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"Hedging" Revisited

  • #81
  • Nov 13, 2010 5:57pm Nov 13, 2010 5:57pm
Quoting gspajon
OK...I give up. I think I'll join Craig as well. I asked a simple question at the beginning of this thread. Is there some reason NOT to trade in this fashion.

Other than incurring minor transaction costs...which are clearly paid for in the method, I have not been convinced NOT to trade this way.
From FXCM http://www.fxcm.co.uk/hedging.jsp

While the ability to hedge is an appealing feature, traders should be aware of the various factors that can affect their accounts. Spreads may widen, causing margin to diminish, potentially leading to the danger of a margin call. Pip costs and rollover may also cause a decrease in account equity, adversely effecting hedged positions.

Quote
The market is NOT made of calculators, it is made of people. With few exceptions, most of those people do NOT think or trade in terms of math accuracy or formulas. They trade with their emotions and thus do not and will never consistently react in the way the math forumlas say they should. If that were the case we'd all be rich...the math guys first of course.
You might wanna check that too. The market changed in the last years. And the math guys are rich. Check out this guy http://www.nytimes.com/2010/05/17/business/17trade.html

These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.

A more recent article said that he had finally had three losing days in a row But still no losing week EVER.

And from Oanda http://www.olsenblog.com/wp-content/..._Trade_5.2.pdf

For full disclosure, I need to add another remark of caution. Human traders cannot compete successfully with sophisticated quantitative trading models, which systematically process every tick of market data. Why do I say this? Human traders can be compared to a physics professor in an airplane about to take off: in principle, the professor knows all the principles of aerodynamics that are put to work in the airplane, but he cannot explain and compute all the equations on the fly. Quantitative trading models have a competitive edge; they are based on algorithms that aggregate the know-how that researchers specialized in a number of disciplines have brought together, and deploy this embedded knowledge in a systematic and consistent manner; quantitative algorithms do not miss a price tick; they do not need to sleep, eat or go on holidays.
  • #82
  • Nov 13, 2010 6:35pm Nov 13, 2010 6:35pm
Quoting Adal
From FXCM http://www.fxcm.co.uk/hedging.jsp

While the ability to hedge is an appealing feature, traders should be aware of the various factors that can affect their accounts. Spreads may widen, causing margin to diminish, potentially leading to the danger of a margin call. Pip costs and rollover may also cause a decrease in account equity, adversely effecting hedged positions.
hey adal..... thanks for posting that...... and appreciate fxcm for placing the warning......

this i have verified in live trading in side by side accounts or would not posted it something similar......

fully hedged is not equal to being out of the market.....


//---
//---

my hedging days are thankfully long gone and to be honest looking back i was foolish/inexperienced for doing so......h
to trade and code, keep both simple... no call to impress....h
  • #83
  • Nov 13, 2010 7:09pm Nov 13, 2010 7:09pm
Quoting kingsurfer
Consider this well known scenario in forex:

Market closed on Monday at 1.41000. Price reached 1.44000 at close of Thursday. Retraced to 1.42000 by close of Friday. Familiar?

Mathematically it should close on Friday at 1.45000. Not so, 7bit? Hanover?
But this is Forex u would say!

That's why the score in forex remains Hedging 1 : Maths 0.

Infact 2:0 by my signature.

King.
With respect, defining a scenario where it would be better to be "hedged" (as defined by the OP) does not discredit the maths. Of course there are many such scenarios to explore in the theoretical world.

I am really enjoying reading this thread - it is an absolutely classic illustration of the struggle that many traders go through, and from which they hopefully emerge better for the experience, but rarely do as most people tend to give up as we know. More than anything else it is a great example of the stark differences in application (and usually outcome) between data, facts and reality, versus assumptions, invalidated theories, and the lure of approaches which show a largely unqualified short term gain but which most often lack long term sustainability. Novice traders can learn a lot about "learning" from threads like this..

This thread has nothing to do with hedging but there are lots of little gems in here nevertheless.
  • #84
  • Nov 13, 2010 8:56pm Nov 13, 2010 8:56pm
Quoting usw
Then don't say math somehow doesn't apply in this case. If you read my example, the net change is the same. So it's not that your method doesn't work, it's just pointless. And as has been pointed out, wasteful, in that you pay extra spread and swap costs. A br0ker trick that the regulatory agencies put a stop to.
Well in the statement I posted in page 3 all the spread and swap costs were figured in... the account is still profitable even though you claim it to be inefficient.

