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No SL No Leverage Strategy - working so far

Quoting LazyPawn
Let's see how that works. Trader A and trader B are both excellent traders, both reading the charts and fundamentals the same way. Both buy the euro at 1.30 with a long term target of 1.40. When the euro hits 1.36 they both think it will first go down to 1.33 before finally reaching 1.40.

Trader A. Buy 1.30. When price gets to 1.36 nedges by opening a sell position which he then closes at 1.33 (= 300 pips gain). The main long position is closed at 1.40 (= 1000 pips gained). Total 1300.

Trader B. Buy 1.30. When price gets to 1.36 and correction...
At least someone can give a sound explanation of their position in an intelligent way. Good show. Much better than the 1+1=0 stupidity. The only thing that I would add to this argument though is those that trade long term like that do keep their original position all the way through and do sell the dips in the UT. What they do in real life though is add 2 or more positions to the original as price continues to move up. So they compound their positions by adding to them rather than your scenario of sticking with one position. So their first position would be still a 1000 but they would add a second and pick up the 700 on that too for 1700 and then the 300 for the sell position for a total of 2000 pips. I am not debating your well thought out and excellent argument. You did very well. I am just stating how the long term position traders do trade such scenarios. While their position is hedged they have guaranteed their existing profit in case the fundamental changes when price goes down. They have locked in their original profit and then look to add a second position when the trend continues. They also close part of the opening position along the way and take profits here and there. That is how they do it in real life. Me I cant stand trading long term like that. I like weekly trend trading the best.
Quoting LazyPawn

Total 1600 pips profit, that is 300 pips more than trader A (the nedger).
Let's hope that does the trick, nothing else seems to have driven it home!


Quoting LazyPawn

He only banked 50, but he has a 200 point floating loss.
I think that's the illusion of profitability for these guys, they're banking profit so think everything is ok. The unrealized loss is ignored or considered not a loss until it is realized, they don't seem to understand the significance of available equity.


Quoting LazyPawn

The lot size is very very small compared to the account size, allowing for drawdowns of many thousands of pips (and don't forget the margin, plus the swaps).
Exactly, and it's a waste of the most important assets a trader has, equity and leverage.
Quoting pipmutt
There's a link to the document in this thread somewhere, also you could do your own research on the subject.
Yes, that is exactly the 10 page document that I referred to. In the document itself there is no link to any study to backup the statements made. Unless there is another document that you are referring to?

Quoting pipmutt
Is it coincidence that NFA, brokers, experienced traders, and institutional traders all agree? You, apparently, know better than all of them. Hmmmm....
I suppose you can read it that way, but no who am I to say that? The point is that the document consists more out of statements made set out in either legislative manner or political democratic tone. I would not place it in the category of detailed academic substantiation of facts. This is a document that need to be read within a given context, produced by a body with certain interests in mind and one can therefore say representative of that particular USA body's point of views.
Much depend on luck, but the more you practice the luckier you get! NT & GP
LazyPawn only repeated what was already known but pipmutt thinks it is the "final victory" for the SL believers.

It is not.

Because the way LazyPawn constructed the "defeat" of the lock-unlocker is fantasy only.

He doesn´t realize that his fantasies do not reflect real life.

Because in the real world 95 % of the SL-believers lose money, some get a margin call.

The whole SL dogma is wonderful in theory and LazyPawn and others will "win" every argument, but reality is different.

Now, please explain to us why 95 % lose their money with placing their SL behind the last Swing high/Swing low or S/R line.

The only explanation I heard from you so far was: those 95 % are idiots, they are too stupid.

So, where do you place your SL if everybody is stupid who places it where 99.99999999999 % of all forex gurus teach you to place it ?
Quoting fxtr51

lock-unlocker
lol, the names you guys use, lock unlocker, recovery, counter trade....

But anyway......


Quoting fxtr51

So, where do you place your SL
Ideally you place it at a level which if b/reached indicates that your analysis was wrong and/or the trade/analysis is no longer valid or viable. Where that level is will obviously depend on your strategy and your analysis, unfortunately there is no one-size-fits-all answer to your question.

