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Hedge a losing position?

  • #81
  • Oct 11, 2015 4:07pm Oct 11, 2015 4:07pm
Probably stating the obvious but at least hedging a losing position is a form of cutting it. (better than just running a losing position anyway) Personally I believe people only hedge a losing position because of the human tendency to hate admitting being wrong. Most of the time though I think all that happens is you are putting off the inevitable.
  • #82
  • Oct 11, 2015 4:18pm Oct 11, 2015 4:18pm
The best trading session is European period cause it goes the main trend steadily
  • #83
  • Oct 11, 2015 4:23pm Oct 11, 2015 4:23pm
Quoting gordenchen
The best trading session is European period cause it goes the main trend steadily
this is a good hedge
  • #84
  • Oct 11, 2015 4:30pm Oct 11, 2015 4:30pm
Quoting Hyperion
Probably stating the obvious but at least hedging a losing position is a form of cutting it. (better than just running a losing position anyway) Personally I believe people only hedge a losing position because of the human tendency to hate admitting being wrong. Most of the time though I think all that happens is you are putting off the inevitable.
Yeah, same pair "hedging" is definitely better than holding losing position, hoping it will come back........But I think in situations like this, the regulators should just step in and save some people from their own stupidity. There is no other way. This thread is just another proof.
  • #85
  • Oct 11, 2015 5:23pm Oct 11, 2015 5:23pm
Quoting hanover
{quote} Some traders seem to be under the illusion that same-pair 'hedging' a losing position gives them two trades, which can then eventually and separately be closed out at a profit. Hence they end up with two wins instead of one loss. Of course exactly the same pips can be captured without the 'hedging', but curiously even some very knowledgeable and experienced traders apparently can't see how. I assume it's partly because they view their success in terms of trades, and win rates, instead of pips (or $) being harvested. This is a similar mentality...
  • #86
  • Edited 8:19pm Oct 11, 2015 6:18pm | Edited 8:19pm
If you can tell when is the right time to get out of hedge you don't have to hedge ....But can you? Just think about it the moment you are getting out of hedge you are using SL and entering a trade on the other end... in oposite direction....

If the losing position is big no hedge is going to help you if its small why don't you just cut the los and move on? Never like the idea of hedge...Double trouble ...or Double down on position going south....
  • #87
  • Oct 11, 2015 6:43pm Oct 11, 2015 6:43pm
Quoting mvp77
{quote} so you profit from a retrace, OR you just fixed your 100 pips proft !
You profit from a retrace while your net position is zero? That's a neat trick. How exactly do you profit from price movement while your net exposure is zero?
  • #88
  • Edited 8:46pm Oct 11, 2015 7:47pm | Edited 8:46pm
Quoting hanover
{quote} Some traders seem to be under the illusion that same-pair 'hedging' a losing position gives them two trades, which can then eventually and separately be closed out at a profit. Hence they end up with two wins instead of one loss. Of course exactly the same pips can be captured without the 'hedging', but curiously even some very knowledgeable and experienced traders apparently can't see how. I assume it's partly because they view their success in terms of trades, and win rates, instead of pips (or $) being harvested. This is a similar mentality...
Hanover, it took me a very long time to accept that hedging slows down your equity curve. The problem is that when you hedge it is hard to see that what you have done is created a zombie trade. At some point you are going to have to release half of the hedge. Which ever half you release, the other half is still a losing trade that you have to manage. Hedging looks good because of the fact that markets range most of the time, so you tell yourself that you will just wait for it to come back. What is not taken into account is opportunity costs. You have money tied up in the hedge that could be used to trade. Ultimately this hurts the equity curve because of lots that you could not put on because you had money tied up in a hedge.

I had to see this for myself.

Eventually, every trader will see that as well. Just take the loss, free up the capital, and move forward.
If you are good at something, never do it for free--Joker
  • #89
  • Oct 11, 2015 8:25pm Oct 11, 2015 8:25pm
Quoting FXEZ
{quote} You profit from a retrace while your net position is zero? That's a neat trick. How exactly do you profit from price movement while your net exposure is zero?
What they do is "Hedge" with other pair like EURUSD and USDCHF Can't ever get in - or + with the same pair ..
  • #90
  • Oct 11, 2015 8:28pm Oct 11, 2015 8:28pm
Quoting Ace66
{quote} What they do is "Hedge" with other pair like EURUSD and USDCHF Can't ever get in - or + with the same pair ..
There is nothing wrong with making correlation hedges, but the outcome is still the same. You still have a losing trade on your hands when you unlock the hedge.
If you are good at something, never do it for free--Joker
  • #91
  • Oct 11, 2015 8:42pm Oct 11, 2015 8:42pm
Quoting jmn5611
{quote} There is nothing wrong with making correlation hedges, but the outcome is still the same. You still have a losing trade on your hands when you unlock the hedge.
"You still have a losing trade on your hands when you unlock the hedge."
exactly my point...
  • #92
  • Oct 12, 2015 2:32am Oct 12, 2015 2:32am
Quoting FXEZ
{quote} You profit from a retrace while your net position is zero? That's a neat trick. How exactly do you profit from price movement while your net exposure is zero?
example

