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Hedge like a madman...

  • #41
  • Jun 10, 2014 11:00am Jun 10, 2014 11:00am
Quoting Adal
{quote} That guy is talking about a long/short equity strategy. This has nothing to do to being long and short GBP/USD at the same time. http://en.wikipedia.org/wiki/Long/short_equity In other videos he laughs at retail trading platforms, and says that a trading platform has to have only 3 things: a buy button, a sell button, and a display of the current position (total net position, not individual trades).
I know, but the emphasize was on the naked punting.It is very important to have a trade covered, or atleast for me is.So that is why the trades are put in pairs/

Quoting jmn5611
Prox, are you going one long one short in the same pair, or are you trading negatively correlated pairs?
At the moment i`m hedging on the same pair, buying and selling.That may be with buy/sell with market orders or with pending orders, it depends.

And also some cross hedging in different pairs to keep the portfolio diversified.
"There's a sucker born every minute" - P.T. Barnum
  • #42
  • Jun 10, 2014 11:14am Jun 10, 2014 11:14am
Quoting Proximus
{quote} I know, but the emphasize was on the naked punting.It is very important to have a trade covered, or atleast for me is.So that is why the trades are put in pairs/ {quote} At the moment i`m hedging on the same pair, buying and selling.That may be with buy/sell with market orders or with pending orders, it depends. And also some cross hedging in different pairs to keep the portfolio diversified.
Prox, I noticed that you are very nearly up against your max leverage.

As you take profit on the hedges you will notice that the primary pair and it's hedge will get further apart over time. There will be times when you might have to cost average for a while one direction or the other. You have not spelled out your rules, so I am only guessing at this. I do know that it is never a good thing to be near your max leverage, however, I am sure that you have compensated for this somehow.
If you are good at something, never do it for free--Joker
  • #43
  • Jun 10, 2014 11:16am Jun 10, 2014 11:16am
Proximus, you're average trade size is currently 1.9 pips. When you hedge you pay an additional spread, so if let's say the typical spread is 1.5, you give away 80% of your profit on your hedges.

The smaller your average trade size is, the more your hedges cost you (as opposed to having no position instead).

Anyway, good luck in your strategy.
  • #44
  • Jun 10, 2014 11:28am Jun 10, 2014 11:28am
Quoting jmn5611
{quote} Prox, I noticed that you are very nearly up against your max leverage. As you take profit on the hedges you will notice that the primary pair and it's hedge will get further apart over time. There will be times when you might have to cost average for a while one direction or the other. You have not spelled out your rules, so I am only guessing at this. I do know that it is never a good thing to be near your max leverage, however, I am sure that you have compensated for this somehow.
Nope i will stay above 200% margin level, i have stoplosses, it will not go lower than that.

Quoting Adal
Proximus, you're average trade size is currently 1.9 pips. When you hedge you pay an additional spread, so if let's say the typical spread is 1.5, you give away 80% of your profit on your hedges. The smaller your average trade size is, the more your hedges cost you (as opposed to having no position instead). Anyway, good luck in your strategy.
Thats nonsense, my net position size is 1.9 pips, the spread is already deducted from it.

And dont forget that the net position size is win- loss, but because i have 2:1 or 3:1 RR, and the losers are quickly thrown away, the spread may be 5-10% of the winner.

I had some quick trades thats why the avg trade side shrunk, but besides that doest it really matter ? Why should i care about trade cost if the expectancy is positive and we can have many quick trades with tiny DD ?
"There's a sucker born every minute" - P.T. Barnum
  • #45
  • Jun 10, 2014 11:33am Jun 10, 2014 11:33am
Quoting Proximus
{quote} Nope i will stay above 200% margin level, i have stoplosses, it will not go lower than that. {quote} Thats nonsense, my net position size is 1.9 pips, the spread is already deducted from it. And dont forget that the net position size is win- loss, but because i have 2:1 or 3:1 RR, and the losers are quickly thrown away, the spread may be 5-10% of the winner. I had some quick trades thats why the avg trade side shrunk, but besides that doest it really matter ? Why should i care about trade cost if the expectancy is positive and we can have...
Ok, in that case instead of winning 1.9 pips on average, you would win 1.9 pips + spread (around 3.5 pips) without heding.

You do realize that you pay an spread each time you hedge? And that spread is reducing your profits.
  • #46
  • Jun 10, 2014 1:16pm Jun 10, 2014 1:16pm
Quoting Adal
{quote} Ok, in that case instead of winning 1.9 pips on average, you would win 1.9 pips + spread (around 3.5 pips) without heding. You do realize that you pay an spread each time you hedge? And that spread is reducing your profits.
But it's all about the reduction of the current drawdown in the trading account!
It is also a freeze of current earnings, even if they are just 1.9 pips.

No idea how Proximus trade, but hedging can be useful.