This isn't just about analysis and risk management though, there are some big psychological issues behind the use of no-stop strategies, issues that are ultimately detrimental to a traders longevity and performance over the long term.
Quoting LazyPawn
The only way you can make trader A gain more pips than trader B is if you simply give him an edge in reading the market (e.g. trader A knows that a correction is due and hedges while trader B doesn't "feel" it coming and does nothing). But then of course the profit would be the result of being better as a technical or fundamental trader. The money management by itself will always (assuming equal trading skills) favor the non-hedger.
I appreciate your argument and way of arguing. I find this quoted section very insightful. You mentioned at the outset that trader A and B read the market the same way. However, at this point in your argument trader A and B are not the same person anymore which from my perspective illustrate the point very well.
I would not know if I could read the market better at a given point, than I am reading it. All that I am trying to do is follow the market, cut my losses and let my winners run. Hedging is a tool that I use to do this. My hedging is part of the cost of doing business and is relative cheap in comparison to 500, 1000 pip movements. And no, I am seldom flat as I will add positions in the direction of the flow of the market. However, I cannot deny that I am flat at some points and that hedging is therefore part and parcel of my strategy.
Much depend on luck, but the more you practice the luckier you get! NT & GP
Quoting fxtr51
LazyPawn only repeated what was already known but pipmutt thinks it is the "final victory" for the SL believers.

It is not.

Because the way LazyPawn constructed the "defeat" of the lock-unlocker is fantasy only.

He doesn´t realize that his fantasies do not reflect real life.

Because in the real world 95 % of the SL-believers lose money, some get a margin call.

The whole SL dogma is wonderful in theory and LazyPawn and others will "win" every argument, but reality is different.

Now, please explain to us why 95 % lose their...
My perspective is that the assumptions set out at the start of LazyPawns argument is key. Everything else is built around it. If one understand that any proof is bound to the assumptions that is made then you understand the limits and scope of use of the theory that is proven. That is why I appreciated his argument, due to the fact that the assumptions is stated in no uncertain terms. I think that dovetail nicely with your reference to reality, as it is very difficult (if not impossible) to state precisely the full set of assumptions underlying it.
Much depend on luck, but the more you practice the luckier you get! NT & GP
Quoting pipmutt

As regards nedging, NFA examined the strategy in detail and came to the only sensible conclusion, it simply has no financial benefit. Brokers agreed with them. Experienced traders agree with them. Institutional traders agreed with them. Hmmmm....it seems according to some on here they were all wrong, heck they should have consulted the multi dimensional thinkers on FF!
Quote
Quite the contrary, it's the posters who do give specific trading advice about some ludicrous strategy such as nedging or martingaling (often disguised by using obscure names) who are the ones more likely to be moles! Strategies like that are designed to entice the gullible novice and ultimately they only benefit the broker.
Contradicting yourself here aren't you? So if brokers truly benefited from traders hedging, do you really think they would've agreed with the NFA?

So much for your NFA report. Maybe you should've read and understand it yourself first before posting it.
I believed it was Bob that said that you'll hang yourself if handed some rope. Well you did it again!
Quoting pipmutt
So hedging or nedging doesn't even come into the discussion, it's just two trades, one long and one short, right?

If you think price is going to retrace then why not just take profit and reverse the trade and then take profit on the retrace by reversing again for the continuation of the trend?

Aside from that, if you're long 10k and then you short 10k you're flat (no apples), you have no position, no exposure, and no potential for profit. You simply can't escape that fact no matter how much you ignore math, logic, or common sense. If you believe...
Yep, that works well.

Because my way means I only open 2 trades, you open 3.

How about keeping the first trade open, open the opposite on the retrace and bank some pips, now take another trade in the same direction as the first one and let both trades run?

My beef with the various arguments against opening the 2nd trade before closing the first is the assumpion as in lillys example that both trades are opened simultaneously from the off, and that is not how I trade.

Quite often i have various trades open, depending on how fast the market is moving, I do not use the charts, mt4 is used to place orders, and i do not have time or the inclination to place a s/l as I do not require it.

Lazypawn thanks for the explanation but it isnt required in how I trade but thanks for taking the time.

M.
Quoting pa_pips
My perspective is that the assumptions set out at the start of LazyPawns argument is key. Everything else is built around it. If one understand that any proof is bound to the assumptions that is made then you understand the limits and scope of use of the theory that is proven. That is why I appreciated his argument, due to the fact that the assumptions is stated in no uncertain terms. I think that dovetail nicely with your reference to reality, as it is very difficult (if not impossible) to state precisely the full set of assumptions underlying...
95% losing is a forex chunk o' bull, has been for years and will remain that way... reality based on actual facts is 25% making profit, 75% making losses... based on 2011's figures.
tradewith60
http://blog.fxcc.com/39-of-forex-tra...re-profitable/
tradewith60
Quoting LazyPawn
Let's see how that works. Trader A and trader B are both excellent traders, both reading the charts and fundamentals the same way. Both buy the euro at 1.30 with a long term target of 1.40. When the euro hits 1.36 they both think it will first go down to 1.33 before finally reaching 1.40.

