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What's the point of hedging?

  • #161
  • Nov 7, 2011 1:39am Nov 7, 2011 1:39am
Quoting nanningbob
Actually people who think outside the box or think 3 dimensionally are always mocked and made fun of. It goes with the territory because you dont follow the crowd and the crowd simply cannot comprehend why something that isnt 2 dimensional works. One of the reasons I have a thread in which I posted every trade I took over a period of a year and posted each trade before I took it was to prove that it works. The Beagles are all beside themselves in their dire desperation to find fault with something that works. They dont comprehend it, they dont...
what straw man? what lies?

you add funds when in drawdown. that's professional bob!

you claim hedging within the same currency is anything (and i mean anything at all) but the same thing as just closing the trade.

you claim you trade purely to pay off your cc bills and plane tickets.

you post equity graphs showing how you go deep in the drawdown and then crawl your way back out... essentially going nowhere.

you claim x% account increases from x date, yet your own equity graphs show that this is on a pocket change account... and further to that the only increase was at the start of the period where afterwards you haven't gone anywhere in the thousand odd trades since.

you won't answer questions regarding whether or not your so-called account increases also take into account open drawdown.

what is 3D about throwing good money after bad and not getting anywhere and implying things your own posts negate. your own posts reveal you as the guru of nothing but illusions and lies. you have your sheep of newbies who know no better, and your posts do nothing but hinder them.

you are literally robbing people of education and stealing time from them with your posts. you are a fraud and a wannabe. you want to make grand claims to success, or in the least allude to being successful, but it's a lie. the thing is, i suspect you believe everything you post. you laugh at the world, while the world laughs at you.

keep on keeping on bob.
Congratulations ScalaFX for coming out of the closet!
  • #162
  • Nov 7, 2011 5:49am Nov 7, 2011 5:49am
Any way the thread asks what is the point of hedging? I have one answer, it freezes time so you can sit back, relax and plan what you want to do with a trade. You do not have to make a rash or careless decision. You can make a plan and then execute it when you feel the market is moving in a way you can trade it.

You can go ask someone for advice on what to do with a trade. It is no different than calling a timeout in a basketball game and laying out a strategy for the next play. I know the vast majority of people reading this will understand that. Sorry the Beagles cant comprehend such a simple strategy.
  • #163
  • Nov 7, 2011 7:01am Nov 7, 2011 7:01am
Quoting AaronWard
Hey Bob,

I wouldn't take Nubs that seriously. The guy is just lonely because nobody likes talking to him, not even the other beagles.
Sometimes I just get tired of his 1 dimensional rants. I stand by my statement of dealing with DD at 20%. In fact, I have made an adjustment to start at 10-15%. You can use SL at x # of pips or you can deal with SL at a % of your account. I have found % of an account works much better than # of pips. Just because he makes a stupid rule of you cant add to your account doesnt means anything. It is just another meaningless rule of a 1 dimensional person.

If I want to add to my account I may do so, If I want to close for a loss I may do so. Either way I am not going to violate my 20% rule because that is my safety valve and it works very well as seen by my equity curve. On this in October I chose to take some losses and now I am back to BE. the entire loss is now gone. Any trader knows you take losses and you have periods of DD whether the DD is from closing positions or holding trades either way you have DD. The difference is it is easier to recover trade 100 pips with a 50 pip recovery than to try to win back 100 pips in losses. That is the part that flies over his head. The equity curve thing really bugs the heck out of him. snicker
  • #164
  • Nov 7, 2011 7:20am Nov 7, 2011 7:20am
Going to throw in my 2c for some reason. Here are the the pros and cons of going long and short on a pair at the same time (not really hedging but I will refer to as such from here on in) as I see it.

Cons

Hedging provides no financial benefit whatsoever.
I will not go through the maths as nubcake and others have already done so. There is no arguing this point because it is a cold hard fact.

As a result, hedging actually increases risk.
How??? By increasing margin requirements. Most people forget that there are more risks in forex than just losing trades. One of these is the risk of your broker failing. This is a very real risk and should be considered by anyone with an account that actually means something to them in money terms. One of the ways to minimise this risk is to have as little of your trading bankroll with your broker as possible. This is very easy to achieve with the extremely high leverage forex brokers offer. If you want to hedge however instead of just closing positions then you will need to have double your money with your broker to meet the required margin.

