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Hedging vs Stop Loss

  • #201
  • Jun 2, 2014 3:05pm Jun 2, 2014 3:05pm
Quoting hollowhead
{quote} Have to disagree - being both long and short on the same pair at the same time has led to some of my biggest and most stress-free profits - if that makes me an idiot, I'm happy to be an idiot. Just because you can't see how to do it, doesn't make other people idiots. It's like a blind man calling someone else dumb for saying the grass is green.
Good for you man, You can be long in the short term and short in the long term (long/short and short/long). But sadly we have trader Nazis around here who don't listen to other people's methods or opinion. Always good to hear simple reasoning every once in a while.
Being a trader is lonely, but being a great trader is lonelier still
  • #202
  • Jun 2, 2014 3:11pm Jun 2, 2014 3:11pm
Quoting 60minuteman
{quote} I'm with you hollowhead - idiot retail traders are the ones who think intraday is the only way.... As we both know, perfectly acceptable to have legs open in both directions and often far more profitable...
Indeed - I would say using an opposing position for your SL on entry is probably not going to help, but once in profit, then opposing trades can open a whole new world of possibilities. The question always arises, 'but how do you know when to close the hedge?' And I remember struggling with that. Then I realised I was asking the wrong question. When I changed the questions to 'When shall I open the third trade' everything changed...
  • #203
  • Jun 2, 2014 3:19pm Jun 2, 2014 3:19pm
Quoting saneblane
{quote} Good for you man, You can be long in the short term and short in the long term (long/short and short/long). But sadly we have trader Nazis around here who don't listen to other people's methods or opinion. Always good to hear simple reasoning every once in a while.
True, I think limiting trading to I'm either in or out; up, down or flat seriously limits your earning potential. It took a long time for me to see it, and I had to be prepared to try something different and go against the main flow - but it changes everything. You never see a chart the same way, you realise everytrade has incredible possibilities...
  • #204
  • Jun 2, 2014 4:22pm Jun 2, 2014 4:22pm
Quoting merquise
{quote} Thanks for the answer, and without the intent to drag the thread in another direction could you tell me about other possibilities of offsetting the GBP spot position in FX as an example?
There are forwards, futures, swaps and there are options other than puts that you can utilise. I suppose a lot depends on what is available to you.
  • #205
  • Jun 2, 2014 4:23pm Jun 2, 2014 4:23pm
Quoting hollowhead
{quote} Have to disagree - being both long and short on the same pair at the same time has led to some of my biggest and most stress-free profits - if that makes me an idiot, I'm happy to be an idiot. Just because you can't see how to do it, doesn't make other people idiots. It's like a blind man calling someone else dumb for saying the grass is green.
Good.

If you want to take up the challenge and give some trades whereby 'hedging' helped you make money, then list them, and I'll show you that you could have got the exact same profit without hedging or even more profit. Otherwise, you're writing nonsense like some of the others. The irony is that you are the blind man, and the dumb man and you want to insult the one who isn't and is actually helping you.
  • #206
  • Jun 2, 2014 4:56pm Jun 2, 2014 4:56pm
Quoting 6inuteman
{quote} I'm with you hollowhead - idiot retail traders are the ones who think intraday is the only way.... As we both know, perfectly acceptable to have legs open in both directions and often far more profitable...
The one thing i have noticed about this debate is the failure to see that forex hedging is the failure to see that each position is a separate trade. Once seen in this light you deal with each trade inividualily and that is it. Opponents keep treating them as one and they are not. Once you get into multiple levels the whole concept of one in one out does not apply. Once you get into multiple positions the logic of one in one out fails. I trade multiple positions on multiple currencies and one in one out logic fails miserably when you do this. It is not our problem that there are people who cant think 3 dimensionaly. If youcant conceptualize multiple positions that does not makes us that can dumb or stupid. It just means you cant grasp it. Two or more trades, two or more positions. Each position has its own purpose. You cant grasp that orcomprehend it, not my problem. multiple positions and compoundig profits has made me very successful as a trader and i am talking years of success. I dont care if you can grasp it bottom line, i make money and the only profit a dealer makes on me is his spread and that is the only bottom line that matters.
  • #207
  • Jun 2, 2014 5:14pm Jun 2, 2014 5:14pm
hi nanningbob,

would be interested in your experiment hedging E/CH.
once the DD is fixed, how much profit % per month would be possible?

