge funds actually do then?

On a funny note, for me hedging is for Grannies. Its a bit like Bingo. Suitable for those who don't want much excitement but still want to participate. (I will laugh my ASS off if next year I start hedging LOL!)

In any case it seems an overly complicated way for small traders. At the end of the day we are trading against banks & others who have better & quicker access to key information...variables we cannot compete with so why even try? simplicity I think is better here. However I am not saying it can't be done, each to their own. I only advise to check out the simple ways at least before complicating matters.

Cheers.
who dares wins
  • #26
  • Jul 11, 2018 11:15am Jul 11, 2018 11:15am
Quoting MasterJedi
{quote} Greetings Dukas, I don't hedge & don't plan to. I much rather win, lose or draw. For the little I know, hedging is more suited to big money where they can spread risk over several baskets. They don't expect much profit but I suppose it's an 'easier' way of securing a few % over a certain period of time. Nowadays much of this will be done by algorithms I guess...is this about right? the reason I ask is that it sounds like you say the professionals never hedge but then what do hedge funds actually do then? On a funny note, for me hedging is...
you can hedge, so open opposite postion.
or you can simple close your trade... both is netting the same, but with one you still have to care for orders and have to payed rollover fee, with one not.

really easy whats much superior.
hedge funds dont hedge trades (= open opposite order when you can close old order same time), thats not what hedge is standing for in this name.

when you have a netting account, then all is of course unimportant, then closing or hedging will be the same, because at rollover all will be netted.
  • #27
  • Jul 11, 2018 11:23am Jul 11, 2018 11:23am
Quoting dukas_trader
{quote} you can hedge, so open opposite postion. or you can simple close your trade... both is netting the same, but with one you still have to care for orders and have to payed rollover fee, with one not. really easy whats much superior. hedge funds dont hedge trades, thats not what hedge is standing for in this name.
Thanks for the reply. So hedging does not actually happen in a hedge fund? interesting & confusing...this is EXACTLY why I don't bother much with macro economics, it's all over the place. They just make up names & rules as they go along!

Good luck mate.
who dares wins
  • #28
  • Jul 11, 2018 11:50am Jul 11, 2018 11:50am
When you entry a Trade, is because you had a Plan and you are expecting that the price is going to move from A -> B and that is your Plan. You know that your, -for example- in a buy order, you know that your trade is not going to go lower to "x" zone.. if go lower, your expectation has failed.

Why let a "failed trade" or a "Wrong Trade" open until margin call... or why Hedge?... If your trade is wrong, is wrong and you must close it.

StopLoss is very common in trading because no one knows what is going to be the next movement 100% but we know that we have an expectation, that we have our plan, that we entry to the market with a certain risk and with certain reward (obviously, always must be minium 1:1, never the risk should be more than the reward..)

Only people with bad emotiones doesnt accept the StopLoss and pretend to Hedge.. but they know what happen in the end, lol.
  • #29
  • Jul 12, 2018 10:57am Jul 12, 2018 10:57am
As this discussion has now turned to the advantages or disadvantages of hedging I would like to submit to all here, that hedging is not a "beginner" or "advanced" technique. It is simply an option available to those who's trading environment allows such positioning. All hedging does (assuming its done with equal position sizing) is create a "flat" position...one that neither wins nor loses. It is done with the idea that the market as produced an environment that can no longer be accurately anticipated...usually a trading range that has lost direction.

I would not recommend hedging INSTEAD of a stop loss, but in addition to one. If you follow your trading plan but the market does not readily produce what you anticipated, I still recommend the use of stop losses to prevent catastrophic losses...however. IF the market price action results in a ranging situation that cannot be accurately anticipated, I believe a hedge can be a useful tool to anticipate a break out and limit losses at the same time. What do I mean by that.
Attached Image (click to enlarge)
Click to Enlarge Name: Best Hedging Idea.png Size: 72 KB

Note here how price begins to range after being unable to close at new highs. Seeing this one could place a short at or near the high of the range. Then also seeing that price cannot follow through on the shorts and instead holds near the bottom of the range...a long can be placed here forming your hedge...

Now no matter which side the range breaks you will have a position at the best possible entry point and a small loss on follow through of the break. This insures a small loss and an END to the hedge once price has decided on direction.

So obviously the shorts would be placed at the top of any range (along with all the other sell orders that are holding the price). And the Longs would be placed at the bottom of the range (along with all the other buy orders).

It is not a "beginner" or "advanced" or "rookie" or "experienced" technique it is simply common sense. I would never presume to think I am a "better" trader or more advanced than anyone else. It can be done with any size position as long as the risk and position sizing remains the same on both sides.

