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Trading Without a StopLoss

  • #1,961
  • May 5, 2014 3:39pm May 5, 2014 3:39pm
Quoting hanover
{quote} 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,...
Oh, I was referring to the 0% and 100% correlation examples you were laying out. I know that out of all the pairs I trade, some are correlated and others aren't to varying degrees. But let's assume, for argument's sake, all 28 pairs were completely uncorrelated. Would it stand to reason that it'd be more beneficial to either buy or sell all 28 pairs?
  • #1,962
  • May 5, 2014 3:45pm May 5, 2014 3:45pm
Interesting thread and hedge discussion. Much respect to both Hanover and NB for their long time contributions to FF and elsewhere.
IMO it comes down to different ways to skin a cat. Some ways (hedging) may cost more and may be unnecessary, but it may well "feel" right
for the trader and fit in with their trade psychology.

Sometimes what may technically be a hedge, may be implemented for other reasons. I think of Graeme's equity millipede (a quite interesting thread I'm sure most are familiar with) where one of the fundamental tenets is having multiple positions open in both directions. Hanover...what's your take on that strategy and how might you accomplish a workaround without "hedging"
  • #1,963
  • Edited 4:14pm May 5, 2014 3:59pm | Edited 4:14pm
Quoting saneblane
I always leave room to be proven wrong because we learn something new everyday. But I haven't seen anything to believe otherwise.
I likewise see life as a continual learning process, and happily admit that I'm extremely fallible. Ask me whether EURUSD will rise or fall tomorrow and I'll be right no more than 50% of the time. Probably 90% of the people who post here are more profitable at trading forex than I am.

@everybody:
Viewed strategically, the 'hedge vs SL' is not a trading issue. Like all MM, it is straight math. In this case, the crux is whether being long X lots and short Y lots is the same as being long (X-Y) lots. Unless somebody can find a case where that's invalid, it's safe to say that hedges can always be replicated by single-position trades. It's not case of hanover trying to egotistically claim that his opinion is smarter than anybody who disagrees with him (heaven forbid!); it's a case of proving or disproving the underlying math/logic. Show me a case where the math breaks down, or otherwise doesn't apply, or where my understanding of the math is faulty, and I'll happily change my view.
  • #1,964
  • May 5, 2014 4:01pm May 5, 2014 4:01pm
I think unhedging hedged trades can be a nightmare if you don't know what you're doing. So, definitely not recommended for new traders.

I believe that Hanover has gone to excruciating lengths to explain how one doesn't need to hedge, if one understands the simple fact that closing a long trade is essentially selling by the same amount and closing a short trade is essentially buying by the same amount.

When you have no trades open then that is psychologically liberating. You can take your win or loss and just walk away from your computer, come back and start fresh... perhaps look at other pairs etc... If you are hedged in a pair then those trades will play on your mind... you will not be able to walk away as easily as you think even if you think your profit is locked in... unless you close both sides of the trade... you'll feel the need to constantly check the prices.

I think what Nanningbob showed as an edge with hedging can be achieved without hedging as Hanover showed by scaling in and out of a trade which is also a technique that Nanninbob illustrated.

I think what has actually come out of this discussion about hedging is how scaling into and out of a trade with respect to the prevailing trend and using correct risk and money management with little leverage is the better approach in the long run.

Less stress = more hair and better sleep
  • #1,965
  • May 5, 2014 4:12pm May 5, 2014 4:12pm
Quoting Bilstein
{quote} Oh, I was referring to the 0% and 100% correlation examples you were laying out. I know that out of all the pairs I trade, some are correlated and others aren't to varying degrees. But let's assume, for argument's sake, all 28 pairs were completely uncorrelated. Would it stand to reason that it'd be more beneficial to either buy or sell all 28 pairs?
If you buy/sell all 28 pairs, you're net flat (minus costs). Then your P/L will be determined by how many pairs you close in profit, and how many you close in loss (I guess that's obvious).

I don't know how to calculate it, but I believe that some kind of correlation exists across all pairs, in the sense that triangular (actually, 'crisscross') equilibrium must be maintained at all times. For example EURUSD x USDJPY = EURJPY. The same applies for all other pairs, creating a kind of domino effect. So if (for example) EURUSD rises, all EUR and USD pairs must adjust accordingly, and hence all pairs likewise. But there are other orders acting simultaneously on other pairs, creating a very complex effect.