Trader A. Buy 1.30. When price gets to 1.36 nedges by opening a sell position which he then closes at 1.33 (= 300 pips gain). The main long position is closed at 1.40 (= 1000 pips gained). Total 1300.

Trader B. Buy 1.30. When price gets to 1.36 and correction...
Hi LazyP,

The maths is wrong.

Quote
Trader B. Buy 1.30. When price gets to 1.36 and correction is expected he closes his long position = 600 pips profit. Sells 1.36 - closed at 1.33 = 300 pips profit. Long reinstated at 1.33, closed at 1.40 = 700 pips profit. Total 1600 pips profit, that is 300 pips more than trader A (the nedger).
That part in bold indicates that trader B has opened an additional position. Meaning at that point in time, he is net short. Trader A at that time is having no position from his nedge.

All else being equal, the ending pips should be the same. Meaning that closing a position vs hedging should produce similar profits/loss. I did this math already. The only difference is that hedging incurs additional spread and additional rollover.

----------------
@bob:
Your math is not proper. I've done headaches like fouriers and eulers in uni. If I can make sense of those things, I should be able to make sense of your math.

However, the truth is I cannot because you are
1)Not defining your variables properly.
2)Not stating your logic correctly.

Either the above or you are really bad at explaining a concept in mathematical terms.

The main issue with your maths is this (based on my understanding):
-You assume that a buy trade is x
-You assume that a sell trade is y
-You are assuming that both of these variables are mutually exclusive. Meaning they are separate entities completely. It's like saying "I have a potato and a carrot. How many items do I have?" Of course the answer is 2.

That is why you can come up with 1+1=2 (assuming x and y = 1). There is nothing multidimensional about your way of thinking. You are just assuming that a buy trade is a totally separate action from a sell trade and they have nothing to do with each other. And you come to this conclusion just because the brokers shows 2 open trades in your platform.

However, sad to say this is not true. A buy and sell action is entirely related. That is how we come up with the maths of:
x + y = 0 (assuming x means buy, y means sell)
1+ (-1) = 0

This is the problem we have with your logic. This is the core of why we disagree. The reason is because a buy and a sell are not separate entities.

You need to go back to basics. Pick up a book on finance.
-When there is a long position, you can close it by using a sell market order. You have no net exposure.
-When there is a long position, you can close it by using a sell limit order. You have no net exposure.
-When there is a long position, and you hedge by selling the market, you have no net exposure.

The only problem with closing out your position using the hedge method is you have to pay spread and rollover twice.

-------------
The only benefit of the hedge is to keep yourself sane if you have many many trades open. If you are a very long term trader holding positions for months and you have like 15 open trades, then maybe you can justify a hedge. So that it simplifies your trade management.

But when it comes to monetary values, there is no benefit to the hedge!
Quoting thelws
Hi LazyP,

The maths is wrong.

That part in bold indicates that trader B has opened an additional position. Meaning at that point in time, he is net short. Trader A at that time is having no position from his nedge.

All else being equal, the ending pips should be the same. Meaning that closing a position vs hedging should produce similar profits/loss. I did this math already. The only difference is that hedging incurs additional spread and additional rollover.

----------------
@bob:
Your math is not proper. I've done headaches like fouriers...
Nice explanation and I understood that. I count them as separate trades in my debate because that is how I would look at them and treat them. One is a buy of Euro and one is a buy of USD. They become different trades because where I close them is two separate issues. That becomes very clear when you close one out you still have one more to deal with yet. That is why you have to look at them as two separate trades, you have to close them differently to have any purpose in them. To open two positions at the same time and close them at the same would be kind of stupid but it does prove that they are two separate actions not a zero. So there is no way you can convince me 1+1=0 because when you close one you still have one left. That should be very obvious and logical. Anyway time for bed. Good luck with your trading this week. I had a very nice week selling aud and nzd almost every day last week. Looking at the GBP possibly being a bear. Last week I predicted the gbp/nzd as a buy and it went up around 300 pips before retracing some. This week I like gbp/usd and other gbp pairs as a sell. See how it goes.
Amazing ,,some realy belive the rubbish...

when it comes down to basic....what you actually claim is your never wrong..it doesnt matter where you enter and wich way...cause price will come back and you always just wait and take the profit...

1: your always right.....

2: you just not always timing your entries right..but no worries it will always turn out sooner or later as a winner.