But somehow someway it makes up for this inefficiency? explain that... if it is so so so inefficient how is it that I show a profit in that example? But as said before everyone wants to split hairs over how it's done.

And since I know how much some of you like calculators... I'll help you out with a snapshot performance analyzer of that statement I posted on page 3.

How's this for inefficiency? Given the number of trades you'd have trouble working that out on a manual calculator... but I already have known that a long time ago as the date of the statement would suggest.

Last time I checked the broker doesn't pay you for not placing a trade... well unless you have an interest bearing account like one offered at Oanda. So placing a trade or not placing a trade is pointless speculation.

Obviously the spread widening can be a factor... but there are ways to deal with this as well boys and girls... if they can dream it up be certain there is somebody that can program it in to be handled.
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  • #85
  • Nov 13, 2010 9:04pm Nov 13, 2010 9:04pm
I just find it a little disheartening that people who have been involved in the markets for 2+ years can still struggle with the concept. I had always wondered how there could be any dissent to the NFA implementing the no "hedging" rule. Now I have some first-hand knowledge of the thinking that goes into it.

I also skimmed another thread on the topic from 2008, I feel this post sums it up nicely.

I think what the "hedgers" have stumbled upon, however, is maintaining their poise in the direction of the longer-term trend, and being flat to the counter-trend retraces in order to stretch the profits. They just don't realize that this is the reason for their successes, if any, and instead sing praises to "hedging".
  • #86
  • Nov 13, 2010 9:10pm Nov 13, 2010 9:10pm
Quoting pip_seeker
Well in the statement I posted in page 3 all the spread and swap costs were figured in... the account is still profitable even though you claim it to be inefficient...
Your returns are in fact very impressive; you must be skilled in picking market turning points. I mean to take nothing away from your abilities.

It was never suggested that it would be impossible to be profitable while holding open trades in opposite direction simultaneously. And it looks like you are already quite profitable, but with that number of trades you would be even more so if you didn't pay the spread twice as often as necessary.
  • #87
  • Nov 13, 2010 9:32pm Nov 13, 2010 9:32pm
Quoting Hedginghog
This thread has nothing to do with hedging but there are lots of little gems in here nevertheless.
Thanks for posting that... I know I have come off a little brash well maybe alot in cetain places... but undoubtley I have a short fuse for people who don't listen to what I am telling them to do.

Let me help you so you understand... but they go right back to the same thing even when I warned them they would have to take everything they know and put it in a box and seal it. They don't listen.

The phrase "You can lead a horse to water, but like hell if you can make him drink it." er something like that...

I can certainly understand their doubt as I said before I was counted among them once upon a time. But when you see the physical proof month after month eventually you cast the calculator in the trash or only use it for balancing the check book. LOL.

It's not easy grasping it but when you see stats like that you might begin to think really hard at the reason taking an opposing trade in the NFA / CFTC dominated landscape has become illegal, not to mention FIFO as well. Those rules were clearly designed to snuff it out all-together.

Anyway thanks for taking the time to post in a zone that leaves anyone on my side in the line of hostile fire and land mines. It's mighty brave of you to stick your neck out in here.

Additionally the statement that was posted on page 3 was not a back test... it was forward run test. Back tests didn't work for some reason and I think it was due to the sheer number of trades produced by the EA.
  • #88
  • Nov 13, 2010 9:37pm Nov 13, 2010 9:37pm
Quoting usw
t was never suggested that it would be impossible to be profitable while holding open trades in opposite direction simultaneously. And it looks like you are already quite profitable, but with that number of trades you would be even more so if you didn't pay the spread twice as often as necessary.
So, if you are successful on both sides of it, contingent upon a proper exit strategy, that is, how do you wind up paying twice the spread?
  • #89
  • Nov 13, 2010 9:48pm Nov 13, 2010 9:48pm
Quoting usw
Your returns are in fact very impressive; you must be skilled in picking market turning points. I mean to take nothing away from your abilities.
Well that was part of the beauty of the idea... you really didn't have to be too skilled most of the time because the EA was designed to take advantage of a range bound market.

What is a range bound market? It differs from trader to trader and chart to chart.

How big is a range on the weekly chart? Monthly chart? So these examples clearly show there is more that 1 right answer. The differences after that is only the size of the range.

I have never said... that not placing a hedge trade is wrong or it won't work... but as I pointed out earlier this is "Hedge-Revisted" and not "Hedge-revisted--Math says it's wrong" or whatever.

Maybe I wasn't clear in saying that, because I don't even use hedging right now in my strategy even though I could and I certainly would do it if I had to.

