Hedging Because You Don't Want To Lose | Forex Factory

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Hedging Because You Don't Want To Lose

  • #1
  • First Post: Sep 10, 2014 12:05pm Sep 10, 2014 12:05pm
Hey,

Hi hi. I am back. Just finish reading up Anna Couling Volume Price Analysis. BIG BIG BIG eye opener. Of course with tick volume nothing beats hands down. Anyway I just watch a video by Joseph Nemeth. And his theory on hedging to replace stoploss.

I used to hate stoploss. But now I have to use it to protect my capital or profits. Than I discover volume where there is a way to determine the current move is participate instead of fake movement. Than this hedging algoritum which totally interest me.

Ok enough of texting my question is does anyone here can tell me how does the formula works in hedging? I meant can it be engineered?

I show you some example from today trade like 10/09/2014. GBPAUD. Mini lot.

Ok let's start. As the previous day for this pair is up. So we should long. And somehow we don't follow our rule and buy @ value. Instead we buy at the example shown below.

https://fbcdn-sphotos-d-a.akamaihd.n...c095a5b8907f79

Our profit target after deducting spread is 1.76670. We are looking at 10 pips after spread of 3 for the GBPAUD.

https://fbcdn-sphotos-h-a.akamaihd.n...a20bf822cba0e3

But the market stops at 1.76660. 1 pip shy of hitting our target level. And so we hope the market will pullback and reverse. But as shown it didn't reverse.

Instead it breaks the dynamic support aka moving average so which triggers the selling hedge.
https://fbcdn-sphotos-f-a.akamaihd.n...e676579b0711cf

As such we are looking at a 10 pip profit after deducting spread. So the target level should be 1.76220

https://scontent-b-kul.xx.fbcdn.net/...c3&oe=5498B151

Fortunately price did hit our target level. So we are cushion. The result is $14 profit on the sell. But what about the buy that was trigger. It was negative at 1.76540 - 1.76220 @ $32

Am I missing something here?
https://fbcdn-sphotos-c-a.akamaihd.n...69b1554ffb3838

HE mention the lot size here. 53.37
Inserted Video


I don't understand. Can anyone illustrate the formula he is talking about???

Thanks
Forex Price Action Hacked - Price Action Rockstar
  • #2
  • Sep 11, 2014 8:10am Sep 11, 2014 8:10am
This formula works if you have infinite capital. I will explain it in a simpler way - instead of a stop-loss, you open another order in the opposite direction of the first one, but with bigger lot-size. For example, you buy 1 lot but things go wrong, then you sell (for example) 2 lots and hope that the sell order goes in profit, then after a certain distance, for example 10 pips, the sell order with 2 lots will have enough profit to cover the BUY (1lot) and to give you some cash above the 0. The problem is that the price often gets 'stuck' in this so-called recovery zone which makes the things worse - for example:

1. BUY 1 lot
2. things go wrong so you sell 2 lots
3. the price reverses, so now to cover the 2 lots of the sell order, you have to buy again - so that makes it 3 lots (or four, or something else, this is just an example)

and this goes over and over and over so one morning you will wake up with 50-100 floating lots with no margin to keep them open. So if you've got like 100k you can successfully trade 0.01 lots. That makes this kind of hedging bullsh*t, so leave it and move on.

IF you are keen on losing money using this method - there is an expert advisor made exactly like described above - you can choose how many times it multiplies the starting lot and whatever you can imagine - I have tested it, of course it fails in the long-term if you don't have infinite capital, but I also tried to make the EA 'avoid' getting stuck into the recovery zone, again without any success. Sooner or later it fails, so if you really want to use this EA, you should manually override it now and then, just to accept the losses if you don't want your account to be burned to the ground.

Link to the EA: http://www.mql5.com/en/code/9485
  • #3
  • Sep 11, 2014 9:02am Sep 11, 2014 9:02am
Just another take on a Martingale system.==> it does not work, not matter how you cook it.
Why do you think this Joe Nemeth charges $ 3000 a pop ?
If it worked he would keep it to himself and make billions...

