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Trading Without a StopLoss

  • #1,901
  • May 4, 2014 4:11pm May 4, 2014 4:11pm
Quoting hanover
To all those who answered my post (#1888): I will give two examples to explain my position. I’m NOT talking about banks, COT or pyramiding into some kind of millipede. I’m simply talking about being long and short in the same pair simultaneously. I’m NOT saying that you can’t make money hedging. What I am saying is that you can make exactly the same amount of money (pips) by not hedging. Do you understand the difference between these two statements? Example #1 Trader ‘A’ has a buy position of 3 lots, and a sell position of 2 lots in EURUSD. His...
Clear explanation

But I think why people keep insisting that hedging works is because it actually does work for them. I would venture that it offers psychological benefits which can translate into monetary benefits. Hedging tricks the brain into thinking that there was no loss taken, and at the same time it gets us out of the losing position. Perhaps the clarity of mind that comes after hedging (as opposed to feeling bad about a loss) more than makes up for the transaction costs the trader incurs...

Because otherwise I see no sense in so many people arguing for the benefits of hedging when there clearly is none as we can see from the mathematics...
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  • #1,902
  • May 4, 2014 4:23pm May 4, 2014 4:23pm
Why bother hedging? It's like making yourself sure that you won't ever lose or something like that; if you don't understand what i want to say, @hanover explains it very well, in the last post, the fact that with/without hedging you'll obtain the same results, even better without; also, it makes you more disciplined, becoming more confident and selective with your trades.
  • #1,903
  • May 4, 2014 5:18pm May 4, 2014 5:18pm
I've never really put effort into hedging. While I'm sure I accidentally create "synthetic hedges" via positive and negative correlations, I'm not allowed to "nedge" in my account so I don't have much of a viewpoint on it. Though Hanover's examples lay it out pretty well.
  • #1,904
  • May 4, 2014 6:00pm May 4, 2014 6:00pm
Quoting trade.man
Why bother hedging? It's like making yourself sure that you won't ever lose or something like that; if you don't understand what i want to say, @hanover explains it very well, in the last post, the fact that with/without hedging you'll obtain the same results, even better without; also, it makes you more disciplined, becoming more confident and selective with your trades.
Hanovers explanation is curve fitting an example to agree with an opinion.
tradewith60
  • #1,905
  • May 4, 2014 6:09pm May 4, 2014 6:09pm
Continuing from my last post #1900, all operations (buying, selling, closing positions, stoplosses, profit targets, scaling in, scaling out, hedging, etc etc) are merely operations that adjust our net position (long, short, or zero/flat). It is the net position, relative to price movement, that determines our P/L.

To win at forex, we must be net long while price is rising, and net short while price is falling, frequently/heavily enough to overcome br0ker costs. Hence the more accurately we adjust our net position relative to market reversals, the better our P/L.

How we TIME these adjustments determines our eventual P/L, and is a STRATEGIC issue. Whether we buy, sell, hedge, scale etc is merely an OPERATIONAL issue.

In the end analysis, it’s pips/money gained/lost overall that counts. Anything less is little more than an accounting trick. Take ‘rescue’ or ‘recovery’ trading as an example. What we're really doing is adding new orders that will generate P/L in their own right, and how we group these (and any other) orders mentally is nothing more than arbitrary. Everything else being equal, all orders contribute equally to eventual bottom line.

If we're going to place additional orders, the key question has to be: would we take this setup anyway, even if our previous order(s) weren't in loss? If the answer to that question is ‘no’, then (assuming our analysis is worthwhile) the probability of digging ourselves deeper into the red is greater than the probability of recovery. The market is going to do whatever it will regardless; and the P/L of our previous orders is irrelevant.

IMO the problem is that we tend to think of each ‘trade’ as a unit, and that mentality runs the risk of becoming preoccupied with its P/L to the point of losing sight of what the market may be doing (in the case of a discretionary trader), or of our overall trading plan (in the case of a mechanical trader).

Instead, I try to look at the overall picture. For example, if after cutting a loss, the market subsequently moves another 30 pips against me, then my eventual bottom line will be 30 pips better off than it otherwise would have been. Hence the exit is effectively the same as a 30 pip win. Of course it could be asked: but what if the market had moved 30 pips in my favor? Well, that brings us back to the same probability analysis of a couple of paragraphs ago. If the probability is in favor of price reverting to a mean, then the second setup (i.e. averaging down) is valid. But if we can not ascertain probable market direction at the time we add the rescue order, then we'll improve your situation approx 50% of the time, and worsen it the other 50%, making the rescue attempt problematical.
  • #1,906
  • May 4, 2014 6:12pm May 4, 2014 6:12pm
Quoting 60minuteman
{quote} Hanovers explanation is curve fitting an example to agree with an opinion.
If you'd taken the time to read my post to the end, instead of jumping to this conclusion, you'd have seen that I invited anybody to provide their own example.