3: while waiting on the bad timing entry to profit.....then you use the time to make good entries for profit here and now....

trading is easy...lol
StopLoss is for none belivers... Trust the Gurus..
Quoting thelws
Hi LazyP, That part in bold indicates that trader B has opened an additional position. Meaning at that point in time, he is net short. Trader A at that time is having no position from his nedge.
Sure, trader B would have 3 trades, trader A only 2. But that's exactly what happens! It is our premise, it is what those 2 traders do, if they both assume there is going to be a retracement. The nedger keeps his initial position open, and adds a short. The traditional trader closes his original position and opens a short. I was answering a post suggesting that nedging could be beneficial when one anticipates a retracement contrary to the main trend-following position. I think it's clear that by closing it you win more pips, as I showed. There is no logical reason to maintain your long when you think the price will fall. Take profit on it, go for the short, take profit on that one too, then buy again - you win more pips that way.

Regarding Bob's main point, I think I see why he considers the 2 trades as being separate entities and not cancelling each other out. Bob assumes that they will be both end up as winners. However we don't have such guarantees. Every price we see on the chart, at any moment, could be the next top or bottom for months or even years to come. In Bob's worldview, getting 2 profitable trades is clearly different and much better than no trade at all - who could argue with that? Given his particular way of trading, using extremely low leverage, it makes sense for him to see things like that. If you have a lot of patience and trade extremely small, eventually almost all positions become winners. It's a scenario I talked about in my previous post. And even if you are left with a buy on top the floating loss you have on that position will be neutralized by a large number of small wins. For most people that is not a practical approach though, because if they can still smile when their floating loss is 2000 pips then most likely taking the 50 pip profit is not going to make them happy. Unlike many others I see how Bob's strategies can be profitable and I see why he is in no danger of losing his account even if he works without a SL ... it's just that I don't find it the most effective use of margin and time and it doesn't suit my personality.

However if there is one truth that is repeated over and over again by people who have spent their life studying what successful traders do it is that there are many completely different paths leading to success in this business ... so it's definitely not my intention to tell others what to do, especially when they enjoy their strategies and have a steady equity growth.
Quoting nanningbob
That would be a very interesting dilemma for a physicist if that was what happened in the real world. That is the fallacy of your argument and why you look absolutely foolish to us that can't think in more than one possible outcome. Dang you guys can't think more than one step, maybe I am wrong you are not 2 dimensional thinkers but single dimensional thinkers. How did you get out of 2nd grade when they introduced 2 step math problems anyway? I bet you really get lost if you were taught 3 step math problems. This is such simplistic...
Bob, I have a degree in physics. In physics, there is A LOT of very complex math. There is a lot of linear algebra, and even more differential equations. While the math we do is not quite as rigorous as what pure mathematicians do, for you to imply that I can't solve a 3 step math problem is an absurd statement.

I understand there have been a lot of insults thrown around in this thread, from both sides, but I don't believe I have insulted you, so I would ask you for the same civility.

I think the problem with your thinking is that having two opposing trades on is not considered "1 + 1 = 0", but is in fact "1 - 1 = 0", and you guys are trying to say that somehow 1 - 1 = 2. I think you don't realize that two opposing trades in the same pair offset each other, no matter how you slice it. It is not about timing. If you have a long position that is +100 pips and then you hedge it, you have effectively CLOSED THAT POSITION. Your 100 pip profit is now locked in. You may as well just close it instead of hedging, because you don't have to pay another spread or overnight interest in order to do so. You say you have two positions at that point when you become "hedged", and when you close one of them, then you expose yourself to the market again. What you are in fact doing when you close one side of your hedge, is that you are actually OPENING A POSITION IN THE DIRECTION OF THE TRADE THAT REMAINS. I have said all this before, but maybe you missed it in this long thread.

In any case, I have done everything I can to prove that "hedging" is counterproductive from a theoretical perspective. The only thing that remains, I believe, is to take a page out of merlin's book and issue a challenge. I will be starting a new thread that will CHALLENGE ALL HEDGERS TO PRODUCE A SERIES OF TRADES THAT EXPLICITLY SHOW HOW THE TRADER'S PORTFOLIO BENEFITS FROM THE METHOD. A real monetary reward will be offered. I will post a link to it in this thread once I have it up.
  • Post #737
  • Quote
  • Edited 11:10am May 12, 2012 10:50am | Edited 11:10am
Quoting nanningbob
Nice explanation and I understood that. I count them as separate trades in my debate because that is how I would look at them and treat them. One is a buy of Euro and one is a buy of USD. They become different trades because where I close them is two separate issues. That becomes very clear when you close one out you still have one more to deal with yet. That is why you have to look at them as two separate trades, you have to close them differently to have any purpose in them. To open two positions at the same time and close them at the same would...
OOoooooo. Now we got someone other than merline who is willing to put up a challenge!! Wow. This is biggggggggg >_<

Anyway, I want to disprove your argument bob...