This fact alone is enough to conclude that, if we lived in a perfect world, nobody should ever hedge. But we don't live in a perfect world so lets have a look at the pros.


Pros

Trade Management

This to me is the biggest pro for hedging (and the only time I use it). If you are an intraday trader that needs to make decisions very quickly, then it helps to treat each trade as a seperate entity. So, if I am in a longer term trade but want to go short for a shorter term trade, I will hedge. This allows me to avoid having to keep track of my long and short standings on paper as all the positions are seperated. Ok, so it increases my 'broker risk', but I feel it is worth it to reduce the much larger risk of human error.

Psychology

Ok, so your guru's and whatnot will always try to tell you that to trade succesfully you need to eliminate emotions from your trading. Believe me, unless you trade an EA, this is impossible even if you trade your entire life. Sure, you will get better and better at controlling your emotions, but we are emotional beings and you will never eliminate them completely. Nanningbob seems to be a perfect example of someone who uses hedging to gain a psychological edge. He says that he uses hedging to 'freeze time'. It has been proven over and over that he could achieve the exact same effect by closing the postition and opening it again when he would have closed the hedge, but to him it might be easier psychologically to put the hedge on than to realise the profit or loss and then open a brand new position again. And hey, if it adds profits to his account then it is a good thing right? Trading is 90% a mental game, so your emotional strengths and weakneses should be factored into any strategy worth it's weight in pips.

There are other pros, such as accounting reasons (hiding profits or losses for one reason or another) but these will not be a consideration for most people.


Ok, so thats what I reckon anyway
  • #165
  • Nov 7, 2011 4:54pm Nov 7, 2011 4:54pm
Quoting Agro
Going to throw in my 2c for some reason. Here are the the pros and cons of going long and short on a pair at the same time (not really hedging but I will refer to as such from here on in) as I see it. .....
Excellent summary.

The only 'con' I would add is that the "hedged" trader pays the swap differential if he has his offsetting positions open at 5pm New York EST, and also more spread than the non-hedged trader in situations like the one described here. Some br0kers sum the margin of the "hedged" trades, which means that "hedging" consumes margin needlessly (in addition to the points that you made).

I likewise "hedge" occasionally, as the facility of being able to add a SL/TP to both orders saves me time babysitting positions. And separating the trades as individual units reduces complication, as you say.

There's another summary of the pros and cons of "hedging" here.
  • #166
  • Nov 7, 2011 8:29pm Nov 7, 2011 8:29pm
Quoting hanover
Excellent summary.

The only 'con' I would add is that the "hedged" trader pays the swap differential if he has his offsetting positions open at 5pm New York EST, and also more spread than the non-hedged trader in situations like the one described here. Some br0kers sum the margin of the "hedged" trades, which means that "hedging" consumes margin needlessly (in addition to the points that you made).

I likewise "hedge" occasionally, as the facility...
Cheers mate, great links

Hadn't even thought of the swap cost, very very true. And as far as the extra spread, I had a feeling there was an extra cost there somewhere. I was just to lazy to hunt it down

Happy trading
  • #167
  • Nov 7, 2011 9:08pm Nov 7, 2011 9:08pm
ok let's do this then....

there is a problem with this 'extra spread' charge which i will eventually get to.

but first it is clear that someone who has equal buy and sell tickets on the same currency pair is a total idiot, and as such is completely lost and beyond help. they do not understand simple concepts and do not have the mental capacity to see further than individual trades. this clear mental deficiency then lends itself to a range of further idiotic scenarios, most of which have been mentioned already.

things like losing money on swap charges due to having conflicting open tickets instead of just being free and clear of all trade positions by being completely flat and out of the market.

things like they are probably not clever enough to trade small, and if they are trading large size using too much margin they are entirely vulnerable to the spread widening and busting their margin-call limit.... despite the fact that essentially they are 'flat' they are in fact still experiencing floating changes to their equity as the spread expands and contracts which affects both positions individual net p/l and therefore account overall p/l. as such, some nedging genius who thinks they are free and clear and have......... wait for it............. "PAUSED TIME".......... is still capable of being busted-out simply due to the spread changing if they are positioned too large initially. bring on the weekend where the spread usually widens, i say.

