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Trading Without a StopLoss

  • #1,941
  • May 5, 2014 12:55am May 5, 2014 12:55am
Quoting shellsnail
{quote} I think you misunderstand him. He is saying that hedging is less efficient, not the other way round. And the example you gave isn't really a hedge. In reality when we trade cross-pairs like GBPJPY, we are actually just buying both GBPUSD and USDJPY. (at least that was what it was like in the past; these days I think they have a market of their own perhaps)
Actually you have it right. Business between England and the USA is not the same as USA and Japan. They are independent of each other even though at times strong fundamentals, like a strong dollar may make them move in conjunction with each other. In others words if England sends a bunch of Mini-Coopers to the USA and the dealer exchanges the funds from USD to GBP. That has no thing to do with USD/JPY. They are independent of each other. Same thing if Nissan sends a bunch of cars to the USA, the exchange of USD to JPY has no relation to gbp/usd.
  • #1,942
  • May 5, 2014 1:08am May 5, 2014 1:08am
I think that No Stop Loss can be called as a strategy in Forex trading. But I think that only crazy trader who are very lucky are using this strategy.
  • #1,943
  • May 5, 2014 1:46am May 5, 2014 1:46am
Quoting nanningbob
But you had to take multiple positions to do it.
What is the difference between a "position" and an "order"? In the scenario I placed two (buy) orders, while the hedged trader placed several buy and sell orders.
Quoting nanningbob
Which is what I do since I cant hedge. So you do understand. My other point is the one in one out probably would never do such a thing so we are back to square one in the debate.
I've always understood the idea of "hedging", and why traders do it.
Quoting nanningbob
The difference being the person who hedges has either frozen his DD which you are still have an open risk to. Or he is taking constant profits on the trip down increasing his account balance while he waits for the reversal. So you are exposed and he is not.
While you're hedged, I replicate your net position by being out of the market altogether. Hence I'm not exposed to DD. And while I'm out of the market I'm not subject to swap or spread costs either.
When you close an order in your hedge, you are either net long or short, and therefore exposed to risk. I open a long or short position of the same size, and am therefore exposed to the same risk.
Putting all of this together, I am no more exposed to risk/loss than the hedged trader is.
  • #1,944
  • May 5, 2014 1:56am May 5, 2014 1:56am
Quoting nanningbob
{quote} Actually you have it right. Business between England and the USA is not the same as USA and Japan. They are independent of each other even though at times strong fundamentals, like a strong dollar may make them move in conjunction with each other. In others words if England sends a bunch of Mini-Coopers to the USA and the dealer exchanges the funds from USD to GBP. That has no thing to do with USD/JPY. They are independent of each other. Same thing if Nissan sends a bunch of cars to the USA, the exchange of USD to JPY has no relation to...
That statement is partially correct. It might not affect the crosses much, but any currency that is a part of the USDX, which are the majors would be affected. a GBP/USD event can and do affect USD/JPY, No currency is independent because for one to be strong, another has to be weak. There can be no independence.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,945
  • May 5, 2014 2:01am May 5, 2014 2:01am
I understand the intention of the debate, hedge or not.
Tried hedging before...it can work, for me itīs just added stress and work, and itīs true, itīs basically same as stop...with variations.

One of the main reasons people try hedging is, in my humble opinion, the frustration over stop hunting.
Took a virtual course on HFT trading the other day, and they were showing how the robots are programmed to hit stops, one time, 2 times, then run in the original planned direction by most of the traders, who did thier studies and homework.
Systems are similar: trend lines, support, resistance, fibos...and they are all programed into those algorythms...(95% retailers loose right!).

People say: "stop hunting is just an excuse, place your stops accordingly"...Great, so you move your stop 5 or 10 pips further, so now your trading costs increase dramatically... and thus your bottom line gets a solid punch in the stomach. Like trading the EURUSD with a 10 pip spread?, try that on the 5 minutes chart!!
Thatīs why I moved to dayly, weekly, minimum 4 hours.

HFT accounts already for 75% of trading in stocks and commodities...and is invading forex, rapidly.
It is good to know your enemy...
Hedge or no hedge, I treat trading like buying and selling bananas in the market, you need to buy cheap, sell expensive, keep your costs down...thatīs what the robots are doing..
Best of success to all..
  • #1,946
  • May 5, 2014 2:42am May 5, 2014 2:42am
Quoting cuchuflito
I understand the intention of the debate, hedge or not. Tried hedging before...it can work, for me itīs just added stress and work, and itīs true, itīs basically same as stop...with variations. One of the main reasons people try hedging is, in my humble opinion, the frustration over stop hunting. Took a virtual course on HFT trading the other day, and they were showing how the robots are programmed to hit stops, one time, 2 times, then run in the original planned direction by most of the traders, who did thier studies and homework. Systems...