To begin with, you cannot just simplify a trade into buy euro and buy usd then treat them as seperate entities because ultimately, your inventory cancels out.
1)If you buy eurusd, you are buying euro. But you also owe some usd.
2)If you sell eurusd, you are buying usd. But you also owe somebody euro.

Let's use an analogy:
Let's say you were at work one day and you went to a bank to get 100 eur. The bank will give you some euro if you agree to give them 100 usd + some small fee.
you +100 euros, -100 usd
(buy eurusd + spread)

Then you decided that you didn't want euros anymore because they can't be used to buy anything in the country you live in. So you want to change them back to usd. But you are not able to go to the bank yourself because of work.

So you asked your wife who is back home to use her own 100 euros and go get the 100 usd at the bank - telling her that you will swap it when you get home from work. Of course, the bank will charge her a fee just like before.
Wife -100 euros, +100usd
(sell eurusd + spread) - hedge method (coz your wife is not you. At this point, assuming nothing else happens, you are flat. You have no position.)

Now... in a stroke of luck, you suddenly needed your USD back urgently. So you talked to your boss and got permission to head out to the bank. You exchanged your 100 euros for 100usd. Again paying the bank a small fee.
you -100euros, +100 usd
(Sell eurusd + spread)

Now that you already have what you need, you told your wife to change back her currencies as you don't need it anymore. Your wife again heads out to the bank and does as you say. Paying the bank a small fee.
Wife +100 euros, -100usd
(Buy eurusd + spread) - hedge method

At the end of the day, your wife makes a big fuss because you made her go out and exchange currencies for nothing and incurred bank charges for nothing. May god have mercy on your soul for even hell hath no wrath like woman scorned!





----------
Now... What happened was, you just opened 2 positions but you are flat. And you have paid spread 2 times. It is an oversimplification of things because we didn't take into consideration the movement of a pair and rollover. But the essence is still the same.

You could have achieved the same result without the woman's fury if you just went out and did your currency exchange by yourself.
(no hedge method)

Which leads me back to bob's argument. Ultimately, they are not separate trades because in the end the inventory is still yours. You need to move back to basics.

Just to reinforce my point:
On more professional platforms like interactive brokers, they do not make a distinction between your open positions.

For example for every position you open, you need to provide:
1)buy/sell
2)lot size
3)order type (market, limit etc)

When you want to close your open position, you also provide the same parameters. You have to indicate:
1)buy/sell
2)lot size
3)order type (market, limit etc)

They do not say "close" like in MT4. If you don't know your stuff, you can be in a lot of serious trouble. I've personally see some people accidently adding positions instead of closing positions because they messed up the "buy/sell" column.
Quoting LazyPawn
Sure, trader B would have 3 trades, trader A only 2. But that's exactly what happens! It is our premise, it is what those 2 traders do, if they both assume there is going to be a retracement. The nedger keeps his initial position open, and adds a short. The traditional trader closes his original position and opens a short. I was answering a post suggesting that nedging could be beneficial when one anticipates a retracement contrary to the main trend-following position. I think it's clear that by closing it you win more pips, as I showed. There is...
Yes I understand your words. What I'm saying is that in your example, the no hedge guy did an extra trade that made him go net short.

If you wanted to make it fair for the hedge guy, then you should allow the hedger to place an extra trade as well. Either that or you allow the hedger to place a much larger sell position so that he will end up net short.

Like I said, all else being equal, a hedge and a no hedge strategy should produce 100% similar pip counts.

The only exception should be that the hedger needs to pay extra spread and rollover
Quoting thelws
OOoooooo. Now we got someone other than merline who is willing to put up a challenge!! Wow. This is biggggggggg >_<

Anyway, I want to disprove your argument bob...

To begin with, you cannot just simplify a trade into buy euro and buy usd then treat them as seperate entities because ultimately, your inventory cancels out.
1)If you buy eurusd, you are buying euro. But you also owe some usd.
2)If you sell eurusd, you are buying usd. But you also owe somebody euro.

Let's use an analogy:
Let's say you were at work one day and you went to a bank to...
That is a very clear and correct explanation.
Quoting thelws
On more professional platforms like interactive brokers, they do not make a distinction between your open positions.
I can confirm that Currenex is the same. So we have 2 professional level platforms that do not allow hedging vs. MT4. Hmmmm. The clients and designers of Currenex probably couldn't solve a grade 2 math problem .
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