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Hedging vs Stop Loss

  • #41
  • May 29, 2014 8:45pm May 29, 2014 8:45pm
Quoting EveningStar
Hi guys, I have something in mind about hedging a position versus setting a stop loss for it. Say for example I open a long position for GBPUSD and it goes against me. Now, instead of setting a stop loss and having the trade hit that SL, I open a short position when it reaches the price point where I would have set a SL. The net loss will always be equal to that and when I open other trades and cover that net loss I'll simply close the position and be done with it. Psychologically speaking, I think hedging the position is a better thing to do. What...
the important thing is your equity ,

hedging or stop losses do not affect your equity.

some people use hedge techniques, but in my opinion it is not as effective as you will be charged spread
  • #42
  • Edited 9:40pm May 29, 2014 9:25pm | Edited 9:40pm
Quoting jmn5611
I think a pseudo hedge would be better. For example, any EURxxx, GBPxxx, against any xxxjpy pair is a pseudo hegde. Try that.
For instance fill the xxx with usd, chf, aud. I trade all nine, each pair on its own merits: They just naturally hedge against each other.

Then , of course you have eurgbp, eurjpy, and gbpjpy: I trade them as well; they are natural hedges:

The more pairs you watch, the more really good setups you will see.

So why not pick the best of what the market offers and make only the best quality trades. They are out there, big money, four days out of five!
including today...
  • #43
  • Edited 10:48pm May 29, 2014 10:27pm | Edited 10:48pm
Quoting Rap Skallion
{quote}The more pairs you watch, the more really good setups you will see. So why not pick the best of what the market offers and make only the best quality trades. They are out there, big money, four days out of five! including today...
Rap I think you're sell yourself short man, you're style is an advance style and is not for everyone. It might not be because they don't want to watch more than one, maybe there style is made for only one pair. But I advise anyone to take Rap's advise and view the market as a whole, and find out which currencies are moving the market and which ones are being dragged along, it is something that will put good money in your pocket.

It may all seem like chaos but if you look deep enough you'll start to make sense of it. If a fire is started in a building full of people there will be chaos but in all the chaos you can be sure that the people would be 1.running from the fire and 2. running to the exit, and you can be sure they will do this almost everytime, and anytime a fire happen they will always look to do the same thing. And it's the same in the market, if you look hard enough you could find where money is flowing and where it is flowing from.
Being a trader is lonely, but being a great trader is lonelier still
  • #44
  • May 29, 2014 10:33pm May 29, 2014 10:33pm
Quoting vot.thang
{quote} but in my opinion it is not as effective as you will be charged spread
That's one of the draw back for sure. But some people seem to benefit more from the psychological effects that it gives, and if that frame of mind helps in making better decisions then it must not be ruled out as something that has use. I will always maintain that it is harder to get out of 2 positions than one but some seem to do it fine. If I am not mistaken Proximus trades with this technique and he says that he's on a winning streak so I guess it can work if you know how to pull it off.
Being a trader is lonely, but being a great trader is lonelier still
  • #45
  • May 30, 2014 12:08am May 30, 2014 12:08am
Quoting saneblane
{quote} That's one of the draw back for sure. But some people seem to benefit more from the psychological effects that it gives, and if that frame of mind helps in making better decisions then it must not be ruled out as something that has use. I will always maintain that it is harder to get out of 2 positions than one but some seem to do it fine. If I am not mistaken Proximus trades with this technique and he says that he's on a winning streak so I guess it can work if you know how to pull it off.
Was that a joke or you being serious?
  • #46
  • May 30, 2014 12:27am May 30, 2014 12:27am
Quoting stewrigh
{quote} Was that a joke or you being serious?