the swap brokers charge can differ considerably and it would also be good if the broker takes long and short trades in account and charge swap on the balance.
for margin purposes also take long and short trades in account and margin only applicable on the balance.

do you know of broker(s) having these?
thank you
  • #208
  • Jun 2, 2014 5:16pm Jun 2, 2014 5:16pm
One of the great things about numbers and mathematics, is that it stops all the waffle and BS and forces people to face facts. I have asked for a list of trades in which hedging has helped, nobody can provide one. We're at 11 pages and still nobody can. 8 years ago Merlin made the same request. Nobody could provide it then either. They've had 8 years and several threads to think of an example, but still none. Nobody can provide a clear example of where hedging did better than could be done without hedging. I already know it doesn't exist, but fools want to argue it. There's an awful lot of nonsense written about it, and people sure that it helps them. Yet it keeps coming back to the fact that not one of them can provide a single set of trades where hedging does better.

So there we are and there we'll stay. Those who know, know, and can deal with it in numbers when requested. Those who like to talk nonsense don't know and can't deal with any numbers, they just keep on saying it works it works. They get angry with those who know more than them and start accusing them of being close-minded or unable to grasp it. It's like a child accusing an adult and saying the adult doesn't get it, santa claus really does exist.

Now the offer remains. Anyone wanting to put down some trades in which going long 1 contract and short the same contract can provide a benefit is welcome to do that, and I'll respond to that. Anyone with wishy washy words about how they're doing, I'm not interested in, only numbers, only facts.
  • #209
  • Jun 2, 2014 5:51pm Jun 2, 2014 5:51pm
Quoting hollowhead
{quote} Indeed - I would say using an opposing position for your SL on entry is probably not going to help, but once in profit, then opposing trades can open a whole new world of possibilities. The question always arises, 'but how do you know when to close the hedge?' And I remember struggling with that. Then I realised I was asking the wrong question. When I changed the questions to 'When shall I open the third trade' everything changed...
Ooh, I like that!
  • #210
  • Jun 2, 2014 5:57pm Jun 2, 2014 5:57pm
Quoting hollowhead
{quote} Indeed - I would say using an opposing position for your SL on entry is probably not going to help, but once in profit, then opposing trades can open a whole new world of possibilities. The question always arises, 'but how do you know when to close the hedge?' And I remember struggling with that. Then I realised I was asking the wrong question. When I changed the questions to 'When shall I open the third trade' everything changed...
Ooh, I like that!

Just watch that you have room in your margin for comfort.

You can also close the second trade as soon as it gives you a profit you like, look at your conditions, and re-open if they are there.

You can do both.....
  • #211
  • Jun 2, 2014 6:07pm Jun 2, 2014 6:07pm
Quoting SupraSense
One of the great things about numbers and mathematics, is that it stops all the waffle and BS and forces people to face facts. I have asked for a list of trades in which hedging has helped, nobody can provide one. We're at 11 pages and still nobody can. 8 years ago Merlin made the same request. Nobody could provide it then either. They've had 8 years and several threads to think of an example, but still none. Nobody can provide a clear example of where hedging did better than could be done without hedging. I already know it doesn't exist, but fools...
I will decline your kind offer to prove me wrong - because you can't. What you will do is point out if I had closed and reopoened then I would have the same profit plus the spread. Which is true. But this is the bit you are missing. You can only do that by looking at the full chart with history. When I trade, I don't know where the price is going - I don't know if this is a pullback or a reversal - but I am in the trade for whichever one it is - and I am in earlier than you, because I don't need a load of hocus pocus confimration - I take the trade and sleep easy. When you have a 100pip trade diminishing in 30 mins, I have a 90pip trade building. If it takes out my original trade - no problem. Either way I know I have the pips, and if the trend resumes - I'm still in. I haven't lost a single pip on closing and reentering - 95% of traders without a hedged position are panicking - I'm not - I'm placing trades on another pair.