So far nobody has accepted the challenge. The reason is obvious: the math involved is inviolable, no matter what example anybody can come up with.
  • #1,907
  • May 4, 2014 6:20pm May 4, 2014 6:20pm
Quoting hanover
{quote} If you'd taken the time to read my post to the end, instead of jumping to this conclusion, you'd have seen that I invited anybody to provide their own example. So far nobody has accepted the challenge. The reason is obvious: the math involved is inviolable, no matter what example anybody can come up with.
I read your post and gave you the reason.
tradewith60
  • #1,908
  • May 4, 2014 6:26pm May 4, 2014 6:26pm
Trader A goes long from 1.300 and price goes long 100 pips. Trader B takes the same trade.

Trade A hedges his long with a short at +100 and holds his long. Trader B closes his long and goes short also.

Price spikes up 30 pips and drops back down, the stop of trader B's short gets hit for a 30 pip loss and Trader A did not need a stop because it is a hedged position and his profit is locked.

Trader B is now +100 -30 (presuming he had a 30 pips SL). Trader A is still +100..
tradewith60
  • #1,909
  • May 4, 2014 6:31pm May 4, 2014 6:31pm
Thank you Hanover for your detailed explanations. You put a lot of time and effort explaining but it hinges on one philosopy.

From these examples, we can see that:
(1) when hedged, two opposing positions cancel each other out, and it’s effectively the same as being out of the market
(2) any hedged position nets itself out to a single position, and therefore the single position makes the same pips/money as the hedged combo
(3) both hedged and single-position traders are effectively adjusting their net positions along the way. The single-position trader can always open a single positions that’s the exact equivalent of the trader that’s hedged, AT EVERY POINT ALONG THE WAY.

The single-position trader, that is the whole debate right there. I am not a single position trader therefore your argument and Merlin's offer is meaningless. My example.
Your position of trading.
A trader buys: price goes against him, at -100 pips he takes his loss. He buys again, at -100 he takes a loss. He is one in and one out and -200. He buys again price goes up 100. He buys again price goes up 100, he finally gets back to break even. He has gone through 400 pips of up and down movement and has nothing to show for it. This is the typical position promoted by Forex brokers and the one in, one out crowd.

Hedge trading.
He buys at -100 he hedges and buys again. At -200 he hedges but profits +100 on the sell. price goes back up and he profits at +100 for 200 and his two losses (one buy one sell) is at -200. Playing only 300 pips movement he is a break even. That is more efficient trading. However he buys again and price goes back to its original position of +100. ON this series of trades he is carrying -200 DD but he has profited +300 from 1 sell trade and two buy trades. So instead of breaking even he can close out with 100 pip profit. That is the difference of multiple level trading using a hedge.

My style of trading.

I buy price goes -100. I buy again. I am down -200. I buy again price goes up 100 and I am at break even. I buy again and I have no loss and I am up 300 pips. I buy at +200 one buy at +100. I am up 300 pips on a 400 pip move. While the market went nowhere. I made a 300 pip profit. One in, one out are complaining about the flat market, I put money into the bank. I have done this for years and years. People who never made money in Forex before are making money doing this. It works but you have to get rid of your one dimensional thinking to succeed.
  • #1,910
  • May 4, 2014 6:38pm May 4, 2014 6:38pm
Thank you Hanover for your detailed explanations. You put a lot of time and effort explaining but it hinges on one philosopy.

From these examples, we can see that:
(1) when hedged, two opposing positions cancel each other out, and it’s effectively the same as being out of the market
(2) any hedged position nets itself out to a single position, and therefore the single position makes the same pips/money as the hedged combo
(3) both hedged and single-position traders are effectively adjusting their net positions along the way. The single-position trader can always open a single positions that’s the exact equivalent of the trader that’s hedged, AT EVERY POINT ALONG THE WAY.

The single-position trader, that is the whole debate right there. I am not a single position trader therefore your argument and Merlin's offer is meaningless. My example.
Your position of trading.
A trader buys: price goes against him, at -100 pips he takes his loss. He buys again, at -100 he takes a loss. He is one in and one out and -200. He buys again price goes up 100. He buys again price goes up 100, he finally gets back to break even. He has gone through 400 pips of up and down movement and has nothing to show for it. This is the typical position promoted by Forex brokers and the one in, one out crowd.