now here is where the kicker is with this 'extra spread charge'. we already know a trader who nedges is a complete idiot, but IF they suddenly had an epiphany and the clouds lifted and their IQ raised a few points they would realize that if they are already in a nedge their best case scenario is to wait for a potential entry and simply close the opposing position/s to once again be in a position of long or short.

they would realize that nedging and then simultaneously closing all nedged positions is equivalent to opening and then immediately closing a position which only serves to cost you the spread for nothing.

but, what are the chances that a nedger would have the foresight to see that they are simply churning spread (the 'extra spread charge')? what are the chances they will actually understand the basic concepts of where they are completely going ass-backwards with everything.

hell.... some nedgers think they are SAVING the spread on occasion. GENIUS STUFF! :nerd: (and no, aaron, i don't mean you. you weren't the first and won't be the last)
Congratulations ScalaFX for coming out of the closet!
  • #168
  • Nov 7, 2011 9:12pm Nov 7, 2011 9:12pm
Quoting nubcake
ok let's do this then....

there is a problem with this 'extra spread' charge which i will eventually get to.

but first it is clear that someone who has equal buy and sell tickets on the same currency pair is a total idiot, and as such is completely lost and beyond help. they do not understand simple concepts and do not have the mental capacity to see further than individual trades. this clear mental deficiency then lends itself to a range of further idiotic scenarios, most of which have been mentioned already.

things like losing money on swap...
Thank you for giving a perfect example of 2 dimensional thinking. Well done. Couldnt have done it better.
  • #169
  • Nov 7, 2011 11:02pm Nov 7, 2011 11:02pm
Quoting AaronWard
(yeah, I know you don't care) I go where there is something interesting being talked about, AKA something I am not completely clear about AKA something to learn.
not true. you have provided an insight which is at least a little interesting, so saying i don't care is not correct. well, actually it is. i don't care. i do have interest, though, which is different.

Quote
When it comes to forex, there is a prevailing dogma. If you say certain things then you can be guaranteed a dog pile.
it's like faith versus science. science can describe a million different things and relationships and provide proofs based on axioms, yet someone of faith will just say no... no, i believe something else and you can't prove it otherwise. bob is the person of faith. he provides nothing of truth, and everything of belief. faith tries to provide ambiguity so that anyone can fill the void with anything that suits them, and no one is wrong, yet everyone is right. science says "this is what we know to be true based on these various findings and understandings". faith denies science and calls it heresy. faith tries to explain everything by explaining nothing and uses backwards reasoning and pure driven ignorance to make fallacies truths. science attempts to define as much as it can, and leaves all unknowns as pending. it is not so arrogant as to label truth and absolutes to something it has no claim on.

is it dogma to say that fire is generally hot, and ice is generally cold, and up is up and down is down?

don't mistake dogma as always being purely blind-following of others. due diligence will lead you to your own answers and conclusions.

Quote
Bob is an independent fellow with a lot of integrity and a lot of grit. There is no denying that. He has show himself willing to learn, willing to help others, and willing to expose himself to any level of criticism. Further, he has been posting trades live for a number of years. Major kudos for that.
in the land of the blind, the one-eyed man is king. bob is the one-eyed man. how many people come here without knowing anything, 'learn' from bob and follow his folly? how many 'find' bob, and will forever defend his 'teachings'? plenty.

once again, i don't troll bob. i don't give a rats what he does in his threads. when i see something of his i am almost guaranteed to have a laugh. the so-called 'team beagle' are not a gang intent on being anti-bob... we are just anti-bullshit. we've been around the block more than once and know where the potholes and dog-droppings are. what we see in bob is a kid playing hopscotch on the sidewalk determined to be right yet constantly contradicting himself and being plain-old wrong. his 'faith' keeps him satisfied. our 'science' looks at him and then has a laugh.