I get the big move and the pullbacks - when I open the 'hedge trades' I am ensuring I am still building positions (and not your 20-50 pip positions). I trade this way because I don't know what price will do - you can only prove me wrong by matching what I have already done, but you can't build the positions I have without it. I can only do it because I am hedging. I can catch a 200 pip pullback when I am 800 pips up because I open opposing trades. I can pretty much guarantee most traders will have closed out that 800 pip position when it got to 100 pips because of fear of losing it - because I hedge I don't need to close it out, so when it turns around I am still in it - and I can do that for weeks and months. So your challenge cannot be met - you want to compare apples with pears.

I would hazard a guess that the vast majority of postion traders take trades in both directions - but you want to compare it with intraday trading - they're different beasts, and for the record they just don't compare.
  • #212
  • Jun 2, 2014 6:37pm Jun 2, 2014 6:37pm
Quoting nanningbob
{quote} The one thing i have noticed about this debate is the failure to see that forex hedging is the failure to see that each position is a separate trade. Once seen in this light you deal with each trade inividualily and that is it. Opponents keep treating them as one and they are not. Once you get into multiple levels the whole concept of one in one out does not apply. Once you get into multiple positions the logic of one in one out fails. I trade multiple positions on multiple currencies and one in one out logic fails miserably when you do...
I agree - it all comes back to this obsession of being able to quantify everything in what is essentially uncertain.

Explains why the majority give far too much weight to technicals.
tradewith60
  • #213
  • Jun 2, 2014 6:38pm Jun 2, 2014 6:38pm
Quoting hollowhead
{quote} I will decline your kind offer to prove me wrong - because you can't. What you will do is point out if I had closed and reopoened then I would have the same profit plus the spread. Which is true. But this is the bit you are missing. You can only do that by looking at the full chart with history. When I trade, I don't know where the price is going - I don't know if this is a pullback or a reversal - but I am in the trade for whichever one it is - and I am in earlier than you, because I don't need a load of hocus pocus confimration - I take...
clear, concise, obvious - great post
tradewith60
  • #214
  • Jun 2, 2014 6:46pm Jun 2, 2014 6:46pm
Quoting Adal
{quote} I have done similar trades without using hedging. The key is thinking in total position size, instead of individual trades. Your case: 1 OPEN LONG at 1.3000 1 OPEN LONG at 1.3100 1 OPEN LONG at 1.3200 1 OPEN LONG at 1.3300 1 OPEN LONG at 1.3400 1 OPEN HEDGE SHORT at 1.3400 1 OPEN HEDGE SHORT at 1.3400 1 OPEN HEDGE SHORT at 1.3400 price goes to 1.3200 1 CLOSE HEDGE SHORT 1.3200 1 CLOSE HEDGE SHORT 1.3200 1 CLOSE HEDGE SHORT 1.3200 price goes back to 1.34 Without hedging 1 OPEN LONG at 1.3000 (position size 1) 1 OPEN LONG at 1.3100 (position...


Thanks for the efforts Adal, but not quite what I had in mind. Not your fault certainly as its a complicated strategy. Let me give a brief try if you're still around. Not saying my math is perfect but we'll see.
Maybe even our buddy Suprasense will weigh in...could make money on that bet.

All entries are 1 lot for ease:
Enter long at 1.3000
Enter long at 1.3100
Enter long at 1.3200
Enter long at 1.3300
Enter long at 1.3400

Bears mentioning at this point that entries would not be evenly spaced like this but at random distances but we all get the picture. Also all entries are moved to BE. Many others may have died on the vine.

Anyways, with market now at 1.3500 positions are worth as follows:
500 pips
400
300
200
100

You start getting short signals
Short at 1.3500
Short at 1.3400
Short at 1.3300

Price moves down far enough below 1.3300 to allow you to get that last short to BE then moves back to 1.3300.
Long at 1.3400 closed at BE as did long at 1.3300
You now have positions as follows
Long at 300
Long at 200
Long at 100
Short at 200
Short at 100
Short at 0

Price heads up again, which is going to take the shorts out. But you add 5 more longs on the way from 1.3300 to 1.3700 and then continues to 1.3800

Now you have longs at 800, 700, etc. to 100 for a total of 3600 pips. Let’s suspend trading for the moment and move the market to the future 3000 more pips. Now you have entries of 3800, 3700, etc. for a total of 27,600 pips.