I'm not sure the extent to which the crosses/exotics actually 'exist', or are synthetically created by market makers for the purpose of trading. Somebody might like to comment.

There are correlation tables (e.g. Oanda's) that calculate correlation between currency pairs. Read the link for an explanation as to how this correlation is calculated.
  • #1,966
  • May 5, 2014 4:35pm May 5, 2014 4:35pm
Quoting spyderman
I think of Graeme's equity millipede (a quite interesting thread I'm sure most are familiar with) where one of the fundamental tenets is having multiple positions open in both directions. Hanover...what's your take on that strategy and how might you accomplish a workaround without "hedging"
Millipede is good example, and one in which my forex friend Malcolm and I have discussed (sometimes with some animation!) at considerable length.

I would refer back to my comments in post #1905, re strategic vs operational considerations. My view is that, given that a hedge can always be replicated by a single position, hedging in itself does not provide a strategic (mathematical) advantage. But viewed operationally (and assuming that the trader is willing to wear any additional br0ker costs that arise from hedging) the hedge may be the most practical way to implement a given strategy. If you have multiple opposing positions to be placed at all different levels, and you want to give each one a SL (and possibly a TP), then short of writing a highly complex EA that calculates the desired net position at every point along the way, having hedged orders is the only feasible way to achieve this.

With any strategy, the goal is to position yourself so that you're net long during periods where price is rising, and net short when it's falling. The more accurately you time your adjustments relative to directional changes in price, the better your P/L. Whether you use hedges, or single positions that are equivalent to the hedge, the pips gathered (ignoring costs) will be the same.

If I understand the millipede correctly, the edge is gained by closing losing orders quickly, and letting the winning orders play themselves out over long term (weekly/monthly) trends, for very high RR trades. Again, it's a case of being net long or short while the market is moving in a favorable direction, more often than not.
  • #1,967
  • May 5, 2014 4:54pm May 5, 2014 4:54pm
Definition - HEDGING

" Its a way of donating money to your broker by means of spreads and swaps , f@@king up your logical part of your brain to feed an Amygdala for achieving mental security."


It doesn't take Einstein to figure this out , even 5th grader will tell its just bullshit.

I couldn't believe what i am reading on last couple of pages ...some people are at this more than 7 freaking years.

Hannover , only thing we can conclude from this thread is people believe what they want to believe.
  • #1,968
  • May 5, 2014 5:23pm May 5, 2014 5:23pm
Quoting ronaleo10
Definition - HEDGING " Its a way of donating money to your broker by means of spreads and swaps , f@@king up your logical part of your brain to feed an Amygdala for achieving mental security." It doesn't take Einstein to figure this out , even 5th grader will tell its just bullshit. I couldn't believe what i am reading on last couple of pages ...some people are at this more than 7 freaking years. Hannover , only thing we can conclude from this thread is people believe what they want to believe.

Well...as long as you're open to other people's ideas...
  • #1,969
  • May 5, 2014 5:41pm May 5, 2014 5:41pm
Quoting ronaleo10
Definition - HEDGING " Its a way of donating money to your broker by means of spreads and swaps , f@@king up your logical part of your brain to feed an Amygdala for achieving mental security." It doesn't take Einstein to figure this out , even 5th grader will tell its just bullshit. I couldn't believe what i am reading on last couple of pages ...some people are at this more than 7 freaking years. Hannover , only thing we can conclude from this thread is people believe what they want to believe.
You also didn't bother reading the thread. You're assuming that those of us who trade without stop losses do so by means of hedging. As I'm in the US, I can't hedge in the same pair. While I hold a basket of inventory at any given day, I'm not consciously hedging anything.

It may not take Einstein to figure out the pitfalls to hedging. But apparently it takes Einstein to read a thread that's a mere 50 pages long.

Edit: Also, do us all a favor and don't cling to Hanover's nuts. He's contributing logical caveats to the overall discussion in a productive manner. You talk about 5th graders? Let's talk about the guy who stepped in and tried to start a food fight by insulting everyone's intelligence.
  • #1,970
  • May 5, 2014 6:52pm May 5, 2014 6:52pm
Quoting spyderman
{quote} Well...as long as you're open to other people's ideas...
Every asshole with an asshole has ideas. Guess what types of ideas assholes produce.