Hedge trading.
He buys at -100 he hedges and buys again. At -200 he hedges but profits +100 on the sell. price goes back up and he profits at +100 for 200 and his two losses (one buy one sell) is at -200. Playing only 300 pips movement he is a break even. That is more efficient trading. However he buys again and price goes back to its original position of +100. ON this series of trades he is carrying -200 DD but he has profited +300 from 1 sell trade and two buy trades. So instead of breaking even he can close out with 100 pip profit. That is the difference of multiple level trading using a hedge. Also at no time is the trader in danger of losing his account or increasing his DD but he does stand to profit when the market reverses, hedgings biggest advantage.

My style of trading.

I buy price goes -100. I buy again. I am down -200. I buy again price goes up 100 and I am at break even. I buy again and I have no loss and I am up 300 pips. I buy at +200 one buy at +100. I am up 300 pips on a 400 pip move. While the market went nowhere. I made a 300 pip profit. One in, one out are complaining about the flat market, I put money into the bank. I have done this for years and years. People who never made money in Forex before are making money doing this. It works but you have to get rid of your one dimensional thinking to succeed. Since the market ranges 70% of the time or more and I watch my fundamentals, my winners so outway my losers that I have a constant steady supply of winners to overcome any losers that can sometimes run on you. I, like a fellow trader mentioned several pages back. start taking out bad trades when I reach 20% DD and am never in danger of losing my account or getting margined called. It simply works. Low leverage, low lot size to account size and trade all you want. Every day i put profits in the bank and stick with positive trend trades when they happen.
  • #1,911
  • Edited 7:15pm May 4, 2014 6:58pm | Edited 7:15pm
Quoting 60minuteman
Trader A goes long from 1.300 and price goes long 100 pips. Trader B takes the same trade. Trade A hedges his long with a short at +100 and holds his long. Trader B closes his long and goes short also. Price spikes up 30 pips and drops back down, the stop of trader B's short gets hit for a 30 pip loss and Trader A did not need a stop because it is a hedged position and his profit is locked. Trader B is now +100 -30 (presuming he had a 30 pips SL). Trader A is still +100..
That's a straw man argument for at least two reasons:

1. You say "Trade A hedges his long with a short at +100 and holds his long. Trader B closes his long and goes short also." At this point Mr A is net flat, while Mr B is net short. In my original case, Mr B replicates Mr A by maintaining the same net position at all times. It's perfectly possible for him to do so.

2. You say "Price spikes up 30 pips and drops back down, the stop of trader B's short gets hit for a 30 pip loss and Trader A did not need a stop because it is a hedged position and his profit is locked." Now you are disadvantaging Mr B further by giving him an arbitrary SL, so that his position is no longer the same as Mr A's.

Read my original post. I said that hedged positions can be replicated by a single position at every point along the way (therefore the hedge IN ITSELF offers no benefit). This is not "curve fitting" because it is true in every possible scenario.

Anybody can come up with an example where Trader A beats Trader B, by having them make arbitrary entries and exits to suit their case. I agree that is curve fitting (which is what you've done!!)

Now I will look at Bob's example.
  • #1,912
  • May 4, 2014 7:08pm May 4, 2014 7:08pm
Quoting hanover
{quote} That's a straw man argument for at least two reasons: 1. You say "Trade A hedges his long with a short at +100 and holds his long. Trader B closes his long and goes short also." At this point Mr A is net flat, while Mr B is net short. In my original case, Mr B replicates Mr A by maintaining the same net position at all times. It's perfectly possible for him to do so. 2. You say "Price spikes up 30 pips and drops back down, the stop of trader B's short gets hit for a 30 pip loss and Trader A did not need a stop because it is a hedged position...
you have hamster on a wheel syndrome and i see it all the time from good programmers who rarely make good traders.


also... anything IN ITSELF offers no edge... hedge, stop loss, trendline, SR etc etc etc... thats a stupid statement...
tradewith60
  • #1,913
  • May 4, 2014 7:10pm May 4, 2014 7:10pm
Quoting mr.kho
Trading Without StopLoss and without target:: is fine and legitimate fine as long as you know :: when to take profit when to cut lose when to give up when to stop who know only your own based on your own personal experience salaam
If you know all of that, there is no reason to trade without a TP/SL. as someone said 'its suicide'.

