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hedging - A new flavour of trading

  • #1
  • First Post: Dec 11, 2007 1:05pm Dec 11, 2007 1:05pm
Hedging is becomes a new flavour of trading. It reduce loss and maximize your profit.
Iam learner and want to get knowledge more and more. See my username fxbaby, i always need milk, water and good care. For me, milk is a good strategy, water is new threads started by experienced trader and care is posts of senior traders.
Well as i told hedge can reduce ur loss and maximize ur profit. i want to clear my doubt.
I have a strategy. When i used it on gbp/usd system my trade win and lossing ratio is 60% 40%. It means 60 times it go in my favour and 40 times i lose my money.
Many professionals say me -" Donot use stoploss".
Ok may be stoploss solution is hedging. Example is below-
My strategy give me a short entry when g/u at 2.0477. If i hegde g/u with e/g (correlation -0.93) my profit will become limited and if hedge it with e/u (correlation +0.47) it maximize my profit and also miximize my loss.

So how can i use hedging in good way that maximize my profit and reduce my loss.
Again i donot want to use stop loss. All comments are welcome. But please donot take favour of stoploss. I know Importance of stoploss, but here iam talking about hedging. I donot want to earn swap, just want to make more profit and reduce my loss.
Let's trade together.
  • #2
  • Dec 12, 2007 9:12am Dec 12, 2007 9:12am
Iam waiting for answer.
Let's trade together.
  • #3
  • Dec 12, 2007 9:33am Dec 12, 2007 9:33am
Use a stop loss.
  • #4
  • Dec 12, 2007 9:37am Dec 12, 2007 9:37am
Often with hedging strategies you can use a more direct route.
  • #5
  • Dec 12, 2007 4:41pm Dec 12, 2007 4:41pm
Quoting FXBaby
Again i donot want to use stop loss. All comments are welcome. But please donot take favour of stoploss. I know Importance of stoploss, but here iam talking about hedging. I donot want to earn swap, just want to make more profit and reduce my loss.
Hedging is for pansies who can't admit that they were wrong on a trade. Rather than exit a bad position they prefer to pay another spread to enter an opposing position and focus on the winning side. When you take profit the loser will still be there and will be larger than before.

If you want to simplify the math for hedging take the exact opposite of your existing position and get out of the market.

Psychologists have studied and written that the pain of a loss is twice as negative as the positive feeling experienced from a win. So even when you're hedged you'll still be an emotional wreck. Your loss will be waiting for you when you are ready to deal with it.
  • #6
  • Dec 12, 2007 4:48pm Dec 12, 2007 4:48pm
Quoting philmcgrew
Hedging is for pansies who can't admit that they were wrong on a trade. Rather than exit a bad position they prefer to pay another spread to enter an opposing position rather and focus on the winning side.
Finally someone has said what I have always thought !!! I always thought I was an idiot and did not know enough, so I never commented... but the above is my exact thoughts about hedging !!!

No offence fxbaby... and sorry to stick my big nose in again... but wouldn't it just be better to find a way to make winning trades, rather than try to fix trades that aren't working ??? if you are losing, just get out... I know it hurts, but it is closure, and then you can just move on... having learned a lesson too hopefully...

I know I know... now there will be all kinds of arguing.... sorry !!!!!
  • #7
  • Dec 13, 2007 12:47am Dec 13, 2007 12:47am
Quoting FXBaby
Ok may be stoploss solution is hedging. Example is below-
My strategy give me a short entry when g/u at 2.0477. If i hegde g/u with e/g (correlation -0.93) my profit will become limited and if hedge it with e/u (correlation +0.47) it maximize my profit and also miximize my loss.

So how can i use hedging in good way that maximize my profit and reduce my loss.
Again i donot want to use stop loss. All comments are welcome. But please donot take favour of stoploss. I know Importance of stoploss, but here iam talking about hedging. I donot want to earn swap, just want to make more profit and reduce my loss.
You can't rely on hedging as your stop loss as this would be a complicated stop loss strategy...The correlation factor you are talking about is changing all the time and might change during the course of your trade...For example, if you are positioned based on a correlation of -0.93 between GBP/USD and the EUR/GBP, what happens if the correlation changes dramatically for any reason? Of course the correlation can change in your favor or against you...So in fact, you will need to analyze the trend of the correlation at least and finally this won't eliminate the risk against your account and against your position....

The only hedge that you can use without using stop losses is using options...This way, your loss is limited and your profit is unlimited...However, during high volatile periods, you will find that your loss is limited to a large amount which might be well beyond your account capability...It's a case by case issue...


Thanks,

Nader
  • #8
  • Dec 13, 2007 9:39am Dec 13, 2007 9:39am
Keep posting i have a close look on this thread. I want all senior post here. I donot know how hedge fund makes lot profit with less risk. If u have answer please post it.
Let's trade together.
  • #9
  • Dec 13, 2007 9:46am Dec 13, 2007 9:46am
Quoting philmcgrew
Hedging is for pansies who can't admit that they were wrong on a trade. Rather than exit a bad position they prefer to pay another spread to enter an opposing position and focus on the winning side. When you take profit the loser will still be there and will be larger than before.
its about time somebody laid it out in plain english!! LOL

this "hedging" feature that brokers offer is completely, COMPLETELY worthless. this is not even true hedging... its taking the exact opposite position, which is, of course, the same as exiting the position.