My hopes in posting here was to encourage the OP to continue on to see if I could learn something new in the process. Just because I have a strategy doesn't mean I just stop. It never ends in my experience but I enjoy doing this... well not necessarily the forum part but it's a necessary evil sometimes to get the juices flowing to find some new trinkets here and there.

So I hope the OP doesn't get discouraged by all the commotion in here and continues to show his work and how he progresses on. As with anything there are challenges with this type of strategy and it can be very dangerous during certain market events as I have said before. There are no short cuts.
  • #90
  • Nov 13, 2010 9:55pm Nov 13, 2010 9:55pm
Quoting pip_seeker
Well that was part of the beauty of the idea... you really didn't have to be too skilled most of the time because the EA was designed to take advantage of a range bound market.
The beauty in that is
Quoting usw
...maintaining their poise in the direction of the longer-term trend, and being flat to the counter-trend retraces in order to stretch the profits.
Buy low sell high. Buyers can win, sellers can win. Those who try to do both(if not skilled) get slaughtered by buying high and selling low. Hedging is not really part of the question here.

Anyway, it's Saturday night...that's no time to be on FF...
  • #91
  • Nov 13, 2010 10:13pm Nov 13, 2010 10:13pm
Quoting usw
The beauty in that is

Buy low sell high. Buyers can win, sellers can win. Those who try to do both(if not skilled) get slaughtered by buying high and selling low. Hedging is not really part of the question here.

Anyway, it's Saturday night...that's no time to be on FF...

Bingo. Yeah there is some skill to it but most of the time it comes down to about 10-15% of the time where it can be minorly tricky / 3% quite sticky / 2% white knuckle roller coaster the other 80% of the time it's money falling from the sky. I think I've given an ample amount of stern warning to that extent. Hedging only becomes the mean to the end in doing so. Just a tool in the box.

yeah Saturday night is really a slow night on TV for some odd reason... :nerd:
  • #92
  • Nov 14, 2010 1:21am Nov 14, 2010 1:21am
Quoting usw
I think what the "hedgers" have stumbled upon, however, is maintaining their poise in the direction of the longer-term trend, and being flat to the counter-trend retraces in order to stretch the profits. They just don't realize that this is the reason for their successes, if any, and instead sing praises to "hedging".
you have won the thread!

from what i can gather this is simply 'pausing a trade' while it resolves itself one way or another. it eliminates having to keep swapping mindsets from long to short as well as keeps you out of chop while the hedge clears one direction or the other. the title should be called something more like "hedging - a way to stop you overtrading and being eaten by Chop Monster(tm)"

mix in a little belief about reversion to mean, sprinkle a hedge here and there, and bake at 150 degrees.

this all seems to be using similar mindsets and strategies as fti proposes in his taf thread which runs a similar idea of mean reversion... just bundled-up in cryptic text. the part where it's 2% crapping your pants sounds familiar too, because at some point you are going to get caught-up in trades that just aren't working-out how they were intended. at the end of the day you have to be at least a little right to begin-with, but as soon as you cock that up you are knifed if you hold on for dear life and you gotta know when to pull the plug on the idea for awhile.

same same, just different.
Congratulations ScalaFX for coming out of the closet!
  • #93
  • Nov 14, 2010 3:16am Nov 14, 2010 3:16am
Only 5% of retail traders have the ability to accurately predict the market direction. I have found out long ago that I am not one of them so I employ hedging.

In my hedging strategy I do not care which direction the market goes. It is range bound majority of the time and I cash profits meanwhile. The other times I employ various techniques that reduces the effect, and recovery times, of the inevitable drawdown that goes with it. I do not need complicated calculations. I cannot remember the last time a pin bar formed, nor 21MA crossed 50; neither do I care.

The strategy makes me profit slowly. I believe it's a better and easier strategy than the complex analyses, prediction based, trend following, unidirectional, cut-your-loss-short strategies that have laid seige on the accounts of 95% of retail traders.

In exchange for which I pay more spread. Acceptable to me.

King.
  • #94
  • Nov 14, 2010 6:01am Nov 14, 2010 6:01am
Quoting kingsurfer
Only 5% of retail traders have the ability to accurately predict the market direction. I have found out long ago that I am not one of them so I employ hedging.