I personally think if you arn't using a TP/SP, you are set for failure. I'd bet money on that.

eg. Falling asleep or taking a power nap, may be the end of you if something happens.
  • #1,914
  • May 4, 2014 7:18pm May 4, 2014 7:18pm
Quoting Mitchoss
{quote} If you know all of that, there is no reason to trade without a TP/SL. as someone said 'its suicide'. I personally think if you arn't using a TP/SP, you are set for failure. I'd bet money on that. eg. Falling asleep or taking a power nap, may be the end of you if something happens.
depends on amount at risk and how long your nap was surely?
tradewith60
  • #1,915
  • May 4, 2014 7:22pm May 4, 2014 7:22pm
Quoting 60minuteman
{quote} you have hamster on a wheel syndrome and i see it all the time from good programmers who rarely make good traders. also... anything IN ITSELF offers no edge... hedge, stop loss, trendline, SR etc etc etc... thats a stupid statement...
More straw men, I'm afraid. You've avoided all the points that I made, and now digress to ad hominem attacks, discussion on whether programmers make good traders, whether trendlines or S/R can provide an edge, none of which I said, and all of which is completely irrelevant to this discussion.
  • #1,916
  • May 4, 2014 7:25pm May 4, 2014 7:25pm
Quoting hanover
{quote} More straw men, I'm afraid. You've avoided all the points that I made, and now digress to ad hominem attacks, discussion on whether programmers make good traders, whether trendlines or S/R can provide an edge, none of which I said, and all of which is completely irrelevant to this discussion.
It's an opinion not an attack. You seem unable to grasp that the hedge is/can be a pause button.
tradewith60
  • #1,917
  • May 4, 2014 7:48pm May 4, 2014 7:48pm
Quoting 60minuteman
{quote} It's an opinion not an attack. You seem unable to grasp that the hedge is/can be a pause button.
And closing your position and getting out of the market is a better pause, no?

At the end of the day it is very simple, every time you trade you pay the spread. If you can maintain the same net positions with less trade entries, you pay the spread less times.

Going back to your example, side-by-side hedged vs non-hedged.

HEDGED: Trader A goes long from 1.300 and price goes long 100 pips.
NOT_HEDGED: Trader B goes long from 1.300 and price goes long 100 pips.

HEDGED: Trade A hedges his long with a short at +100 and holds his long. Trader A is +100 minus Spread of the short.
NOT_HEDGED: Trader B closes his long. Trader B is +100.

HEDGED: Price spikes up 30 pips and drops back down, but makes no difference to Trader A because he hedged.
NOT_HEDGED: Price spikes up 30 pips and drops back down, but makes no difference to Trade B because HE IS OUT OF THE MARKET.

End Result?
Trader A is +100 minus spread at the time of the short.
Trader B is +100
  • #1,918
  • May 4, 2014 7:55pm May 4, 2014 7:55pm
Quoting 60minuteman
You seem unable to grasp that the hedge is/can be a pause button.
I fully understand that, and I also understand the following:

I know that it seems that hedging provides an advantage, in that it having the two offsetting positions neutralizes the position (the 'pause button') while still giving you trading options (i.e. you have the opportunity to close both the long and short orders in profit). But, if you think it through carefully, the single-position trader has exactly the same opportunity, by simply opening a position (buy or sell) when you close out one of the positions in your hedge, leaving himself likewise net long or short. And while the hedge 'shored up' your position, the single-position trader was likewise 'shored up', by simply being out of the market (and possibly paying less swap, if the hedge was open at NY market close).

Example #2 in post 1900 is precisely this situation. You can make the numbers anything you want; the single-position trader will still end up with the same P/L as the hedged trader.
  • #1,919
  • May 4, 2014 8:03pm May 4, 2014 8:03pm
Guys you are wasting your time with this debate. There is just one issue in the whole debate. It really is a debate of trading one position at a time versus multiple positions at a time. Either a person can see it or they cant. You can argue until your blue in the face but a single position trader either understands multiple positions but chooses not to trade that way OR they either cannot understand or conceptualize the concept. So you are beating a dead horse in a debate like this. A person who thinks you have to have a SL, you have to have a profit point, you have to have a specific entrance point and exit point. In other words a person who has to have specific rules that can never be broken. They freak out when you add a 2nd or 3rd position because it does not compute. It messes up their rule book. The issue is, it is very easy for me to see and comprehend multiple positions each having a different function but all having the goal of making a profit. I think in a series of trades not one in and one out. It drives these guys nuts. Hanover is one guy I have come to respect because he clearly lays out his argument and respects traders who differ with him. Then there are the others. So that is the issue guys, they either see it or they dont or they choose not to trade that way.
  • #1,920
  • May 4, 2014 8:06pm May 4, 2014 8:06pm
Quoting hanover
{quote} I fully understand that, and I also understand the following: I know that it seems that hedging provides an advantage, in that it having the two offsetting positions neutralizes the position (the 'pause button') while still giving you trading options (i.e. you have the opportunity to close both the long and short orders in profit). But, if you think it through carefully, the single-position trader has exactly the same opportunity, by simply opening a position (buy or sell) when you close out one of the positions in your hedge, leaving himself...
Except the single position trader doesnt trade that way in real life because the 2nd position of the hedge doesnt fit his rules as an entrance point. He just looks for the next trade that fits his trading criteria not switch his sell to a buy or his buy to a sell like a person who will hedge.
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