Pause here for a moment and let’s review without hedging.

Enter long at 1.3000
Enter long at 1.3100
Enter long at 1.3200
Enter long at 1.3300
Enter long at 1.3400

You get short signal so close all trades for 1500 pips
Short at 1.3500
Short at 1.3400
Short at 1.3300

Price moves down far enough below 1.3300 to allow you to get that last short to BE then moves back to 1.3300.

Price signals up again, so you close the shorts out for 300 more pips

You add 5 longs on the way to 1.3800
Enter long at 1.3300
Enter long at 1.3400
Enter long at 1.3500
Enter long at 1.3600
Enter long at 1.3700

Now you have longs at 500, 400, etc. to 100 for a total of 1500 pips.
So running totals are
You closed longs for 1500
Closed shorts for 300
Have longs at 1500
Total so far is 3300

You’re already short 300 pips from the hedging play because you no longer have those first 3 positions that would be worth an extra 300 pips at this point after you net out the amount you would receive from closing them plus the shorts you banked instead of dying at BE (300 for each of 3 positions from 1.3500 to 1.3800 minus 300 for the 2 longs you lost to BE on the retrace minus 300 for the 2 shorts you lost on the way back up)


It gets better…

Let’s suspend trading for the moment and move the market to the future 3000 more pips. Now, hedging, you have entries of 3800, 3700, etc. for a total of 27,600 pips.

With hedging you have the amount you had before:
3300 pips.
Plus 3000 pips for each of the 5 new entries for another 15,000

That’s a total of 18,300 not hedging vs. 27,600 hedging. Now you’re losing out on the 3000 pips you would have for each of those original 3 positions that are no longer there.

Now I know what you’re thinking…I would just increase my lot sizes when that short retrace was done to make up for the ones closed.

Yes you could do that by buying 3 more lots at 1.3800 or some other way to increase your sizing.
One problem though is that you don’t know if those 3 lot entries will ever make it to break even.
You’re increasing your risk because you abandoned those safe entries that were already at BE

Plus, this was a fairly simple scenario on ONE pair. Imagine trading this on 2 dozen pairs over a period of years…trying to keep track of all the trades you closed and how many more lots you have to risk trying to open up to replicate your closed positions.

Is it MATHEMATICALLY possible, sure. But it’s a logistical nightmare.

Believe me, I tried trading the Millipede (not doing so currently) The trade management is a nightmare with the hedge, let alone without it.

All right Suprasense…here’s your numbers. I’m sure you’ll ignore most of it and pick out 1 line and say…SEE, SEE, SEE…I can do it without hedging you morons!!!
  • #215
  • Jun 2, 2014 6:48pm Jun 2, 2014 6:48pm
Quoting hollowhead
{quote} I will decline your kind offer to prove me wrong - because you can't. What you will do is point out if I had closed and reopoened then I would have the same profit plus the spread. Which is true. But this is the bit you are missing. You can only do that by looking at the full chart with history. When I trade, I don't know where the price is going - I don't know if this is a pullback or a reversal - but I am in the trade for whichever one it is - and I am in earlier than you, because I don't need a load of hocus pocus confimration - I take...

Well said Hollowhead
  • #216
  • Jun 2, 2014 6:57pm Jun 2, 2014 6:57pm
Quoting hollowhead
{quote} I will decline your kind offer to prove me wrong - because you can't. What you will do is point out if I had closed and reopoened then I would have the same profit plus the spread. Which is true. But this is the bit you are missing. You can only do that by looking at the full chart with history. When I trade, I don't know where the price is going - I don't know if this is a pullback or a reversal - but I am in the trade for whichever one it is - and I am in earlier than you, because I don't need a load of hocus pocus confimration - I take...
So you can't give any actual trades or evidence it helps...you just think it does. Yeah that's been said for 8 years. Good luck with your trading.
  • #217
  • Jun 2, 2014 6:58pm Jun 2, 2014 6:58pm
Quoting SupraSense
{quote} Yes. So it tells us that taking leverage of 50:1 is a very risky affair, and that we should probably be using less unless we're gambling. If you intend to build an account over years, then you will want less leverage in my opinion. BEcause over several years, you are likely to see some sharp gap against. Reasonable isn't it?
I agree:

Using 50;1 leverage, maxing out your credit cards, things like that just are not good business practice.

