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Hedging/averaging trades without prediction

  • #3,381
  • May 21, 2024 3:52am May 21, 2024 3:52am
Quoting Waveskierrob
{quote} too early to say yet, as with all trades need to exercise a little patience....
Well that was my first stop out on Div trading.

Did it hurt? Well financially it had an impact but no it didn't hurt as I'd accepted I may lose it before I put the trade on, sure I was not smiling as it moved the wrong way but it was sized to my risk and it would either win or lose, this time it lost.

Financial impact was not damaging as the risk value was from some of the cumulative profit from previous trades and it just means I step back a few trades on the cumulative curve timeline, but with my stats supporting this as a high probability method I expect that to grow back shortly over the next few net wins.

Be interesting to see where (if) it finally turns.

... on to the next.
always learning
  • #3,382
  • May 21, 2024 3:55am May 21, 2024 3:55am
Quoting Headland
Re Cac40 trade discussed above; On my broker - gap from last candle before the gap -to- close of 1st bullish candle after it, was circa 30pips. If you were holding from before the gap per T721's original play, you would be currently circa -40pips in dd, and the entry on 1st bullish candle after the gap would be circa -10pips in dd right now. From a R:R perspective, on the pre-gap 1st entry - holding for a 40pip dd would make no sense unless you held for at least a +40pip gain. On the 2nd post-gap entry, currently -10pips in dd, for a potential gap...
FYI I'm using IG and have 27 pips for "gap from last candle before the gap -to- close of 1st bullish candle after it". No need to reply
  • #3,383
  • May 21, 2024 3:58am May 21, 2024 3:58am
Quoting Headland
... Like others have expressed, until such a time as you have a representative back or forward sample, I would exercise caution.
100% agree, I also believe you've got to do the sample yourself else you are just blindly taking someone else's word for it and when push comes to shove and you are in big drawdown how does that support or impact the psychology and emotions.

always learning
  • #3,384
  • May 21, 2024 4:09am May 21, 2024 4:09am
Quoting Headland
... Firstly thanks to T721 for sharing this. Just on my general point alluded to in my above post, and not wanting to put a dampener on things; I think everyone is trading these so-called 'dividend gaps' a bit blind in that no one really knows, or have at least not published here; 1. The long-term large historical sample win rate % and other stats. 2. The optimum R:R tactic that can be derived from stats that can be calculated from such a large historical sample. Like others have expressed, until such a time as you have a representative back or...
I had the same take takeaways following behind the scenes. I will add:
- if you are compelled by the strategy I think its a no brainer to enter pre-dividend
- you should hedge your overnight risk. By doing so and "trading the entire account balance" as some mentioned is a recipe for account loss on a simple sizeable move down on equity markets overnight
- CAC40. Some have said it works best on the CAC40. That may be the case but I see it as a high risk index to trade on, comprising just 40 stocks. LVMH make up 11% of the CAC40. A news event that causes just LVMH to open 10% down on previous close will contract the CAC40 by 1.1%. The stops some have mentioned are much smaller than 1.1%. Those trading the entire account balance on their stop - at say 0.2% down, experiencing a 1.1% down at the open will be wiped out beyond the account into personal savings etc. I'd suggest using larger indices

Those on here trading the strategy real and large $ for some time and successfully so I am sure are well aware of the above points - would be valuable to hear their thoughts
  • #3,385
  • May 21, 2024 4:19am May 21, 2024 4:19am
...am I missing something here about the 'usefulness' or otherwise of that 1st immediate pre-gap trade? With the broker credit re the dividend that creates the gap- isn't it only worth going in pre-gap if you intend to hold the trade open above where the gap gets filled, because until then, with the broker credit re the dividend effectively offsetting the gap dd of that 1st pre-gap entry until the gap is closed, this is the only way you will make money (give or take a few pips) with that 1st pre-gap trade. So, isn't this just a simple gap filling strategy on the 2nd post-gap trade?
Trader with an Edge.
  • #3,386
  • Edited 5:12am May 21, 2024 4:50am | Edited 5:12am
Quoting Headland
...am I missing something here about the 'usefulness' or otherwise of that 1st immediate pre-gap trade? With the broker credit re the dividend that creates the gap- isn't it only worth going in pre-gap if you intend to hold the trade open above where the gap gets filled, because until then, with the broker credit re the dividend effectively offsetting the gap dd of that 1st pre-gap entry until the gap is closed, this is the only way you will make money (give or take a few pips) with that 1st pre-gap trade. So, isn't this just a simple gap filling...
Yes you could do that if you wanted, akin to scalping the bounce i guess..