REAL hedging is when you offset risk *without* offsetting potential gain. and that is not a feature in your trading platform:
Relax and be happy.
  • #10
  • Dec 13, 2007 9:48am Dec 13, 2007 9:48am
Quoting peterM
Often with hedging strategies you can use a more direct route.
are you talking about real hedging, or the fake hedging feature found in broker platforms?? and if you are talking about the fake heding, id love to hear how it allows you to use a "more direct route".
Relax and be happy.
  • #11
  • Dec 13, 2007 9:53am Dec 13, 2007 9:53am
Quoting FXBaby
Keep posting i have a close look on this thread. I want all senior post here. I donot know how hedge fund makes lot profit with less risk. If u have answer please post it.
But are you a hedge fund ?????
  • #12
  • Dec 13, 2007 10:00am Dec 13, 2007 10:00am
Quoting FXBaby
Keep posting i have a close look on this thread. I want all senior post here. I donot know how hedge fund makes lot profit with less risk. If u have answer please post it.
I may be wrong, but I believe there are very few "hedge funds" in the original sense of the word. Maybe someone in the know can clarify this.

Also as far as hedging spot currencies goes, take a look at Chartguy's C-Trader thread in the systems section. It uses about 13 crosses to hedge a carry trade. It is an interest positive strategy and is very robust. I started to test it just before the big meltdown the other month and the drawdown was acceptable.
  • #13
  • Dec 13, 2007 10:14am Dec 13, 2007 10:14am
Quoting Tiki Trader
But are you a hedge fund ?????
No sir iam not hedge fund, i have developed a good strategy and testing it. I want to improve it's proformance. I have read on many forum that hedge reduce risk. I have asked many professionals. They told me stop loss and order hunting is mostly popular thing among these bastered (they want to say broker). Choose higher time frame for trading. Many of them told me slaping is not good when ur broker want to earn from u more and more without giving u a buck.
Iam not a slaper.
I just want to use currency correlation to make much profit and reduce risk.
If iam wrong correct me.
Let's trade together.
  • #14
  • Dec 13, 2007 10:18am Dec 13, 2007 10:18am
Please answer marlin
Quoting merlin
are you talking about real hedging, or the fake hedging feature found in broker platforms?? and if you are talking about the fake heding, id love to hear how it allows you to use a "more direct route".
what do u mean by real and fake hedging ?
please clear...................
Iam very happy to all senior posts and thanks marlin for ur posting. This second time my thread is moved to beginner section. HIHIHIHI
Let's trade together.
  • #15
  • Dec 13, 2007 10:28am Dec 13, 2007 10:28am
FxBaby, you are suffering from the classic newbie syndrome of testing different trading systems at once or for a short period of time. This is a business and it takes a lot of time, effort and a defined plan to reach the profitable trading status.
  • #16
  • Dec 13, 2007 10:35am Dec 13, 2007 10:35am
Quoting FXBaby
I have read on many forum that hedge reduce risk.
The safest way to reduce risk is to not trade.

Quoting FXBaby
I have asked many professionals. They told me stop loss and order hunting is mostly popular thing among these bastered (they want to say broker).
We must talk to different professionals. Most traders I know stopped worrying about that a long time ago and started focusing on trading.
  • #17
  • Dec 13, 2007 10:42am Dec 13, 2007 10:42am
Quoting kihl
FxBaby, you are suffering from the classic newbie syndrome of testing different trading systems at once or for a short period of time. This is a business and it takes a lot of time, effort and a defined plan to reach the profitable trading status.
No sir i have my one strategy and testing it on demo but i donot know much about hedging. Iam confused and want all senior suggestion. I know many senior traders are know about hedging. Every strategy system failed after a time (i have read somewhere on this forum).If u true hedger u can make more profit with less drawdown(read in a artical when searching on google).
Yes iam newbie but iam hungry................
i want to know more and more. Many traders are reading this thread but not posting their opinion their comment. Please share ur ideas. I can only say u thanks.
Again thanks for all seniors how have posted their comment here.
Let's trade together.
  • #18
  • Dec 14, 2007 6:48am Dec 14, 2007 6:48am
I'm hedging the gbp/usd and the usd/chf.

So far so good. I don't put a stop loss though. Because the currencies are hedged and technically you will not get easily margined out (unless you risk too much of your capital, I stick to 6%) Having said that, there is still a risk during market crashes.

I also buy low and sell high while being hedged at small amounts and I earn interest everyday so long as I do not close the trades
the pips made a monkey outta me
  • #19
  • Dec 14, 2007 7:21am Dec 14, 2007 7:21am
Quoting pip monkey
I'm hedging the gbp/usd and the usd/chf.

So far so good. I don't put a stop loss though. Because the currencies are hedged and technically you will not get easily margined out (unless you risk too much of your capital, I stick to 6%) Having said that, there is still a risk during market crashes.

I also buy low and sell high while being hedged at small amounts and I earn interest everyday so long as I do not close the trades
If you were skilled enough to buy low and sell high you wouldn't need to hedge.
  • #20
  • Edited 9:21pm Dec 15, 2007 8:54pm | Edited 9:21pm
There is a benefit to the opposite direction brokers offer. It's this scenario; say you have a small account and you find yourself in a severely losing trade, for whatever reason. By hedging the same currency you've essentially stopped all losses that could wipe out your account. Once the trend is determined you can cut the opposing trade and hopefully regain you losses. Of course getting back to breakeven could take awhile, depending how far out of the money you are if it ever returns..but usually it does. Also, say you are short on gbp/jpy. Holding this pair for any extended length of time could become quite expensive. Hedging would also reduce the swap otherwise. Not an ideal method, but desperate situations call for desperate actions sometimes.
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