What you said there has a lot of significance but will probably be ignored. that's why I don't "ride" trend anymore. I put in a trade and if it doesn't go in my way in at least 2 candles then I take it out. I believe that if you cannot get a signal right in 2 candles then you're just guessing. Stop hunting is real, and I have adjusted my trading style accordingly for it. Thanks for bringing this up, it's something that's ignored but it's kicking many traders asses everyday.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,947
  • Edited 4:40am May 5, 2014 4:30am | Edited 4:40am
Quoting shellsnail
{quote} I think you misunderstand him. He is saying that hedging is less efficient, not the other way round. And the example you gave isn't really a hedge. In reality when we trade cross-pairs like GBPJPY, we are actually just buying both GBPUSD and USDJPY. (at least that was what it was like in the past; these days I think they have a market of their own perhaps)
I think that many people may make trades like this thinking they are hedging the same currency make money and thus think hedging is a good thing. The actual hedge where you go before and against the currency simultaneously at the same time, is not efficient. Fixed Traveling stop is not as efficient as a number of reasonable other ways to do it. Saneblane's way of closing a trade if it does not go well in a couple of bars is one. If fixed stop loss is used at all, it should be put way down , out of the way of a normal trade.

You can bring yourself to a stop at a red light by using an emergency brake, but do you? Really?
throwing a car into reverse at speed is not a good idea either.

Using multiple trade scenarios rather than thinking one trade at a time can bring more flexibility into your operations. It is more forgiving, and you can cet away with stuff. I like that in a system, because I just don't always make the right choice, or do the right thing. Multiple trades allow me to do that.

Now one of the merits of an entry may be that it has the possible effects of hedging a currency in play, but if that is the sole reason for considering it , that is probably not sufficient. It should have a good chance of making money itself even if the other trade is not in play.

when you have enough windows open, looking to consider only the best few opportunities in them, this kind of thing comes up frequently.

Consider these things for yourself. I realize I may be quite wrong, but I don't think so.
  • #1,948
  • May 5, 2014 4:38am May 5, 2014 4:38am
Great thread. Just to share my view. I rather trading with stoploss. minimize my loss rather than loss more. unless you have big capital and a swing trader for a long term, then without stoploss can be considered. as long as profit more than loss.
Trade with my own risk..
  • #1,949
  • May 5, 2014 4:45am May 5, 2014 4:45am
Quoting Yeow Boon
if you have a large amount of capital that can "absorb" losses, trading without a stop-loss is ok, becos prices of most asset classes fluctuate (except equities which may go bankrupt.) however, without a huge amount of capital, you may be putting your trading account at great risk..... becos sometimes, it pours instead of rain.....it occurs to me twice.....and i call myself stupid for believing in myself too much......
This is not stupidity, this is ignorance.
Please, and others also, understand that ignorance is the state of insufficient training and experience.
To say that someone is ignorant is not an insult, at least not from me, it is an observation.

Now life has given you experience, it is up to you to develop your survival strategy before the next lesson.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #1,950
  • May 5, 2014 5:26am May 5, 2014 5:26am
Quoting Rap Skallion
{quote} Then your are saying there is room for a person to use a less than efficient method in a market and still make money. Isn't that the main argument for those who trade using a fixed stop loss as part of the equation? Supposing you have two pairs, however, one pair is aaa/ccc and the other aaa/ddd. Now ccc is dropping like a rock and ddd is soaring like an eagle. aaa is just chugging along. Doesn't it make sense to buy aaa/ccc and sell aaa/ddd? Here it only looks like you are hedging aaa when in fact your focus is properly on ccc and ddd....
Hi Rap, I'm sorry but I really don't understand your question. But I will say a few things around this point to see if I can clarify what I think. It is entirely possible to be profitable using stop loss, not using a stop loss, or hedging. I think it is entirely up to the trader to figure out which approach they find most comfortable. Over time, the trader's approach may evolve as they become more experienced or comfortable with the market. The fact is, you have to pick one method and make it work. I think you select the approach that matches your skills at understanding market structure, understanding TA, reading PA, picking an entry, and identifying potential targets. I know there are people here who view the market as random and chaotic, and believe that things like structure and PA are not helpful. For these people, using a stop loss has not worked, mainly because they lack the skills to trade with a stop loss. So for them, they are forced to hedge (where allowed), or simply trade with out a stop loss, which opens them to the possibility of a margin call with every trade. I my view, since hedging and trading without a stop loss is less efficient than trading with a well placed stop, these traders are less efficient than they could be.