I'm trying to get paid the full adjustment plus costs and have one "loser" and one "winner" (hate those terms). I'll target just above the middle to cover costs, etc.
Only on longs by the way.

If your CFD broker isn't paying an adjustment they are a proper bucket shop so avoid.
  • #3,387
  • May 21, 2024 5:44am May 21, 2024 5:44am
CAC down a lot. So that would be the first loser with a 1:1 RR

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  • #3,388
  • May 21, 2024 6:00am May 21, 2024 6:00am
Seems like a 1:1 RR on the ex dividend trade only following with the dates published for FTSE and CAC (where the forecasted number is > 5 Points) won’t work out to be profitable at a monthly or quarterly interval.

Would like to backtest it but still couldn’t find sufficient historical intraday data by IG.

I guess i am doing it all wrong and have to keep buying if it drops until it never comes back up or my account is empty?
  • #3,389
  • May 21, 2024 6:08am May 21, 2024 6:08am
I'm bleeding on the CAC, but I noticed smtg interesting: the big 5 min candle which stats at 8 am seems to be a very safe long, but trading only that means to miss on the potential profit of the rest of the gap
Mai na gioia
  • #3,390
  • May 21, 2024 6:20am May 21, 2024 6:20am
By the way. This broker, who is indirectly recommended by Tom Hougaard all the time (TD365), looks dogy?

TD365
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IG
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Me: I am referring to major bear candle at 01:00 marked by the red vertical line. I can't notice such a massive price drop with my other brokers? See my images below.
TD365: Please be aware that this was the pricing we received from our pricing provider at that time. Kindly note that other brokers may receive their pricing from different providers, which can lead to varying prices at times. Yes, we do adjust our indices prices if dividends are released on the ex-dividend date.

I always thought maket makers normally operate a dealing desk in order to create their own prices? How can they otherwise offer fixed spreads and guaranteed fills of huge position sizes without a hint of slippage.

What do you think?
  • #3,391
  • May 21, 2024 6:25am May 21, 2024 6:25am
Quoting Carabas
I'm bleeding on the CAC, but I noticed smtg interesting: the big 5 min candle which stats at 8 am seems to be a very safe long, but trading only that means to miss on the potential profit of the rest of the gap
That's why is said a backtest might help to bring some light into this. Now imagine you opened a position at €500/Point like Terry (and you even buy more...). How long can you let price go against you without getting a margin call? All just to secure a single win? Isn't it always a case of keeping losses short and letting winners run? At least that's what you'll find in almost every trading book.
  • #3,392
  • May 21, 2024 6:28am May 21, 2024 6:28am
TD365 is a bucket shop. I didn't know Tom Hougard recommended them but i'd steer well clear.
  • #3,393
  • May 21, 2024 6:33am May 21, 2024 6:33am
Here my EA results from the CAC trade with IG.

Just one trade, of course. You can't always win. But I probably need a different approach even if I trade several indices that would offer enough valid signals in the strategy. Continuing to add to the losses or setting the stop at -99.9% of the account balance doesn't seem to be a professional solution to me.

The positive: The EA did exactly what it was supposed to do!