Why would I say something that's not true. He said so a few days ago.
Being a trader is lonely, but being a great trader is lonelier still
  • #47
  • May 30, 2014 12:40am May 30, 2014 12:40am
Quoting saneblane
{quote} Why would I say something that's not true. He said so a few days ago.
So it must be true then
  • #48
  • May 30, 2014 12:52am May 30, 2014 12:52am
Quoting stewrigh
{quote} So it must be true then
I see your point but whether it's true or not doesn't really affect me one bit. Just passing on something that someone said nothing more nothing less.
Being a trader is lonely, but being a great trader is lonelier still
  • #49
  • May 30, 2014 1:35am May 30, 2014 1:35am
Quoting Rap Skallion
{quote} For instance fill the xxx with usd, chf, aud. I trade all nine, each pair on its own merits: They just naturally hedge against each other. Then , of course you have eurgbp, eurjpy, and gbpjpy: I trade them as well; they are natural hedges: The more pairs you watch, the more really good setups you will see. So why not pick the best of what the market offers and make only the best quality trades. They are out there, big money, four days out of five! including today...
Good advice Rap, good advice.
If you are good at something, never do it for free--Joker
  • #50
  • Edited 10:18am May 30, 2014 10:04am | Edited 10:18am
Quoting hayseed
{quote} //----- hey supra..... you can be fully hedged, ie 2 lots long the usdchf and 2 lots short usdchf, and it will still be possible for price movement to result in a margin call...... being fully hedged is no guarantee against it..... the only thing you can say for sure is, your are 2 lots long and 2 lots short the same pair...... you are still very much at the markets mercy....... i run ea's that constantly measure the maximum and minimum negative impact of fully hedged positions on every pair.....h //----- http://www.forexfactory.com/showthre...ge#post4170672...
If your broker is charging you margin when you're flat, then you should complain to the regulatory body. You have a dodgy broker. If you're using two brokers to do it, then of course that's your own fault and as I pointed out, you are wasting money.

2 lots long, 2 lots short is flat. There is nothing else. If you can't see that, you need to educate yourself.

It is irrelevant what the targets are, what your plans are for the 2 lots long or the 2 lots short, you are flat. Until people can understand this, they would be better to stop posting in this thread. And better off not trading too.

Is it really the standard of posters at Forex Factory, that they don't understand that two lots long an instrument and 2 lots short the instrument is flat?! I'm amazed.
  • #51
  • May 30, 2014 10:23am May 30, 2014 10:23am
Quoting SupraSense
{quote} Is it really the standard of posters at Forex Factory, that they don't understand that two lots long an instrument and 2 lots short the instrument is flat?! I'm amazed.
Unfortunately, yes.........................
Markets are not efficient, rather they are effective - Jones
  • #52
  • May 30, 2014 12:14pm May 30, 2014 12:14pm
I wish there was a Forex Factory filter setting: "Don't show posts from people who hedge".

The signal/noise ratio would massively increase. Of course, 95% of posts would also disappear if such a filter was enabled
  • #53
  • May 30, 2014 12:18pm May 30, 2014 12:18pm
Quoting Adal
I wish there was a Forex Factory filter setting: "Don't show posts from people who hedge". The signal/noise ratio would massively increase. Of course, 95% of posts would also disappear if such a filter was enabled
And I wish there was one for narrow minded bigots like you - oh wait a minute there is - the iggy button.
  • #54
  • May 30, 2014 12:19pm May 30, 2014 12:19pm
Quoting Adal
I wish there was a Forex Factory filter setting: "Don't show posts from people who hedge". The signal/noise ratio would massively increase. Of course, 95% of posts would also disappear if such a filter was enabled
Hahah Adal you're funny man, it might filter some but not 95 percent that number is too high. I think maybe 60 percent would be a more accurate figure.
Being a trader is lonely, but being a great trader is lonelier still
  • #55
  • May 30, 2014 12:22pm May 30, 2014 12:22pm
Quoting SupraSense
{quote} If your broker is charging you margin when you're flat, then you should complain to the regulatory body. You have a dodgy broker. If you're using two brokers to do it, then of course that's your own fault and as I pointed out, you are wasting money. 2 lots long, 2 lots short is flat. There is nothing else. If you can't see that, you need to educate yourself. It is irrelevant what the targets are, what your plans are for the 2 lots long or the 2 lots short, you are flat. Until people can understand this, they would be better to stop posting...
That's the whole point Supra, they want to be flat and stop the bleeding of money, and wait for price to come back and close both trade. In my view you should just take the loss and move on, but some people seem to like the strategy.
Being a trader is lonely, but being a great trader is lonelier still
  • #56
  • May 30, 2014 12:27pm May 30, 2014 12:27pm
I was once a hedger (http://www.forexfactory.com/showthre...77#post2650577).

