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whats with this "hedging" thing??

  • #101
  • Feb 13, 2008 12:01pm Feb 13, 2008 12:01pm
Quoting smjones
Amazing... 21% in a little over 3 weeks and this is typical. You are da man!
Scott, you know me - just got a little hot under the collar with people seemingly dismissing the possibility of trading this way profitably.

Aplogies to Mr Green - not directed at you personally

Yup, not a bad start on the managed account - I do have unrealised drawdowns most times but managed to clear 3 older long positions today for 190 odd pips

Kind Regards
Steve
  • #102
  • Feb 13, 2008 12:02pm Feb 13, 2008 12:02pm
Just trying to understand....
You go Long - the trade goes against you. You 'hedge' this w/ a short.
You wait until eventually the over all balance of the two is in profit... - close both and take the profit between them.
Is this the jist of what you are saying?
In trading, there is no bullshit. You either make money or you don't.
  • #103
  • Feb 13, 2008 12:11pm Feb 13, 2008 12:11pm
Quoting mrgreen
Just trying to understand....
You go Long - the trade goes against you. You 'hedge' this w/ a short.
You wait until eventually the over all balance of the two is in profit... - close both and take the profit between them.
Is this the jist of what you are saying?
Thanks for responding - the more I read my response the worse it looks - eek - sorry!

No, that's not what I do - I'm quite happy to explain my 'rules' but not sure if this would be the correct thread to do so as I'm not strictly 'hedging' in the truest sense of the word.
  • #104
  • Feb 13, 2008 12:33pm Feb 13, 2008 12:33pm
I'd be interested in reading the rulles. Your previous note got me to thinking about one of the lines in the movie Godfather II

"Tom: Mike, that's impossible. They'll turn him over directly to the Internal Revenue, Customs, and half the FBI.
Michael: It's not impossible. Nothing's impossible.
Tom: It would be like trying to kill the President. There's no way we can get to him.
Michael: Tom, you know, you surprise me. If anything in this life is certain, if history has taught us anything, it's that you can kill anyone. Rocco?
Rocco: Difficult, not impossible."
In trading, there is no bullshit. You either make money or you don't.
  • #105
  • Feb 13, 2008 12:34pm Feb 13, 2008 12:34pm
Quoting steviet
Thanks for responding - the more I read my response the worse it looks - eek - sorry!

No, that's not what I do - I'm quite happy to explain my 'rules' but not sure if this would be the correct thread to do so as I'm not strictly 'hedging' in the truest sense of the word.
I agree. What you are doing is starkly different from what was being discussed, because you are not offsetting losses by going in the opposite direction on the same instrument, you seem to be placing seperate trades and betting on the 1000:50 chances. Maybe you could outline your entry methodology on your thread for those who are curious (I know I am!).

For now all I can say is: our stevie has balls and he is damn good to boot. 88/88 is good is anybody's books. Only those who know how hard it is to keep winning month after month will appreciate your work.
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #106
  • Feb 13, 2008 12:46pm Feb 13, 2008 12:46pm
Quoting Plutonite
I agree. What you are doing is starkly different from what was being discussed, because you are not offsetting losses by going in the opposite direction on the same instrument, you seem to be placing seperate trades and betting on the 1000:50 chances. Maybe you could outline your entry methodology on your thread for those who are curious (I know I am!).

For now all I can say is: our stevie has balls and he is damn good to boot. 88/88 is good is anybody's books. Only those who know how hard it is to keep winning month after month will appreciate your work.
Hey there Pluto

Long time no see - hope all is well!

Yup, that's probably not a bad idea - I'll try and post something there later. It does take a whole different mindset and a while to get used to. I will have losing months, I accept that but I believe in my method and it works long term for me. Just a different spin on things.

Oh yeah, I have balls or at least I did last time I checked :
  • #107
  • Feb 13, 2008 12:51pm Feb 13, 2008 12:51pm
Quoting steviet
aren't you really saying that because you haven't worked out a way of doing this profitably, it can't be done?

700 trades in nearly 6 months, 695 winning trades, 5 losing trades, in my 6th consecutive profitable month I beg to differ.
your profitability has nothing to do with the hedge feature. the end does not justify the means whilst trading, imho. OF COURSE you can be profitable using the hedge feature, after all it is the same as a regular order (with two small disadvantages discussed earlier).

the points i have been making about hedging are not my opinion, they are fact. we are talking order mechanics here, this is not a theory or a strategy or anything like that. we have not talked about being profitable or losing money in relation to the hedge, we are just dissecting the feature itself to see if it is worthy of usage. and from what i can see, we have undoubtedly settled on the fact that there is no advantage to using the hedge order over a regular order (other than the accounting aspect which can be done more efficiently with separate accounts). if you believe there is an advantage to the hedge, im all for hearing it. but to say the hedge feature is useful because you are profitable is to miss the entire point of this thread. is a hedge order mechanically different than a regular order? if so, what is the difference? if not, how can it possibly be advantagous to use it?
Relax and be happy.
  • #108
  • Feb 13, 2008 12:56pm Feb 13, 2008 12:56pm
Quoting merlin
your profitability has nothing to do with the hedge feature. the end does not justify the means whilst trading, imho. OF COURSE you can be profitable using the hedge feature, after all it is the same as a regular order (with two small disadvantages discussed earlier).