Regards
  • #47
  • Jun 10, 2014 1:19pm Jun 10, 2014 1:19pm
Quoting Proximus
{quote} Nope i will stay above 200% margin level, i have stoplosses, it will not go lower than that. {quote} Thats nonsense, my net position size is 1.9 pips, the spread is already deducted from it. And dont forget that the net position size is win- loss, but because i have 2:1 or 3:1 RR, and the losers are quickly thrown away, the spread may be 5-10% of the winner. I had some quick trades thats why the avg trade side shrunk, but besides that doest it really matter ? Why should i care about trade cost if the expectancy is positive and we can have...
Prx - I don't understand your hedging strategy - looking at your open trades you are short EU and long DF - these are the most inversely correlated pairs there are and you are trading them in sync - basically you have doubled your risk not hedged it??
  • #48
  • Jun 10, 2014 2:22pm Jun 10, 2014 2:22pm
I gather that one purpose in using stoplosses is to keep the losing trades form overwhelming the margin % limit, and still keep the higher trade size.
I have been dialing down my size as I approach my comfort limit which gets me puny bucks for my pips. If you place your stops well, I could see this giving you an advantage... ...maybe...

So far, so good: Taking quick small trades is a good tactic: That arrow should be in everybody's quiver. equity gain is the key: Healthy margin leads to it.
ignore average trade size. if you hedge, profit factor loses meaning, and w/l % as well, the more you hedge.

two more volatile days to go.

Stay multi- dimensional!
  • #49
  • Jun 10, 2014 6:12pm Jun 10, 2014 6:12pm
Quoting Adal
{quote} Ok, in that case instead of winning 1.9 pips on average, you would win 1.9 pips + spread (around 3.5 pips) without heding. You do realize that you pay an spread each time you hedge? And that spread is reducing your profits.
The spread one pays is a very minor cost of hedging compared to the occupation of space taken on the margin: These can both be overcome by a good hedging trade, assuming you are not trading huge lot sizes and have room in your margin.

Counter balancing these cost is the superb indicator that , if a buy on a pair is losing, a sell on the pair must be winning.

I have not seen a surer, more accurate and infallible indicator in the foreign exchange, and neither will you.

Of course people can mismanage the best of indicators and frequently do.

Usually only one currency at a time is making a big move in the forex. Usually the others are making small moves and sometimes in directions that enhance the big moves made by a currency. For every currency there are several pairs that it is compared with. If one pair is moving against a trade you have, you may be able to enter a trade in another pair that is moving for, even better.

This is almost as good an indicator as the same pair hedge. and sometimes better.

In the right situation Using the right indicator can get you into a potentially good trade.

In my estimation that is only about 20% of the skill set a trader needs to be truly dependably profitable in all kinds of markets.
I believe Proximus has a good handle on most of the rest

I suggest that a person subscribe to Proximus and read through all his posts, including the ones where he corrects me,: you will learn much in that give and take that you won't from books. Not even "The Wizards of Wall Street".

Even if you stick to one trade -at a time, just one or two pairs, using fixed stop loss constantly. you will know that there are other worlds worlds out there; whole other ways to make profit.

Today I increased balance by some 130 pips or so and equity by 120 or so and kept my margin % above 2.50%, and do not consider myself very skilled.

Proximus got more % increase in equity and runs several threads, does free analysis with an algorithm he devised of indicators on another thread, for one thing, and has a more interesting social life than mine, I am willing to bet

Anyway Good, easy, relaxed trading to all.
  • #50
  • Jun 11, 2014 3:47am Jun 11, 2014 3:47am
Quoting Adal
{quote} Ok, in that case instead of winning 1.9 pips on average, you would win 1.9 pips + spread (around 3.5 pips) without heding. You do realize that you pay an spread each time you hedge? And that spread is reducing your profits.
Interesting observation, i will think about it , thanks.
However you must understand that the rr is 2:1 or more, so its not that bad if you put it in perspective.

Quoting stewrigh
{quote} Prx - I don't understand your hedging strategy - looking at your open trades you are short EU and long DF - these are the most inversely correlated pairs there are and you are trading them in sync - basically you have doubled your risk not hedged it??
In that example, its about diversification, if it were correlated then the risk would double, if there is no correlation between them the risk is unique to each trade.
"There's a sucker born every minute" - P.T. Barnum
  • #51
  • Jun 11, 2014 1:24pm Jun 11, 2014 1:24pm
Quoting Proximus
{quote} Interesting observation, i will think about it , thanks. However you must understand that the rr is 2:1 or more, so its not that bad if you put it in perspective. {quote} In that example, its about diversification, if it were correlated then the risk would double, if there is no correlation between them the risk is unique to each trade.
They are 100% correlated so your risk is double.
  • #52
  • Jun 12, 2014 5:40am Jun 12, 2014 5:40am
Quoting stewrigh
{quote} They are 100% correlated so your risk is double.
Quoting stewrigh
{quote} Prx - I don't understand your hedging strategy - looking at your open trades you are short EU and long DF - these are the most inversely correlated pairs there are and you are trading them in sync - basically you have doubled your risk not hedged it??
What is DF exactly?
"There's a sucker born every minute" - P.T. Barnum
  • #53
  • Edited 7:15am Jun 12, 2014 7:04am | Edited 7:15am
Quoting Proximus
{quote} {quote} What is DF exactly?
Now I'm not going to look it up, but I seriously doubt that the correlation between any two pairs in the forex is zero.