We trade to make money. All our efforts while trading should be directed at making money. Efforts to hedge, as I stated in a previous post, are defensive in nature and not directed at making money but instead at rescuing money. Holding negative positions takes resources away from making positive trades. Again, inefficient. Neither of these approaches is wrong, just less efficient when compared to making proper decisions on a stop loss.

As for trading the aaa/ccc and aaa/ddd thing, I completely agree with you in your thinking. I don't view that as hedging, but as trading a well though out analysis of market structure.
  • #1,951
  • May 5, 2014 5:28am May 5, 2014 5:28am
A recurrent theme in this thread is the citing of trading costs when considering hedged or non-hedged trading.
There are brokers who will let you merge a short and a long position, which results in a combined position which may be zero (no result trade) without paying any commission, you simply win or lose the difference in the combination process.
Molecule6 (RIP) is an example available to customers in the Americas (I assume).

Quoting hanover
... Many thanks Bob. Now I can follow your thinking more easily. I agree with your math 100%, and I will illustrate this by going through all of the blue text above, step by step. And I will also attempt to show how it is possible to achieve the same P/L, without hedging.
...
How did he achieve the same P/L as you? By simply replicating your net position at every step of the process. That is the point I've been trying to make. Multiple positions in the same pair can always be resolved into a single net position. For example, if you're 5 long and...
Thanks for that. I think you and Bob have explained it equally. It comes down to the psychology of an individual's approach.
Having worked through the detail of both arguments it appear to come down to this post by shellsnail, since there appears no other benefit.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #1,952
  • May 5, 2014 7:04am May 5, 2014 7:04am
Trading without S/L is not adviceable for a forex beginner because S/L closes your trade when you are losing even in your absent. It is only good to trade without S/L when you are in front of your system to know how the business is moving, you can choose whether to close trade when it is going against you or not. Mind you trading without S/L when you are not in front of your system is like a goat inviting the lion for a fight.
  • #1,953
  • May 5, 2014 1:58pm May 5, 2014 1:58pm
My observation is that most of the analysis are not sensible as apples and pears are compared. Theoretically, the single position trader could replicate the result of the multiple position trader, however it is based on an entirely different risk profile. In reality, the single position trader and the multiple position trader probably trade very different lot sizes. Multiple entry trading is for me first of all a risk management tool. It is more about time in the market to let your multiple small edges work in your favor over time, than making timing the market your edge. Multiple entries are in fact a risk diversification strategy. It is equivalent to invest money in various different stocks rather than to place all your money into one stock. Price levels are what is diversified. Furthermore exit levels are also diversified based on time objectives (short, medium, long term) and relative size of profits (say 30, 50, 100, 200, 500 pips etc). Multiple position trading at low leverage is simply a completely different ball game than high leverage one at a time single position trading.
Much depend on luck, but the more you practice the luckier you get! NT & GP
  • #1,954
  • May 5, 2014 2:44pm May 5, 2014 2:44pm
Quoting pa_pips
Multiple entries are in fact a risk diversification strategy. It is equivalent to invest money in various different stocks rather than to place all your money into one stock.
Partly true. I say 'partly' because we need to consider correlation. Potentially, all of the entries could be blown away by one large adverse move. Of course stocks are correlated also, in that multiple stock positions can lose simultaneously if the market falls overall.

The lower the correlation, the higher the diversification factor. Mathematically:

  1. If you risk 1% on 10 different simultaneous positions that are 100% correlated, your total risk is 10%.
  2. If you risk 1% on 10 different simultaneous positions that are 0% correlated, your total risk is 1%. (Hence your returns are increased by a factor of 10, with no increase in total risk).

I learned this from reading Dr Ryan Jones' book. I also posted an explanation/analogy here.

Obviously, due to correlations that exist across all financial markets, it's not easy to find assets that are completely uncorrelated. But the lower, the better.