Quote
As for the right way to trade...I recently saw Trader 1987 PTJ. It was very educational as I saw Paul Tudor Jones, a legendary trader do pretty much everything you are told not to.
previously i've heard someone claim to see something that isn't what it truly is. remember how you save the spread when nedging? are you sure you saw what you saw? anyway, plenty of legendary traders break certain rules.... just as legendary race-car drivers sometimes put the pedal down on the highway on occasion. that's life, but it's not 100% of life.
Congratulations ScalaFX for coming out of the closet!
  • #170
  • Nov 7, 2011 11:38pm Nov 7, 2011 11:38pm
Nubs,

I see we caught you on a good day.

If I had an idea that fire was cold, and I provided lengthy and conclusive arguments and got angry when I heard the opposite opinion... then my idea is a dogma. And If I have an idea that fire was hot, and I provided lengthy and conclusive arguments and got angry when I heard the opposite opinion... my idea would still be a dogma. The fact that one is right, and the other is wrong is irrelevant. A dogma an intellectual approach to an idea.

The way out of the bind is experience, empirical testing. Stick your hand in the fire, and there you go. You don't need an idea because you have experience. This is why in the right way to do forex argument, Bob will always have a leg up -- he provides empirical evidence to back up his ideas. Mr. Market has yet to give him the ultimate lesson in trading forex...And my comments about his character still stand.

Science is postulating a theory, and then testing it. Ironically, science has never "proved" anything. It has only proved some theories are wrong. There is no such thing as a "right" theory... only theories that have not yet been proven wrong.

You beagles have proven to me that you are long on experience, knowledge and intelligence. I have learned many things from you guys. So I'll keep making kitty noises until it gets boring.

BTW you could be right about the PTJ comment.
Kill the ego, or it will kill the mission.
  • #171
  • Nov 7, 2011 11:52pm Nov 7, 2011 11:52pm
Quoting AaronWard
Nubs,

I see we caught you on a good day.

If I had an idea that fire was cold, and I provided lengthy and conclusive arguments and got angry when I heard the opposite opinion... then my idea is a dogma. And If I have an idea that fire was hot, and I provided lengthy and conclusive arguments and got angry when I heard the opposite opinion... my idea would still be a dogma. The fact that one is right, and the other is wrong is irrelevant. A dogma an intellectual approach to an idea.

The way out of the bind is experience, empirical testing. Stick...
agreed. and it seems you did catch me on a good day, although i feel it changing now that i have a headache starting and this heat is shit, so i'm probably gonna wind-down and let cindy have some peace and non-whining (whine-down?).

the ptj thing i should note i don't know one way or another since i don't know specifically what you are referring to and i probably haven't seen the bit you are referencing anyway. but there's plenty of people in this joint who will claim one thing when it's another (as we all know). just like some will claim you can't make more than 10%, 15%, 20% a year and so on.... yet livermore turned a fiver into millions over the years, as have others who turn a grub stake into something much more. i'm waiting for bob to accomplish this with his methods so i can be jealous of his equity curve.
Congratulations ScalaFX for coming out of the closet!
  • #172
  • Nov 8, 2011 12:56am Nov 8, 2011 12:56am
Quoting nubcake
livermore turned a fiver into millions over the years,
Didn't that dude die broke? Only half way through his book
Time hides Nothing
  • #173
  • Nov 8, 2011 1:03am Nov 8, 2011 1:03am
Quoting CindyXXXX
Didn't that dude die broke? Only half way through his book
he went bust a few times tbh, but always came back better and wiser for it. as for dying broke... fk, i can't remember. memory serving he was not necessarily broke, but he was no longer profiting from trading. being married to a woman whose previous 3 (or thereabouts) husbands killed themselves, and then you yourself put a bullet in your own head... well... seems to me maybe his problem wasn't his trading abilities and potential that killed his performance and in the end, him.

fast cars and women. it seems one of them will get you.

on a side note : i don't think i ever finished reminiscences due to total boredom or something. the biography, however, i found to be easy reading and finished quickly. so, if you are reading ROSO and wanting to drink a fosters to numb the pain switch over to the bio.
Congratulations ScalaFX for coming out of the closet!
  • #174
  • Nov 8, 2011 2:18am Nov 8, 2011 2:18am
Quoting nubcake
on a side note : i don't think i ever finished reminiscences due to total boredom or something. the biography, however, i found to be easy reading and finished quickly. so, if you are reading ROSO and wanting to drink a fosters to numb the pain switch over to the bio.
lol I'm about 3/4 way through, sick of him saying "a man need to... such and such"... I'll be the judge of that Jesse!