Shit.

But, whatever. There are people out there who genuinely believe the Earth is flat. Those people won't be astronauts.

Hanover, why are you baiting these people with basic facts and simple logic? They won't get it. They can't get it.
Congratulations ScalaFX for coming out of the closet!
  • #1,971
  • May 5, 2014 7:08pm May 5, 2014 7:08pm
Quoting saneblane
{quote} 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.
Sorry to disagree but if you try trading correlations you can be left out of the market. If you have gbp/usd, usd/jpy, and gbp/jpy. You cannot say trading usd/jpy is like trading trading gbp/usd and gbp/jpy. gbp/usd can be going up and gbp/jpy can be going down and the usd/jpy just sit there. Trading usd/jpy would be a waste of time because each nation's fundamentals. You would miss the moves with such a philosophy. Trading aud/nzd is not the same as trading nzd/usd and aud/usd. The business done between aud and nzd has nothing to do with each countries trade with the USA. They seem to be correlated because if on moves a pip up the other has to move a pip done so mathematically they seem correlated when in reality NZ selling sheep to Australia has nothing to do with its trade to the USA.
  • #1,972
  • May 5, 2014 7:25pm May 5, 2014 7:25pm
Quoting nanningbob
{quote} Sorry to disagree but if you try trading correlations you can be left out of the market. If you have gbp/usd, usd/jpy, and gbp/jpy. You cannot say trading usd/jpy is like trading trading gbp/usd and gbp/jpy. gbp/usd can be going up and gbp/jpy can be going down and the usd/jpy just sit there. Trading usd/jpy would be a waste of time because each nation's fundamentals. You would miss the moves with such a philosophy. Trading aud/nzd is not the same as trading nzd/usd and aud/usd. The business done between aud and nzd has nothing to do with...
Well I don't really get into fundamentals but I do see your point. However I think there is something that is missing from you equation, and that is 2 currencies falling are rising at the same time that gives the impression that a pair didn't do anything, when it's just an illusion. In reality when they USD moves it moves the same against every currency, for example if no other pair than EURUSD was being bought and sold what ever happens to the USD would manifest itself in all the pairs in the USDX. But we know that in real life pairs are bought and sold like hot cakes, with some rising and falling faster than the USD it can give the illusion that they are independent, but at the end of the day, a currency is either weaker than the USD/ Stronger than the USD or neutral meaning moving in concert with, but there is no independence in the market.