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  • #3,394
  • May 21, 2024 6:34am May 21, 2024 6:34am
Quoting Dubit10
TD365 is a bucket shop. I didn't know Tom Hougard recommended them but i'd steer well clear.
At first I actually thought he was being quite sensible, but I'm increasingly starting to think that his "millions" come more from promoting this broker than from his "high stake" trading. On the sidelines there are always courses offered or his book etc. (But of course he doesn't sell anything...)
  • #3,395
  • May 21, 2024 6:39am May 21, 2024 6:39am
Quoting Carabas
I'm bleeding on the CAC, but I noticed smtg interesting: the big 5 min candle which stats at 8 am seems to be a very safe long, but trading only that means to miss on the potential profit of the rest of the gap
I think you'll do better in the long term if you stick to your plan and don't change it on the fly because some new thought/impulse comes along.

Edit: The bigger 5 min candle you refer to is probably the market open.
  • #3,396
  • May 21, 2024 6:45am May 21, 2024 6:45am
Quoting lddd
{quote} That's why is said a backtest might help to bring some light into this. Now imagine you opened a position at €500/Point like Terry (and you even buy more...). How long can you let price go against you without getting a margin call? All just to secure a single win? Isn't it always a case of keeping losses short and letting winners run? At least that's what you'll find in almost every trading book.
I'm looking for a level to hedge my position in case it continues lower, but first i can take another 100 pips dd
Mai na gioia
  • #3,397
  • May 21, 2024 6:46am May 21, 2024 6:46am
Quoting lddd
{quote} I think you'll do better in the long term if you stick to your plan and don't change it on the fly because some new thought/impulse comes along. Edit: The bigger 5 min candle you refer to is probably the market open.
Yep it is and it has only a 3 pips spread in that moment, good enough
Mai na gioia
  • #3,398
  • May 21, 2024 6:54am May 21, 2024 6:54am
Quoting Carabas
{quote} I'm looking for a level to hedge my position in case it continues lower, but first i can take another 100 pips dd
Yes, I know hedging is also the title of the topic. What is being practiced here as hedging seems to me to be more of a loss-avoidance strategy than classic hedging (This is not intended to be a negative criticism). My point is that you shouldn't have hundreds of points drawdown at all in the first place to maybe win 10 Points?

Also, don't forget the overnight financing costs. If you do this with a small size where 100ths of points drawdown just means pocket money, it's probably not a big deal, but even then it actually makes no sense to me to take on so much risk for such a small reward. But that's just my opinion. In any case, I can't tolerate that much drawdown, so maybe the ex-div strategy is another thing not working for me. But i will keep looking at it.
  • #3,399
  • May 21, 2024 7:30am May 21, 2024 7:30am
...there will be a lot of traders that have been following this discussion who will be put off this 'potential edge' by this cac trade entered by some here. That is because they have insufficient historical data (of their own,) to assess whether an edge does exist or not, and are judging it on this one instance - the present Cac trade, and until now have been seeing good things only, - firstly anecdotal evidence from T721, and then some more empirical stuff on the Ftse trade by some posters on this thread. Whether anything published here so far, anecdotal or documented/recorded empirical represents a large enough representative historical sample on which to judge whether an edge exists or not and to optimise risk and trade management to it is another question, but I suspect not. I certainly wouldn't trust anecdotal evidence.

If you are taking the 1st entry (the immediate pre-gap trade) and the 2nd on the 1st 1min or 3min bullish candle after the gap (the post-gap trade,) then because of the credit to your a/c by the broker re the dividend you can give or take a few pips, have a stop that is twice as big as that of the 2nd trade on the 1st trade provided that that stop is no more than the credit from the broker. In any event, if effectively trading a 1:1 R:R on both trades you will need to see a good 90%+ historical win rate for this to be worth doing.
Trader with an Edge.
  • #3,400
  • May 21, 2024 7:40am May 21, 2024 7:40am
Quoting Headland
...there will be a lot of traders that have been following this discussion who will be put off this 'potential edge' by this cac trade entered by some here. That is because they have insufficient historical data (of their own,) to assess whether an edge does exist or not, and are judging it on this one instance - the present Cac trade, and until now have been seeing good things only, - firstly anecdotal evidence from T721, and then some more empirical stuff on the Ftse trade by some posters on this thread. Whether anything published here so far,...
Probably or probably not. I think this thread doesn't conform to the usual thinking on this site. We figure stuff out...
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