Just another peddler selling shovels to the gold diggers...
  • #4
  • Sep 11, 2014 9:39am Sep 11, 2014 9:39am
Why would anyone keep something to theirselves? More moneyflow in the same direction means bigger movement and whatever anyone tells about retail traders not making a difference just do the math 1000 traders buying 1 standard lot means 100 000 000 which is a lot of money from just 1k traders. Now imagine 10k or even 100
  • #5
  • Sep 11, 2014 9:59am Sep 11, 2014 9:59am
Quoting ksofty
Why would anyone keep something to theirselves? More moneyflow in the same direction means bigger movement and whatever anyone tells about retail traders not making a difference just do the math 1000 traders buying 1 standard lot means 100 000 000 which is a lot of money from just 1k traders. Now imagine 10k or even 100
He is making $ 3000.00 per "customer" - He is much better off selling his system than trading it.
  • #6
  • Sep 11, 2014 10:15am Sep 11, 2014 10:15am
i didn't say he isn't - i was talking about the pros of sharing, no matter free, paid or whatever. The main problem are the robots with stoploss settings - because of the toxic order flow, many of them are getting 'hunted' by the brokers
  • #7
  • Sep 11, 2014 10:25am Sep 11, 2014 10:25am
Quoting ksofty
i didn't say he isn't - i was talking about the pros of sharing, no matter free, paid or whatever. The main problem are the robots with stoploss settings - because of the toxic order flow, many of them are getting 'hunted' by the brokers
You should use the order flow in your favor.
  • #8
  • Sep 11, 2014 6:55pm Sep 11, 2014 6:55pm
so manually there isn't any formula?

e.g
Like enter level aka buy 0.1
Exit level aka sell 0.3
Take profit at 20-30pips? Breakeven?
Forex Price Action Hacked - Price Action Rockstar
  • #9
  • Sep 12, 2014 1:14am Sep 12, 2014 1:14am
Quoting david_akc
so manually there isn't any formula? e.g Like enter level aka buy 0.1 Exit level aka sell 0.3 Take profit at 20-30pips? Breakeven?
There can never be a formula that generates consistent profits.
The market is "designed" to keep that from happening.
  • #10
  • Sep 12, 2014 1:23am Sep 12, 2014 1:23am
Quoting david_akc
BIG BIG BIG eye opener.
Not this guy again That strategy has already been debunked, its nothing more than a modified martingale.

Sorry that i have to close your big opened eyes, but that strategy wont work and you will probably lose your entire account with it, or gradually lose the equity.

I`ve been too much in the FX world to have been equipped with a very sensitive BS detector .
"There's a sucker born every minute" - P.T. Barnum
  • #11
  • Sep 12, 2014 1:29am Sep 12, 2014 1:29am
Quoting Mingary
{quote} There can never be a formula that generates consistent profits. The market is "designed" to keep that from happening.
There is a formula, in fact there quite a few formulas for generating consistent profits. The trick is time horizon. If you think Quarterly and beyond, there are a few ways to defeat the market if you are disciplined.
If you are good at something, never do it for free--Joker
  • #12
  • Sep 12, 2014 1:30am Sep 12, 2014 1:30am
Quoting Mingary
{quote} You should use the order flow in your favor.
If you are good at something, never do it for free--Joker
  • #13
  • Sep 12, 2014 1:54am Sep 12, 2014 1:54am
Quoting Proximus
{quote} Not this guy again That strategy has already been debunked, its nothing more than a modified martingale. Sorry that i have to close your big opened eyes, but that strategy wont work and you will probably lose your entire account with it, or gradually lose the equity. I`ve been too much in the FX world to have been equipped with a very sensitive BS detector .
I am using a modified version of martingale, the point is that you can use it profitably (for example, instead of 1 order with 1 lot, you can do 0.1, 0.2, 0.3, 0.4 and close them at different time), but there comes a point when you have to see your mistake, accept that you are wrong and close your positions. Like this morning - I lost few percent, because I had my orders opened against the trend and I accepted the mistake, closed them and now I move on.

Martingale isn't always a bad decision, you just have to know exactly what are you doing and to have the courage to admit your mistakes instead of letting them burn your account.
  • #14
  • Sep 12, 2014 2:03am Sep 12, 2014 2:03am
Quoting ksofty
{quote} I am using a modified version of martingale, the point is that you can use it profitably (for example, instead of 1 order with 1 lot, you can do 0.1, 0.2, 0.3, 0.4 and close them at different time), but there comes a point when you have to see your mistake, accept that you are wrong and close your positions. Like this morning - I lost few percent, because I had my orders opened against the trend and I accepted the mistake, closed them and now I move on. Martingale isn't always a bad decision, you just have to know exactly what are you doing...
Look i`m tired of arguing about martingales, amongst my 1180 posts that i have i already devoted like half of it to disprove martingale as a wise way of trading and talk about the risks of it, but there are just people that never learn.