This will do what all the old axioms say..."limit losses and let the winners run."
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  • #30
  • Jul 12, 2018 12:22pm Jul 12, 2018 12:22pm
Quoting DonPato
As this discussion has now turned to the advantages or disadvantages of hedging I would like to submit to all here, that hedging is not a "beginner" or "advanced" technique. It is simply an option available to those who's trading environment allows such positioning. All hedging does (assuming its done with equal position sizing) is create a "flat" position...one that neither wins nor loses. It is done with the idea that the market as produced an environment that can no longer be accurately anticipated...usually a trading range that has lost direction....
The problem in here is that if the price make a "false breakout" Now you have two positions in a loss... all because your main focus was lost in thinking how to deal with those 2 positions in hedge....

If your plan tells you a buy.. and then the price retrace but didnt touch your stoploss and the price stay in that zone (ranging)... Well.. your expectation still activate because your STOPLOSS DIDNT GOT HIT... If the price hit your StopLoss and the price go up again, but you now doesnt have any signal from your OWN SYSTEM... then just wait for the next setup... If the price hits your stoploss and then retrace.. most of traders got bad emotions and start trading emotional... and that... the same thing, you know the answer...


Now the only way that i think you can hedge positions is when you are trading the same "symbol" in different timeframes and your own system makes you the signal... for example if you trade 1440M 240M 60M 30M 15M 5M and your OWN SYSTEM creates signals in all timecharts... maybe in the 1440m chart you are in a long and in 15m chart appears a short signal... Then you are trading Long in 1440m and trading short in 15m and that you are hedging...

But in here all the people want to hedge a lossing position and that is wrong... just let the price hit your stoploss and wait for the next setup.
  • #31
  • Jul 12, 2018 12:52pm Jul 12, 2018 12:52pm
Quoting HappyTrend
The problem in here is that if the price make a "false breakout" Now you have two positions in a loss...
This is always a possibility. In fact I frequently see ranging markets strike both sides of the range. One must understand what this is...it is the market searching for order flow. The "false" breakout is simple insufficient order flow to follow through. This can be recognized quickly and the hedge (the side that stopped out) can be reestablished. Keeping in mind that price cannot break both sides at the same time, one can reestablish the hedge once again as soon as it is determined that the break out is "false", or better said, lacked sufficient order flow to follow through.

Another technique I've seen many of my colleagues use is to anticipate "false" breaks and adjust stops accordingly. Some even have a mathematical formula of a certain percent of the range to place their stops. Either way the practice of hedging uncertainty in price action is NOT a "rookie mistake".

Quoting HappyTrend
... But in here all the people want to hedge a lossing position and that is wrong... just let the price hit your stoploss and wait for the next setup.
I think here we agree. One should trade with a plan that includes risk control in the form of a stop that, if hit, will limit your losses. However NO plan should be so inflexible as to not allow the market to express itself freely. My "plan" may anticipate a vertical move from point A to point B. But the market may not agree with that plan. Does that mean the market won't do what I anticipate after some order flow balance? I have no way of knowing and neither does anyone else. So If my position moves in my favor but then stalls, I COULD exit the position and take a small profit...or I COULD hedge against an unanticipated move against me, and profit from both moves.

Rigid adherence to one's trading plan has its place in overall performance, however the inability to anticipate or foresee areas where price might stall can be an issue as well. One can never assume the market will ever go as you anticipate it does...your plan should have a certain degree of flexibility built in to allow for free expression of price movements without bumping up against your rigid thought...this too can cause much frustration and loss.
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  • #32
  • Jul 12, 2018 1:16pm Jul 12, 2018 1:16pm
Quoting DonPato
{quote} This is always a possibility. In fact I frequently see ranging markets strike both sides of the range. One must understand what this is...it is the market searching for order flow. The "false" breakout is simple insufficient order flow to follow through. This can be recognized quickly and the hedge (the side that stopped out) can be reestablished. Keeping in mind that price cannot break both sides at the same time, one can reestablish the hedge once again as soon as it is determined that the break out is "false", or better said, lacked sufficient...

Yes, we dont know 100% to where the market is going to move... is the reason that we use stoploss... But the system that every trader must use should have a plan.. an expected target and an expected stoploss...

But well talking about trading is like "Religion and Politics".... the only thing is that all the "traders" that i know that still (after a few years...) using hedge position for any reason.. they are not profitable yet....