But I was puzzled why none of the professional trading platforms had hedging capabilities. It seemed weird that professionals would be deprived of this "valuable" technique.

And smart people were saying that I was stupid for hedging.

So I sit down with a piece of paper and I computed and simulated and drawn until I realized that they were right - that hedging is equivalent to being flat, but with you paying spreads and rolls.

I consider that if somebody can't figure it out for themselves that hedging is worse than being flat, they really have no chance in this tough market, and that they are incapable of advancing beyond their limitations.
  • #57
  • May 30, 2014 12:28pm May 30, 2014 12:28pm
Quoting saneblane
{quote} That's the whole point Supra, they want to be flat and stop the bleeding of money, and wait for price to come back and close both trade. In my view you should just take the loss and move on, but some people seem to like the strategy.
But you're not getting my point. What they are doing is going flat. They are closing the position, they're just fooling themselves that they're not.

Give any set of trades starting from flat, and finishing flat and show me how hedging can help. You get to pick, and I can show that you are just kidding yourself that hedging has helped.
  • #58
  • May 30, 2014 12:33pm May 30, 2014 12:33pm
Quoting Adal
I was once a hedger (http://www.forexfactory.com/showthre...77#post2650577). But I was puzzled why none of the professional trading platforms had hedging capabilities. It seemed weird that professionals would be deprived of this "valuable" technique. And smart people were saying that I was stupid for hedging. So I sit down with a piece of paper and I computed and simulated and drawn until I realized that they were right - that hedging is equivalent to being flat, but with you paying spreads and rolls. I consider that if somebody...
Yes you're right. In a bank or a hedge fund, if you suggested holding long and short the same amount of the same thing was a benefit, if they didn't sack you, they'd certainly consider they'd made a mistake in hiring you and would stop you from trading immediately. This is really basic stuff. There's no benefit to it and it's an insult to even call this sort of thing hedging.
  • #59
  • May 30, 2014 12:36pm May 30, 2014 12:36pm
Quoting SupraSense
{quote} But you're not getting my point. What they are doing is going flat. They are closing the position, they're just fooling themselves that they're not. Give any set of trades starting from flat, and finishing flat and show me how hedging can help. You get to pick, and I can show that you are just kidding yourself that hedging has helped.

I don't think you understand how it's done. Being flat is the whole point, when you are flat you have literally frozen the trade, and if you close both successfully you have saved the first trade. The reason why It's so tricky is that it takes time, and ties up resources and attention. But the method by itself can be used in some freak situations. And I am going to give you one right now, at the weekly low or high a hedge position would come back 80 percent of the times. being flat is the whole point, of coarse the cost of spread is costing you too but that's the general idea.

I am not saying that it is the best way to do it, I am saying that it can be done. If your accuracy is 75 percent for example and some people are, then one mistake would probably be corrected in another trade. I am not the one doing it, I am just saying if you know what you are doing, you can hedge a position and save it at a later time.
Being a trader is lonely, but being a great trader is lonelier still
  • #60
  • May 30, 2014 12:37pm May 30, 2014 12:37pm
Hedging vs Stop Loss

It depends:

- If you trading-system has a "great" hedging strategy to control the risk-reward ratio and to cut the hair on losses or not ...
- If not ... Stop Loss

ps: it's not easy to create a "great hedging strategy" ... and this will only work in a good trading-system
Don't swim with the sharks ...
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