Yeah not seeing what all the fuss is about so far apart from the benefits of being an individual. Darkstar recons that it's the book that taught him the most about trading... but then again DS invented S/R, and trading itself lol I kid I kid.
Time hides Nothing
  • #175
  • Nov 8, 2011 2:35am Nov 8, 2011 2:35am
Quoting CindyXXXX
lol I'm about 3/4 way through, sick of him saying "a man need to... such and such"... I'll be the judge of that Jesse!

Yeah not seeing what all the fuss is about so far apart from the benefits of being an individual. Darkstar recons that it's the book that taught him the most about trading... but then again DS invented S/R, and trading itself lol I kid I kid.
Oh snap.

Yeah the whole thing was too old timey for me I think. My only concern is if it has anything worthwhile that the biography doesn't.

Jesse was a master at nedging. he would buy after shorting or sell after buying. Funny how when get away from mt4 games with bucket shops a so-called hedge actually just closes a trade. Crazy stuff right.
Congratulations ScalaFX for coming out of the closet!
  • #176
  • Nov 8, 2011 3:43pm Nov 8, 2011 3:43pm
Although NFA forced brokers to show the number of profitable and losing retail traders per quarter they are not obliged to say what the turnover is and therefore there is no way of knowing what the long term (2 year for example) success rate of forex traders is. We merely know that in the very short term (quarter) about 50-70% are unprofitable but this is most likely increased to a figure between 95-99% after a two year period. After searching for a while I could find some sources which back this theory up. The first true piece of evidence comes from Reuters on an article that talks about the banning of retail Forex trading in China. The Chinese government found out that more than 90% of participants lost their deposits, meaning that this was a highly risky endeavor for the general population, much more in line with a casino than an investment vehicle. This is the first piece of evidence that shows us that the success rate in retail Forex trading is in line with the “rumored” amount, although the exact values found out by the Chinese are not detailed (merely that more than 90% lost their money).
My final piece of evidence comes from the Los Angeles Times on an article published a little bit more than a week ago. On this article journalist Nathaniel Popper goes into some depth into the current Forex business in the United States, showing that brokers are indeed playing a game of massive turnover in which they are mainly interested in “burning and cycling” rather than keeping customers for long term periods. The author goes into some of the data provided by US Forex brokers and how this leads to the conclusion that most retail traders lose all their money in the Forex market. The article makes a good point, highlighting the fact that people usually get into trading with the aims of making large amounts of money (with an average starting capital of 3K) but the "vast" majority lose all their deposit.
Certainly we will probably never have a decent academic study on retail Forex trader profitability because brokers will never give the information needed to carry it out. Unless the government forces brokers to reveal account turnover number and make a difference between inactive, active and margined accounts the actual figure of how many retail traders are profitable will remain obscure. However it is true that the evidence in stock and futures points to a success rate of between 10-1% and information from the Chinese government does tell us that retail success is actually – at the very most – below 10%. Now as a piece of rogue information (more like gossip) I can tell you that a friend of mine – working at a large European broker – told me that their 5 year account success rate is less than 0.5%.
In the end it seems that the old trader saying is right for the large majority of retail traders: If you want to make a small fortune trading… Start with a big fortune :o)


Hey Bob, take heart..the above information shows that your adversaries are all losers according to the study..so their advice on hedge trading is mute and can be dismissed..as I said previously..you can easily tell the losers..even the highly regarded one's..those are the one's that the sheeple follow from room to room to see who they can attack..sad really.