the points i have been making about hedging are not my opinion, they are fact. we are talking order mechanics here, this is not a theory or a strategy or anything like that. we have not talked about being profitable or losing money in relation to the hedge, we are just dissecting the feature itself to see if it is worthy of usage. and from what i can see, we have undoubtedly settled on the fact that there is no advantage to using the hedge order over a regular order (other than the accounting aspect which can be done more efficiently with separate accounts). if you believe there is an advantage to the hedge, im all for hearing it. but to say the hedge feature is useful because you are profitable is to miss the entire point of this thread. order mechanics should be understood by traders imo.
K, fair enough - no probs - I'll bow out gracefully.

Kind Regards
Steve
  • #109
  • Feb 13, 2008 1:09pm Feb 13, 2008 1:09pm
Quoting steviet
I'll bow out gracefully.
why?

we are debating facts here, kind of like solving a math problem. there IS a definite answer. either you can dispute the facts or you cant, its absolutely clear cut. no offense, but i dont think you understand the mechanics of the hedge, and this is why you cant precisely defend the use of it. the truth is worth the time it takes to uncover, i believe.
Relax and be happy.
  • #110
  • Feb 13, 2008 1:49pm Feb 13, 2008 1:49pm
steviet, i just realized that you are a forex-only trader. now i see why a guy as bright as yourself is missing some of these points. im telling you as a friend, take the time to understand this stuff! the knowledge will do you wonders, it is well worth the time investment. open up a small stocks or futures account, throw a couple orders around. you will not only understand order mechanics better, youll also learn a bunch of other useful crap
Relax and be happy.
  • #111
  • Feb 13, 2008 1:55pm Feb 13, 2008 1:55pm
Quoting merlin
why?

we are debating facts here, kind of like solving a math problem. there IS a definite answer. either you can dispute the facts or you cant, its absolutely clear cut. no offense, but i dont think you understand the mechanics of the hedge, and this is why you cant precisely defend the use of it. the truth is worth the time it takes to uncover, i believe.
No offence taken merlin - I personally find it a useful feature and it works for me and has done for some time.

Your very first post in this thread you were saying you had 'heard experienced traders singing the praises of this feature....' I also use the feature as the very essence of my method.

Kind Regards
Steve
  • #112
  • Feb 13, 2008 2:03pm Feb 13, 2008 2:03pm
Quoting merlin
steviet, i just realized that you are a forex-only trader. now i see why a guy as bright as yourself is missing some of these points. im telling you as a friend, take the time to understand this stuff! the knowledge will do you wonders, it is well worth the time investment. open up a small stocks or futures account, throw a couple orders around. you will not only understand order mechanics better, youll also learn a bunch of other useful crap
LOL, yes I only discovered forex 18 months ago and don't pretend to know half as much as yourself about the markets. I've never traded any other markets although I keep fairly close tabs on the indexes.

I'm not finished learning - in fact I'm only just starting - and thank you for your latest post.
  • #113
  • Feb 13, 2008 2:35pm Feb 13, 2008 2:35pm
Quoting merlin
btw, if you really want to get a handle on order mechanics, go trade stocks or futures for a couple months. i find it is the forex-only traders who get the most confused because forex brokers tend to obfuscate the true meaning of the order types.
Spot on Merlin. As a former registered rep (and occasional instructor for the series-7), I'm used to the standard NYSE/NASD approved terminology of market, limit, stop and stop-limit. Also, they don't recognize the term "stoploss" since a stop order could be used as either an entry or an exit. Buy stops, sell stops, buy stop limits and sell stop limits are valid order types, but a "stop loss" is just common trading jargon.

I used to teach the different concepts of limits and stops as the difference between contrarian strategies and momentum strategies. Contrarians use limit orders (buy if the market falls, sell if it rises) and momentum players use stop orders (buy if the market rises to your trigger, sell if it falls to your trigger).

But now that I trade only FOREX, it's like being in a different country. Oanda for example calls every non-market entry order a "limit" order, regardless of whether the market is above or below the order price.

Not that I'm advocating for government regulating the terminology of course! But a voluntary industry standard would be nice.
  • #114
  • Feb 13, 2008 4:25pm Feb 13, 2008 4:25pm
Steviet

How large are the stops you use?
  • #115
  • Feb 13, 2008 4:29pm Feb 13, 2008 4:29pm
Quoting capitalist88
But a voluntary industry standard would be nice.
Aaahhh, that's like the stuff dreams are made of!