In my hedging strategy I do not care which direction the market goes. It is range bound majority of the time and I cash profits meanwhile. The other times I employ various techniques that reduces the effect, and recovery times, of the inevitable drawdown that goes with it. I do not need complicated calculations. I cannot remember the last time a pin bar formed, nor 21MA crossed...

so what is your system ?
  • #95
  • Nov 14, 2010 7:00am Nov 14, 2010 7:00am
Quoting whatfx
so what is your system ?
Obviously too much detail of a particular system is not what this thread is about. However I think there is enough indirect information in my ealier post to clarify your question. Essentially, its a hedge based, cut-profit-short system. Too much already.

The important thing is that hedging works. It simplifies equations and manhours. At the cost of an extra spread ofcourse (paid from hassle-free profits).

King.

P.S: Do you really want a system? you have all the ingredients in this thread. Do your own research and homework. Forex is hard. KS
  • #96
  • Nov 14, 2010 7:51am Nov 14, 2010 7:51am
Quoting kingsurfer
P.S: Do you really want a system? you have all the ingredients in this thread. Do your own research and homework. Forex is hard. KS
Yes, rarely in life are you handed something on a silver platter. Part of the reason it is here is that NFA / CFTC rules kill the method from being employed in the US.

The next part is to show the pundits there is more than 1 way. A way in which you don't have to sweat "as much" as a 1 way directional approach dictates. [This is not to say the 1 way approach is wrong, the market is big enough to satisfy any strategy. You decide: either way is hard... but a good amount is spelled out here where you don't have that luxury elsewhere.]

Optionally the third part of the reason is to reach out and learn from others who have successfully employed the idea or something similar. When I started out on this path years ago I didn't have the knowledge that it would work at all. Irregardless of what makes it work or fail is after thought, when you are only interested in playing to win the choices you make afterward determine your fate. Nothing of any value comes without risk and hard work.

FX is hard, without a doubt... stay awake in math class... and realize algorithmic trading made the calculator OBSOLETE.

Also if any of the pundits wish to change sides you have my word that I will not rub your nose in it. I can't speak for others but I could really care less of how right or wrong I am. I hold no grudge against anyone here as I have already demonstrated with Hanover.

I am here to learn something just as much as the next guy. Ego serves me nothing... knowledge is the only thing I seek. ~pip_seeker
  • #97
  • Nov 14, 2010 9:14am Nov 14, 2010 9:14am
Quoting whatfx
so what is your system ?
I just gave you the system and all the details...it works...I'm confident of that now.
  • #98
  • Nov 14, 2010 11:16am Nov 14, 2010 11:16am
Quoting ecTrade
So, if you are successful on both sides of it, contingent upon a proper exit strategy, that is, how do you wind up paying twice the spread?

The answer to this is that according to the "stats pic" I posted is that any single trade I open has a 78.5% chance of being profitable.

In base ball this would be equivalent to batting .785
Please name 1 single batter with such a batting record.

The spread cost is irrelevant when you have a high win percentage.
  • #99
  • Nov 14, 2010 5:08pm Nov 14, 2010 5:08pm
Quoting Adal
From FXCM http://www.fxcm.co.uk/hedging.jsp

While the ability to hedge is an appealing feature, traders should be aware of the various factors that can affect their accounts. Spreads may widen, causing margin to diminish, potentially leading to the danger of a margin call. Pip costs and rollover may also cause a decrease in account equity, adversely effecting hedged positions.

You might wanna check that too....
Hi Adal

The 11 second trading method you are talking about is basically what is called rapid fire trading where you shoot hundreds of short term trades off throughout the day. Obviously they get a way better deal on the spreads which allows this method to be more profitable. Basically even the smallest edge on these trades being profitable with account to the spread will end result into the positive day. If your trades are probable you will be rich in no time. The negative is it is a lot of work shooting trades off all day.

With this method I could devise a strategy including nedging by being long and short at the same time at multiple prices (key rapid firing shorts and longs in the same currency at different price intervals). When the account comes into the positve close your trades and do it again. every time you close your positions treat that as 1 trade. Now to devise this strategy you have to add in the conditions based on patterns, trend , price action etc.

Each long or short is a very small amount of your capital so you can continue to nedge until you are in profit.

If i really have to devise this strategy for hanover i would have to open an account overseas so i could do it on the same account.

And no i am not worried about the spread or additional costs as the price fluctuation hedges spread cost.
My trades are 100% profitable 65% of the time!
  • #100
  • Nov 15, 2010 12:53am Nov 15, 2010 12:53am
IMHO, (and i have not read through all of this thread) what you are forgetting is that you still have to be a competent trader to use hedge techniques, it is a great tool to have, and you must know WHEN to use it.
It is not the answer to unprofitable incompetent traders....
Biggest joker
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