Oh Bob, Btw - Consider yourself special because you fit into the 1- 5% winners and you've proven it regardless what size your account was at the time...congratulations!
entry - 1.29250 s/l 200 pips
  • #177
  • Nov 8, 2011 4:57pm Nov 8, 2011 4:57pm
Quoting normfx
Although NFA forced brokers to show the number of profitable and losing retail traders per quarter they are not obliged to say what the turnover is and therefore there is no way of knowing what the long term (2 year for example) success rate of forex traders is. We merely know that in the very short term (quarter) about 50-70% are unprofitable but this is most likely increased to a figure between 95-99% after a two year period. .........
Norm,

I suspect that the fallout figures quoted by many br0kers is too low. This is because they simply take a snapshot of profitable vs unprofitable accounts on their books at any point. But this doesn't reflect:

(1) that there is likely to be an on-going core group of profitable traders, while a different group of newcomers is failing, each time a snapshot is taken;

(2) many traders run shonky MM systems (e.g. martingale) which may remain profitable for a long period, but then suddenly implode.

Anyway, an interesting read; thanks for sharing.

David
  • #178
  • Nov 8, 2011 5:48pm Nov 8, 2011 5:48pm
[quote=hanover;5114572]Norm,

I suspect that the fallout figures quoted by many br0kers is too low. This is because they simply take a snapshot of profitable vs unprofitable accounts on their books at any point. But this doesn't reflect:

(1) that there is likely to be an on-going core group of profitable traders, while a different group of newcomers is failing, each time a snapshot is taken;

(2) many traders run shonky MM systems (e.g. martingale) which may remain profitable for a long period, but then suddenly implode.

Anyway, an interesting read; thanks for sharing.

David[/quote

Hi Dave, You're welcome.. I personally believe the 95% number..support and resistance trading is way too random, that's why I have to hand it to Bob for His success..He deserves some respect for his 1 year accomplishment that took many hundreds of hours to complete..so the attacks on Him make the attackers look like fools.. Now I know you have a lot of influence with the beagles (they seem to love you, dunno if that's a good thing lol)..would you do me a flavor and call them off..they will listen to you..actually, you don't have to say a word..they'll read this and get the point..hate to see "good" traders attacked just for fun..I'm sure you'll agree. - Thnx Norm
entry - 1.29250 s/l 200 pips
  • #179
  • Nov 8, 2011 6:25pm Nov 8, 2011 6:25pm
Good research Norm. Dont worry over the years I am used to the attacks even though the beagles are the most venomous group I have run into. I post my trades publicaly and talk about my trading systems for 3 reasons.

1. I have gotten a lot of good ideas from fellow traders but they needed to be organized better. My 10.0 thread is an experiment because I have never seen anyone talk specifically what is a trend, range, the definitions. Now I know it is not perfect but it gives traders a frame of reference to trade from.

2. The best things new traders need to see is that it is an up and down business and no matter how good you are losing periods happen. It does take practice, practice, practice. One of the favorite arguments of the Beagles is my small account. I try to help people save their money by learning to practice practice practice with a small account. I call it tuition money. If you cant trade 200 dollars you certainly wont be able to trade 20K. So take the time to trade small and learn the business cheaply and keep yourself in the game until you do. By doing this when I finally got good I recovered my earlier losses much easier. So I still teach with a small account as an example and the stupid beagles can make fun of me all they want but I am not going to change that. Most new traders cant afford to really lose thousands but a couple of hundred or a thousand trading pennies is a good start.

3. It helps my self discipline, in other words if I make my trades public and I am less able to take overly risky trades. It keeps me in the game and the improvement has been there. Of course it leads to you being ridiculed every time you have a losing month but the arrogant who have never published anything helpful but that goes with the territory. Anyway, I open myself to my trades, something the beagles have never done. I dont think they are successful at all just a bunch of braggarts having a sick form of fun.

One of their heroes Mr. Not So Smart ran into a genuine successful trader and he ran with his tail between his legs and has hardly been seen since. He got exposed very quickly. Anyway just some thoughts, now get ready for the Beagle charge of negativity. I predict at least 2 pages of posts in response to this post.
  • #180
  • Nov 8, 2011 9:14pm Nov 8, 2011 9:14pm
Quoting nubcake
i suppose you are satisfied with a 'teacher' teaching children that 1 + 2 = 9, or that water is made up of magic. bob's system is what it is... .

Appreciate your answer.. and I agree with some of your points, if you would trade 100000 dollars 20 % draw down means hell it is actually unthinkable.. but believe it or not he survived more than one year and actually made money ( a Little), you must recognize this is better than majority...
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