I hope you can make money with it, its only luck, but if you feel lucky, then whatever, many have tried and lost their account, but its your money you do whatever you want with it
"There's a sucker born every minute" - P.T. Barnum
  • #15
  • Sep 12, 2014 2:29am Sep 12, 2014 2:29am
"Hedging Because You Don't Want To Lose"

Every business suffer a loss from time to time. Trading is no different. End of.....
Doing what you like is Freedom. Liking what you do is Happiness.
  • #16
  • Sep 12, 2014 2:47am Sep 12, 2014 2:47am
When you go long it is because you think there is a good chance that the price increases. It can be a very short term microstructural reason, a long term fundamental reason, a statistical arbitrage... Whatever you're bullish. When you hedge 1 lot long with 1.4 lots short you are net short 0.4 lots. Do you think it is reasonnable that a bull is short the market?

If you think your trade has a very good chance of success you will risk more money to profit from this very good opportunity. On the opposite if you consider that odds are bad you'll prefer risking less or not risking at all. Correct? In the situation where the price gets caught in a congestion it means that the bullish sentiment is not so big and that the only thing which is now clear is that it is not clear at all. Do you think it is reasonnable to increase the risk more and more in a situation where the odds are getting worse and worse?

@ksofty: If I get it correctly, technically you're not martingaling but averaging down. It is also proven wrong just "less wrong" (quadratic risk increase instead of exponential).
No greed. No fear. Just maths.
  • #17
  • Sep 12, 2014 3:24am Sep 12, 2014 3:24am
Basically i am trying to swing-trade with a different type of scaling - so if the trend continues i have a better position and if it reverses and breaks the trend i admit my mistake, close the positions and move on. I cant see what is wrong with that, either way i win, and if i have enough capital to buy on the break of the trend, the average of all the positions is more than enough to close them at 0 profit when the price retests the break. The main problem is that my capital for now is only $30 and it can't bear the floating losses until i close them manually if i happen to make a mistake
  • #18
  • Sep 12, 2014 3:41am Sep 12, 2014 3:41am
Quoting PipMeUp
When you go long it is because you think there is a good chance that the price increases. It can be a very short term microstructural reason, a long term fundamental reason, a statistical arbitrage... Whatever you're bullish. When you hedge 1 lot long with 1.4 lots short you are net short 0.4 lots. Do you think it is reasonnable that a bull is short the market? If you think your trade has a very good chance of success you will risk more money to profit from this very good opportunity. On the opposite if you consider that odds are bad you'll prefer...
Indeed, at a fundamental level you can't have your cake and eat it too.
IMHO
If I buy ==> price goes up, I win / price goes down, I lose.
A loss is a loss and a win is a win.
No matter how you cook it, there is no escape.
  • #19
  • Sep 12, 2014 3:49am Sep 12, 2014 3:49am
Quoting PipMeUp
When you go long it is because you think there is a good chance that the price increases. It can be a very short term microstructural reason, a long term fundamental reason, a statistical arbitrage... Whatever you're bullish. When you hedge 1 lot long with 1.4 lots short you are net short 0.4 lots. Do you think it is reasonnable that a bull is short the market? If you think your trade has a very good chance of success you will risk more money to profit from this very good opportunity. On the opposite if you consider that odds are bad you'll prefer...
That is not what hedging is, sorry ksofty but you are not hedging, and its totally a stupid idea to go long/short at the same time because you only pay excessive spreads.

Go long 1 lot, go short 1.4 lot is like going short 0.4 lot, except that you pay spread twice.

The common hedging strategy is to go long on an index, and then go short on the weakest element of the index,the weakest stock, so you to have a correlation and thus the risk of exposure is decreased, but doing long/short on the same instrument is stupid.

I know that because i did it too, so its from personal experience.
"There's a sucker born every minute" - P.T. Barnum
  • #20
  • Sep 12, 2014 3:57am Sep 12, 2014 3:57am
Quoting Proximus
{quote} That is not what hedging is, sorry ksofty but you are not hedging, and its totally a stupid idea to go long/short at the same time because you only pay excessive spreads. Go long 1 lot, go short 1.4 lot is like going short 0.4 lot, except that you pay spread twice. The common hedging strategy is to go long on an index, and then go short on the weakest element of the index,the weakest stock, so you to have a correlation and thus the risk of exposure is decreased, but doing long/short on the...
I think you might made a mistake with the nicknames, because I was completely against that 'hedging' thing.

@Mingary, there is an escape, because every movement is retested, at least to the first fibo level. The market consists of buyers and sellers and no one is going to give up easily without a fight. If you catch the moment by using strong support/resistance levels and if you have enough capital (and knowledge, of course) you can get out with profit even from the worst trade ever. I am far far far away from calling myself a successful trader and I think most of us should admit that in this forum there are no more than 1-2% successful and consistently profitable traders.

The FX market is consistantly changing and if you say experience is the 'grail', look at the market conditions in 2011, 2007, 2003, just look back in time and see that nothing is the same and the effect of the technical setups and even fundamental analysis and the strength of the consequent movements has changed.
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