Picking the best pair to trade is another issue all together. But in terms of independence in Forex, there can never be no such thing. Correlation is one of the side effects of having no independence, if the GBP is stronger than the USD, and the USD is stronger than the JPY then GBPJPY is going to move strong up everytime, no if ands or buts. It's not because the pairs want to, it's because they have to, the market doesn't care about fundamentals, it only care about buying and selling point blank, there is no independence.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,973
  • May 5, 2014 8:59pm May 5, 2014 8:59pm
Quoting ronaleo10
Definition - HEDGING " Its a way of donating money to your broker by means of spreads and swaps , f@@king up your logical part of your brain to feed an Amygdala for achieving mental security." It doesn't take Einstein to figure this out , even 5th grader will tell its just bullshit. I couldn't believe what i am reading on last couple of pages ...some people are at this more than 7 freaking years. Hannover , only thing we can conclude from this thread is people believe what they want to believe.
Your are wrong. Most brokers dont charge spreads on hedge trades and besides if you are worried over 1-3 pips they charge you shouldnt be trading. That is the cost of doing business. Profit is profit and if I make profit on my two trades then who cares. I want my broker to be profitable because that makes my money safe. Swaps also are inconsequential especially on negative swap trades. If you hedge with a postive swap you actually cut your cost on the swap. Again if you trade low leverage swaps are not a factor in trading. So before you do your chest thumping learn to debate the issue with some intelligence.
  • #1,974
  • May 5, 2014 9:27pm May 5, 2014 9:27pm
Quoting saneblane
{quote} Well I don't really get into fundamentals but I do see your point. However I think there is something that is missing from you equation, and that is 2 currencies falling are rising at the same time that gives the impression that a pair didn't do anything, when it's just an illusion. In reality when they USD moves it moves the same against every currency, for example if no other pair than EURUSD was being bought and sold what ever happens to the USD would manifest itself in all the pairs in the USDX. But we know that in real life pairs are...
Yes in explaining it that way I would agree to an extent. Accounting wise they must always be in sync. Because for every pip up there must be a correlating pip down. That can be spread out throughout Forex numbers. So the accounting must always be 0. So on an intellectual point yes but on a practical trading point you need to take each pair by its merits for trading. Per your example though GBP will move up because gbp is stronger than the jpy and the usd has nothing to do with it. For example last year spring jpy was weak against everything and made a nice tidy sum as did eveyone else following jpy fundamentals. The rest of the currencies during that time were ranging because all the movement was there. If you tried trading the gbp/usd because it is the same as trading gbp/jpy and usd/jpy. You would have missed out on one of the biggest moves in Forex. Accounting wise you would see correlation, in practice you would have missed out. So that is a market theory that is in my trash basket.
  • #1,975
  • May 5, 2014 9:38pm May 5, 2014 9:38pm
Quoting hanover
{quote} Millipede is good example, and one in which my forex friend Malcolm and I have discussed (sometimes with some animation!) at considerable length. I would refer back to my comments in post #1905, re strategic vs operational considerations. My view is that, given that a hedge can always be replicated by a single position, hedging in itself does not provide a strategic (mathematical) advantage. But viewed operationally (and assuming that the trader is willing to wear any additional br0ker costs that arise from hedging) the hedge may be the...
That is a fair and good summary. I will leave it at that until the next time.
  • #1,976
  • May 5, 2014 9:41pm May 5, 2014 9:41pm
Quoting nanningbob
{quote} Yes in explaining it that way I would agree to an extent. Accounting wise they must always be in sync. Because for every pip up there must be a correlating pip down. That can be spread out throughout Forex numbers. So the accounting must always be 0. So on an intellectual point yes but on a practical trading point you need to take each pair by its merits for trading. Per your example though GBP will move up because gbp is stronger than the jpy and the usd has nothing to do with it. For example last year spring jpy was weak against everything...
My example was very clinical, there are other things that are not taken into account. Like I said choosing the right pair to trade is another issue. I was only speaking to the point of no independence. We have different trading styles so the way we see the market would obviously be different.If you're making gains then that's the most important thing, good luck.
Being a trader is lonely, but being a great trader is lonelier still
  • #1,977
  • May 5, 2014 10:58pm May 5, 2014 10:58pm
Quoting saneblane
{quote} My example was very clinical, there are other things that are not taken into account. Like I said choosing the right pair to trade is another issue. I was only speaking to the point of no independence. We have different trading styles so the way we see the market would obviously be different.If you're making gains then that's the most important thing, good luck.
Fair enough.
  • #1,978
  • May 6, 2014 12:15am May 6, 2014 12:15am
Quoting nubcake
Hanover, why are you baiting these people with basic facts and simple logic? They won't get it. They can't get it.
You're right, I've become way too much of a forum junkie. But I occasionally get bored with programming (I'm trying to teach myself both R and Python at the moment), and forums are a kind of "guilty pleasure" diversion. It's much more entertaining than helping my wife with her uni thesis.
  • #1,979
  • May 6, 2014 1:56am May 6, 2014 1:56am
Since I suggested using hedging instead of stop loss at page 95 post# 1882 of this thread, the professionals at FF have covered deeply hedging vs non-hedging techniques.

My deep thanks to all who participated in this discussion, specially hanover and nanningbob.

My reply was to the thread titled "Trading Without a StopLoss", so was my suggestion to use hedging to protect equity instead of trading without a stop loss which is very dangerous and sooner or later will wipe the account.

I also suggested using hedging in some situations (post# 1891) which is not related to stop loss.

Regards,

Khalil
No guts, no glory
  • #1,980
  • May 6, 2014 5:13am May 6, 2014 5:13am
Dear Dare123,

Very first if you have a clear vision of trading than there is no need for stop-loss, Because if you dont have any system with accuracy your stop-loss must hits.

As i always advice newbies first select a currency pair (as i am fond of GBPJPY) than start trading with the exact trading session if you select USDJPY than never try to trade in Australia and London session. Use Fibonacci levels only (all the technical indicators work after the price movement but Fibonacci levels guide you before price movement.

GoodLuck
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