It would be nice to just get on with placing orders wouldn't it. Not having to double-take and sanity check on every bloody platform.
Carpe Divitiae
  • #116
  • Feb 13, 2008 4:39pm Feb 13, 2008 4:39pm
Quoting JFX81
Steviet

How large are the stops you use?
Stop losses are 1000 pips per position. On my live account that equates to 2% of account balance. On the account I trade for another it equates to around 4% at present.
  • #117
  • Feb 13, 2008 6:37pm Feb 13, 2008 6:37pm
Quoting merlin
...two opposite positions on the same instrument, and they call it a "hedge".

i have heard many traders say they choose their broker based on whether or not they offer this feature. i have heard experienced traders sing the praises of this feature. i have even heard people attribute their system's success to this feature! yet i cannot find one single itty bitty reason to use this feature. two identically opposite positions is the same as having no position at all!! hedging, in the traditional sense, is minimizing risk while minimizing potential gain to a lesser extent, and this feature certainly doesnt fit that definition.
please, somebody, tell me what im missing here!
In an attempt to bring discussion back to your original topic I offer one example of how I used the hedge feature back in Oct 2007. Please note this is not how I trade as a rule, it's just an example of how I used the hedge feature.

First I should note that I had ample reason to believe that the market would be in a consolidation/range on the daily for at least a week due to the lack of major news releases and the recent volitility that it had just experienced. Still, I wasn't certain of how long or how wide the range would be or if in fact it would be a flat range or slopping channel. Even so, the swing high in early Oct. showed signs of hitting support aprox 200 pips lower. Without the day by day account of my reasoning at that time I will say that the 'hedging' method I used involved buying and selling equal lots @ or near the median of the 200 pip range. When one position had hit 50 pips profit I would close it and sit on the other until it returned to even at which time I would place a pending order in the opposite direction of the open in case price decided to reverse coarse near the median. I also had protective buy and sell stops well outside the 200 pip range in case of the inevitable breakout that would occur.

One could argue that I could have just sold at the top of the range and buy at the bottom with a stop and reverse above and below the range, but as you look at the chart you can easily notice two or three places where I would need to sit for several days before I could take profit. My reasoning told me that price would cross the median more times than it would hit the extreems and since I didn't know if price was entering a range or channel, I felt the safer option was the hedging strategy. As it worked out, I made just over 470 pips durring this four week period. I should have done much better but I swayed away from the original plan by trying to squeeze a few more pips out when I shouldn't. If I had used a more conventional approach I would have made 400, maybe 500 pips assuming my stops didn't get hit by false breakouts. That's was another advantage to the hedge in this case. I could have cared less what direction price traveled and I didn't worry about my stops being whipped out.

I hope you see now that this feature does have some usefull purpose beyond that of the conventional order types.
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  • #118
  • Feb 14, 2008 8:01am Feb 14, 2008 8:01am
I don't think anyone here has said distinctly that hedging can not be profitable in any way. I have a different method for range trading like that, but the essentials are the same. Revolving around the median with protection in place in case of a breakout. However I think the discussion was started more to address the obvious reasons as to Why brokers are allowing inexperienced traders to get in to hedges that slowly drain their account balance or at minimum cost them double.

As we've already talked about margin usage in a hedge. What are your opinions on margin call policies of different brokerages? This is something I have always had mixed feelings about. Some brokers will autoclose the oldest trade, freeing up margin to keep you in the others. Some will close all positions automatically.

I guess the mixed feelings I have come from mentoring. For my personal trading, I generally have a plan for every trade. Although since I stopped trading news events I've never come close to having 100% of my margin, I generally believe I would like the broker to close a position and allow the rest of the trades to fulfill my trading plan if it were to ever come to that. However as a mentor, I have watched over zealous students get in to too many trades with no stops yadda yadda... (anyone notice that doctors are some of the hardest people to train? It's like this is the first problem in life they couldn't just throw money at) Overnight, the broker will slowly start margin calling the student. Closing 1 trade at a time allows the other trades to use up the free'd margin and produce another margin call a couple of hours later until the account dwindles down to where it can only have 1 trade open. Generally I would have wished students like this to have taken their margin call, the broker to have closed all trades, and the student could live with enough money to trade another day.

I don't know, just another way brokers siphon off money?
The basis of a democratic state is liberty. ~ Aristotle
  • #119
  • Feb 14, 2008 9:39am Feb 14, 2008 9:39am
for anyone still not getting it, here is a challenge... try to replicate your hedge-using strategy without using a hedge order. if you spend the time to do this you will see that everything you are doing can be done with conventional market and limit orders.
Relax and be happy.
  • #120
  • Feb 14, 2008 1:23pm Feb 14, 2008 1:23pm
Quoting merlin
for anyone still not getting it, here is a challenge... try to replicate your hedge-using strategy without using a hedge order. if you spend the time to do this you will see that everything you are doing can be done with conventional market and limit orders.

If I wasn't so behind today from that option box thread and PMs from several folks I was going to illustrate this point.

Using the "hedge" strategy of taking a long and short position at a median point and then closing one side of that hedge at a point 50 pips up or down for example is equivalent to just doing NOTHING at the median point and using a limit order at each 50 pip extreme to open a new position.

If we plot the open P/L at any price point from zero to infinity for both strategies, the P/L plots would be exactly the same.
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