  • #1,955
  • May 5, 2014 3:03pm May 5, 2014 3:03pm
Quoting cuchuflito
One of the main reasons people try hedging is, in my humble opinion, the frustration over stop hunting.
I may be wrong here (somebody please correct me), but, if we're buying, a SL is effectively a sell order to close the position, if price reaches that level. If, instead, we hedge by placing a (limit) sell order at the same level, isn't that effectively the same thing?

Hence, if an institution or HFT algo was seeking liquidity to place a buy order, instead of taking out our SL, it would trigger our hedge. Mathematically, either way would leave us in in the same position (net flat — as per my earlier posts on the math of hedging). Hence the hedge offers no advantage over the SL, in terms of stop hunting.
  • #1,956
  • May 5, 2014 3:13pm May 5, 2014 3:13pm
Quoting hanover
{quote} Mathematically: If you risk 1% on 10 different simultaneous positions that are 100% correlated, your total risk is 10%. If you risk 1% on 10 different simultaneous positions that are 0% correlated, your total risk is 1%. (Hence your returns are increased by a factor of 10, with no increase in total risk).
I may be interpreting your example(s) incorrectly, if so, forgive me and feel free to correct me. But this is why I prefer to be predominantly buy-side or sell-side with my inventory. In my eyes (I simplify stuff, sorry), buying and selling the 28 pairs I trade just increases the uncertainty and variability as pertains to the inventory. I know, every day, by buying (or selling) all 28 pairs that I'm going to have some losing positions at the end of the day. Aside from my definitive risk parameters for each position, I book all the profits each day and cycle out losers as a percentage of gains that I've booked or if they've hit my risk parameters.

I don't personally think my approach is more advantageous than someone who places individual trades. But trading the way I do keeps me out of the "analysis pit" and I just prefer it that way because I spent too much time in that pit. I suppose you could say the reason I don't use stop losses is to "give trades a chance" but not too much of a chance - hence the 3-day expiration period. I don't have to worry about things like premature exits, exact targets, or news-driven volatility.
  • #1,957
  • May 5, 2014 3:14pm May 5, 2014 3:14pm
You're right Hanover, there is no real benefit to it over a SL. Apart from the psychological effect that the false sense of security provides to a trader, I have seen no proof so far of it being a useful maneuver.Heck It can even be the more expensive route to take, Because of paying the spread or commission for opening a new trade. And it also ties up funds that can be used on another trade, and can also cost money that way, by keeping you out of other trade that you might have won. I always leave room to be proven wrong because we learn something new everyday. But I haven't seen anything to believe otherwise.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,958
  • May 5, 2014 3:19pm May 5, 2014 3:19pm
Quoting Bilstein
{quote} I may be interpreting your example(s) incorrectly, if so, forgive me and feel free to correct me. But this is why I prefer to be predominantly buy-side or sell-side with my inventory. In my eyes (I simplify stuff, sorry), buying and selling the 28 pairs I trade just increases the uncertainty and variability as pertains to the inventory. I know, every day, by buying (or selling) all 28 pairs that I'm going to have some losing positions at the end of the day. Aside from my definitive risk parameters for each position, I book all the profits...

Wow that's interesting, How does that work? Do you buy and sell every pair at the same time?
Being a trader is lonely, but being a great trader is lonelier still
  • #1,959
  • May 5, 2014 3:21pm May 5, 2014 3:21pm
Quoting saneblane
{quote} Wow that's interesting, How does that work? Do you buy and sell every pair at the same time?
I buy or sell all 28 pairs at one time, yeah.
  • #1,960
  • May 5, 2014 3:31pm May 5, 2014 3:31pm
Quoting Bilstein
{quote} I may be interpreting your example(s) incorrectly, if so, forgive me and feel free to correct me. But this is why I prefer to be predominantly buy-side or sell-side with my inventory. In my eyes (I simplify stuff, sorry), buying and selling the 28 pairs I trade just increases the uncertainty and variability as pertains to the inventory. I know, every day, by buying (or selling) all 28 pairs that I'm going to have some losing positions at the end of the day. Aside from my definitive risk parameters for each position, I book all the profits...
I can't really comment as I don't fully understand the rules behind your opening and closing positions. I suspect that you must use some analysis, or gain some kind of 'edge' from the way you open/close the positions, as it would otherwise be possible to write a (profitable) EA that simply opens and closes positions randomly across all pairs. If only forex was that simple, we could all be millionaires!

But, all theory aside, if your method has been profitable with some consistency for several months, and you feel comfortable using it, nobody can really argue. Least of all me.
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