Room in your margin cuts in way before the increased risk becomes a problem.
My guess would be that increase in risk is somewhere between 50-80% increase in margin. Unless some pairs hedge others: then the risk decreases to 20-30% the increase in margin.

Now you can have increasing balance and increasing equity and still run into margin call if you do not keep room in your margin.

with equal hedge on the same pair, the risk is not doubled: it is zero: no matter what happens to the price of the pair, the equity remains the same.

your broker looks at your equity , not your balance: when the equity falls below your margin he takes unwelcome action to bring it back. He does so by decreasing your margin, closing the most expensive losing trades you have first.

Theoretically ( I do not know why anybody would do this), You can carry a negative balance and still have plenty of room to trade.

You'd better close the right entry first, though when you do go to close.

Of course, this works the other way too, You could have a huge balance and still get wiped out if your equity falls drastically enough below your margin.

--- Now Balance, and Equity are at the mercy of the market.


But margin is the sum total of the sizes of the trades you have open. You can reduce it immediately by closing trades. You increase it immediately by opening trades. Else, it does not change.

Therefore, a watched margin is one of primary key to trading success in the forex: (along with a trading method that wins more than it costs).

If you keep good room in your margin, calculation of risk becomes a waste of time.

This is one of the key differences between the forex and other markets:

If you buy and sell the same amount of stock at the same price, You won't have any stock, just broker's fees.

you can (with brokers outside the states, and with brokers using "back room" methods) buy the eur/usd and sell the eur/usd in equal amounts at the same time ( how advisable this is can be debated, but it is possible): you will wind up with two trades.

I guess the difference is when you buy a stock, it is no longer in trade: It is yours, and until you offer it for sale, it is not in trade. Any entry you have in the forex is in trade, You only get or lose money when you close it.


(I too, would like to know what he meant by DF.)
  • #54
  • Edited 12:42pm Jun 12, 2014 12:10pm | Edited 12:42pm
Quoting Proximus
{quote} {quote} What is DF exactly?
Dollar Franc

Last time I looked you were long DF and short EU - Essentially if DF drops, EU goes up bcos they are inversely correlated so your trades were both in the same direction i.e. double risk - not a hedge.
  • #55
  • Jun 12, 2014 5:07pm Jun 12, 2014 5:07pm
Quoting stewrigh
{quote} Dollar Franc Last time I looked you were long DF and short EU - Essentially if DF drops, EU goes up bcos they are inversely correlated so your trades were both in the same direction i.e. double risk - not a hedge.

A Ha! I am always interested in learning new ways to express the pairs.
according to www.myfxbook/correlation , Eurusd-usdchf has a negative corellation of -98.8%:
They are almost perfect negative correlatives and to buy one pair and sell the other would be a poor hedge indeed.
(That does not mean that they are not both good trades)... EU went moderately up today although very choppily, and DF went down, with a lot of chop.

Our friend proximus could have made money on both trades...
  • #56
  • Jun 12, 2014 11:21pm Jun 12, 2014 11:21pm
Quoting Rap Skallion
{quote} A Ha! I am always interested in learning new ways to express the pairs. according to www.myfxbook/correlation , Eurusd-usdchf has a negative corellation of -98.8%: They are almost perfect negative correlatives and to buy one pair and sell the other would be a poor hedge indeed. (That does not mean that they are not both good trades)... EU went moderately up today although very choppily, and DF went down, with a lot of chop. Our friend proximus could have made money on both trades......
Exactly so - bcos they are the same trade. If he had bought silver and gold he would also have made money on both trades but that is NOT hedging lol.
  • #57
  • Jun 13, 2014 2:48am Jun 13, 2014 2:48am
Quoting stewrigh
{quote} Dollar Franc Last time I looked you were long DF and short EU - Essentially if DF drops, EU goes up bcos they are inversely correlated so your trades were both in the same direction i.e. double risk - not a hedge.
Well in that case it wasnt a hedge, it was a normal trade then.
"There's a sucker born every minute" - P.T. Barnum
  • #58
  • Jun 17, 2014 11:00am Jun 17, 2014 11:00am
Ok i rethinked the strategy, indeed hedging like that was stupid, now i wont hedge like buy-sell at the same pair, but i will hedge in the sense that only trade in the direction i think the pair will go, but in opposite pairs too, so this way the risk either will stay the same or will be less because of the diversity, but since we treat each trade as individual and independent, a long on GBP/USD and one on EUR/USD could still have different outcomes.
"There's a sucker born every minute" - P.T. Barnum
  • #59
  • Last Post: Jul 24, 2014 10:15pm Jul 24, 2014 10:15pm
Thread closed, i will not post anymore here, if a moderator see's this please delete this thread.
"There's a sucker born every minute" - P.T. Barnum
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