Leverage allows you to let the broker carry the trade for you for while until it comes into profit, and then you pocket the money.

Everybody uses a little leverage whenever you enter. The trade starts in loss because of the spread.

In my situation I have decided to keep to a margin % limit of 250 which is more like 20- 25:1 leverage, keeps my free margin well above my margin. ( I like that). The margin % is posted right there on the balance line, so there is no figuring involved. IBFX has excellent tutorials which allow you to figure out how many trades of a given size your margin has room for.


AS my equity goes up , my margin% limit will go up too. I can do this a still make more money for doing the same thing, just not getting greedy with it.

That means as my equity goes up my leverage will go down. so I am working to make my leverage less and less.

After all, it stands to reason: the less leverage you use, the more secure your account is.

Now this thing with hedging:
Say you have bought 100 shares of acme stock: one way to hedge is to buy an option to sell the stock at a given price.
You do not do this:
you do not hedge a buy of 100 shares of acme stock by selling 100 shares of acme stock!
You won't have any stock! That's what options and futures are for.

In the forex, if you have opened a buy a certain pair because you are confident it will rise in the long run, and you see the market move against you, but you are confident that this is only a correction, you can open a sell on the pair. (If you are allowed). When it comes into profit and the market comes back towards your first trade ( you thought it would). you can close the sell and pocket the money. When the buy comes into profit you can pocket that, too.

These are really two independent trades successful on their own merits. That they hedged one another was a nice side- advantage. You did not buy and sell 100 shares of Acme stock at the same time.

Of course , if the only merit you saw in one trade is that it hedged the other, you did not make a wise choice. Your intention in buying the pair was to see it going into profit. If the market never went the other way, you would have been perfectly happy.
When the market when the other way, you saw, instead of a need to close the buy, an opportunity to open a sell. Then you made money on the sell, and then on the buy.

You did not have to hedge. You could have just waited and allowed the market to take you into profit. But you saw an opportunity to make more money and you took it! If that was the best trade available to you and you made money, you did well!

The same characteristics are true of entering trades in correlated pairs: Enter on their own merits. the hedging effect is a nice side-advantage. If you enter the one solely because it (might) hedge the other you have not made a good choice.
The complication is that they don't always hedge. The advantage is that they can both come into profit at the same time.

There is much more to this; To describe what to do in every situation would take pages and pages. Mostly I do what I suspect you do most of the time: I ask myself "Now what did I do before in this situation that worked real well?"


I should think it difficult to have many trades on many different pairs open at the same time and not have any hedge any others...
  • #218
  • Jun 2, 2014 7:03pm Jun 2, 2014 7:03pm
Quoting Rap Skallion
{quote}These are really two independent trades successful on their own merits. That they hedged one another was a nice side- advantage.
I like the way you put that. Or even further, rather then just being a nice side-advantage, in the Equity Millipede, it's totally irrelevant.
  • #219
  • Jun 2, 2014 7:10pm Jun 2, 2014 7:10pm
Quoting yonnie
hi nanningbob, would be interested in your experiment hedging E/CH. once the DD is fixed, how much profit % per month would be possible? the swap brokers charge can differ considerably and it would also be good if the broker takes long and short trades in account and charge swap on the balance. for margin purposes also take long and short trades in account and margin only applicable on the balance. do you know of broker(s) having these? thank you
anybody else who could point me in the right direction for a suitable broker for hedge trading (I`m not an US citizen)?
  • #220
  • Jun 2, 2014 7:12pm Jun 2, 2014 7:12pm
Quoting yonnie
{quote} anybody else who could point me in the right direction for a suitable broker for hedge trading (I`m not an US citizen)?
Then the world should be your oyster. Choose a non-us broker based on whatever other criteria you have and you're set.
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