and the people that i know that are profitable... they got a Plan, A Target Zone and StopLoss Zone... If the target hit, fine.. if the stoploss hit, fine... always are another opportunity for participate to the markets. GoodLuck.
  • #33
  • Jul 12, 2018 2:04pm Jul 12, 2018 2:04pm
Quoting HappyTrend
{quote} Yes, we dont know 100% to where the market is going to move... is the reason that we use stoploss... But the system that every trader must use should have a plan.. an expected target and an expected stoploss... But well talking about trading is like "Religion and Politics".... the only thing is that all the "traders" that i know that still (after a few years...) using hedge position for any reason.. they are not profitable yet.... and the people that i know that are profitable... they got a Plan, A Target Zone and StopLoss Zone... If the...
I think we can both agree that there is certainly no single way to participate on any market...some "trade", some "invest", some use one market to "hedge" another...some buy or sell options. The choices are limited only to one's imagination and skill. What works for you might not work for me and vise versa. My only point is that belittling someone for their choice or seeking options outside their own ideas simply because it is not something you don't agree with is beneath us all. I generally don't use hedging as part of my trading but I know it's an option that can be profitable if done correctly.
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  • #34
  • Jul 12, 2018 3:06pm Jul 12, 2018 3:06pm
Quoting DonPato
{quote} This is always a possibility. In fact I frequently see ranging markets strike both sides of the range. One must understand what this is...it is the market searching for order flow. The "false" breakout is simple insufficient order flow to follow through. This can be recognized quickly and the hedge (the side that stopped out) can be reestablished. Keeping in mind that price cannot break both sides at the same time, one can reestablish the hedge once again as soon as it is determined that the break out is "false", or better said, lacked sufficient...
you miss the main part.

you can simple close your position and have same result like with hedging , only with the advantage you dont have still 2 positions open and you have to pay rollover for this. so where is the advantage with hedging against closing your position? only advantage is when you have smaller programming experience (then hedging is more easy to program), rest is not really an advantage when done one time correct and you will look back to compare both ways.

any questions to this?
  • #35
  • Jul 12, 2018 4:52pm Jul 12, 2018 4:52pm
Quoting dukas_trader
{... any questions to this?
Nope, none at all...I am neither a programmer nor a hedger... just a simple trader looking to improve. But I've seen nothing here to convince me it can't work under the right circumstances. One position or two doesn't change how order flow works or what we can do with it once we understand it.
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  • #36
  • Jul 12, 2018 5:19pm Jul 12, 2018 5:19pm
One use of hedging is if you are risking a considerable % per trade, that way you can hedge your initial trade at a set amount of pips and freeze the loss. For then releasing one hedged position, essentialy being the same size as your initial trade. If you get it right then you can get a BE most likely. Specially if you are a high win rate scalper.
  • #37
  • Jul 12, 2018 6:13pm Jul 12, 2018 6:13pm
You won't ever make a career in one trade, but you can definitely end a career in one trade. If you don't use stop losses (be it mental or actual), then you're not taking trading seriously as you're willing to risk your entire trading career/account to feed your ego that your read was right.
  • #38
  • Jul 12, 2018 8:46pm Jul 12, 2018 8:46pm
Well im going to unsubscribe this Thread... good luck to all those people who still using Martingale, Hedge, Grid.. everything without stoploss... LOL.

Anyone remember the crash of CHF? Just saying... Bye.
  • #39
  • Jul 12, 2018 9:22pm Jul 12, 2018 9:22pm
Quoting Guufuj
You got a position opened and the market is about to hit your SL (Stop Loss) value. What do you do? Quickly remove the SL value or Hedge it or you just let it go and then smile ?
To be honest, I've been researching this very intensely for a while. I have tested a very wide range of money/trade management systems using computer programs; from D'Alembert to Fibonacci, Oscare's Grind, Martingale, griding systems and a bunch of (allegedly) hedging algorithms.

Nearly all of them will eventually lead to disaster (let me know in case you wonder why). But the only method that seems reasonable to me is this:

First, after you've set your SL initially, never change it. If you find yourself in doubt, you certainly don't believe in your strategy and that's another story.
Second, After you've entered a position and set your SL, calculate the distance between them (Entry - SL) and call it, say, X.

Now, every time the price goes in your favourable direction (let's say it's a BUY for the matter of simplicity) by X:

  1. Pull up all your previous Stop Losses to (the current price minus X)
  2. Open another position, exactly at the current price.

and things will go on like this until all your Stop Losses are triggered, obviously altogether.

I'm not saying this is the best method ever or anything like that. But what I'm saying is I've found this method much safer and reasonable than all other systems I mentioned at the beginning of this post.

If you can't measure it, you can't improve it!
  • #40
  • Jul 12, 2018 9:51pm Jul 12, 2018 9:51pm
Quoting DonPato
As this discussion has now turned to the advantages or disadvantages of hedging I would like to submit to all here, that hedging is not a "beginner" or "advanced" technique. It is simply an option available to those who's trading environment allows such positioning. All hedging does (assuming its done with equal position sizing) is create a "flat" position...one that neither wins nor loses. It is done with the idea that the market as produced an environment that can no longer be accurately anticipated...usually a trading range that has lost direction....
The problem is that sometimes (actually many times!) the market comes down, triggers you SL, and then goes up again
If you can't measure it, you can't improve it!
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