-your buy position is 100 pips profit (break even sl 0)
-when your buy position is in 100 pips profit, you can open a sell position with (for example) 90 pips tp


to simplify things - 2 scenarios

market move up - your 2 position have an net profit of 100 pips
market move down - your sell position tp at 90 pips and maybe your long position sl at be

but this is just an example
  • #93
  • Oct 12, 2015 2:44am Oct 12, 2015 2:44am
Let me understand that. You have 100 pips and by smartly managing your hedge you can either make no more or 10 pips less...
No greed. No fear. Just maths.
  • #94
  • Oct 12, 2015 2:55am Oct 12, 2015 2:55am
Quoting mvp77
{quote} example -your buy position is 100 pips profit (break even sl 0) -when your buy position is in 100 pips profit, you can open a sell position with (for example) 90 pips tp to simplify things - 2 scenarios market move up - your 2 position have an net profit of 100 pips market move down - your sell position tp at 90 pips and maybe your long position sl at be but this is just an example
And you do the hokey-pokey then you turn around. That's what it's all about.
Congratulations ScalaFX for coming out of the closet!
  • #95
  • Oct 12, 2015 3:27am Oct 12, 2015 3:27am
Quoting nubcake
{quote} And you do the hokey-pokey then you turn around. That's what it's all about.
of course ...
But that it's the nature of an hedge.

i wrote this to clarify it make sense to hedge a winning position. Because you need lesser trades when you not always take the profit and take a reentry all the time.
  • #96
  • Oct 12, 2015 4:07am Oct 12, 2015 4:07am
Your example shows that is doesn't make more money and uses two positions while taking profits and re-opening a long after the retrace would also require two positions. On top you'll pay more swap.

Having a short and a long at the same time in the same market only makes sense when you trade multi-timeframe without bothering netting out the lots size yourself; delegating this to your broker. H1 and D1 for instance can be considered sufficiently decorrelated to be traded separately. But this is per definition no longer a hedge since you seek low correlation.
No greed. No fear. Just maths.
  • #97
  • Oct 12, 2015 4:47am Oct 12, 2015 4:47am
Quoting PipMeUp
Your example shows that is doesn't make more money and uses two positions while taking profits and re-opening a long after the retrace would also require two positions. On top you'll pay more swap. Having a short and a long at the same time in the same market only makes sense when you trade multi-timeframe without bothering netting out the lots size yourself; delegating this to your broker. H1 and D1 for instance can be considered sufficiently decorrelated to be traded separately. But this is per definition no longer a hedge since you seek low correlation....
Quoting mvp77
{quote} example -your buy position is 100 pips profit (break even sl 0) -when your buy position is in 100 pips profit, you can open a sell position with (for example) 90 pips tp to simplify things - 2 scenarios market move up - your 2 position have an net profit of 100 pips market move down - your sell position tp at 90 pips and maybe your long position sl at be but this is just an example
I repeat it was just an example!
And it has a sense to hedge in this way, because you are always "in". It important when you have a big hedge position like 500 pips, and a big fundamental turning point happened, your 2 position have more chances to be out of the wipeout-zone, before the big move starts. Take a new position in this time, many of positions should be stopped out.
  • #98
  • Oct 12, 2015 5:12am Oct 12, 2015 5:12am
You open and close the same number of positions.
You take the same number of trading decisions.
You take these decisions at the same point in time.
You make or lose the same number of pips.
You pay more swap.

How can you make sense of making more effort to only pay more swap?

What is the point in being "always in"? If you're afraid your position will be shaken by a news why don't you just close it and re-open at the time you would un-hegde or not re-open if you would have close the locked-pair post event?
No greed. No fear. Just maths.
  • #99
  • Edited 6:16am Oct 12, 2015 5:42am | Edited 6:16am
Quoting PipMeUp
You open and close the same number of positions. You take the same number of trading decisions. You take these decisions at the same point in time. You make or lose the same number of pips. You pay more swap. How can you make sense of making more effort to only pay more swap? What is the point in being "always in"? If you're afraid your position will be shaken by a news why don't you just close it and re-open at the time you would un-hegde or not re-open if you would have close the locked-pair post event?
Note: This is a different question than the OP's. There is never a reason to hedge a losing position.

But if you are a trend position trader and have a 30% win rate (close to my stats), that means there is a significant cost in establishing a new position. Out of 10 trades I put on, 7 lose or come out as break even.

In some situations, there MAY be a case to hedge, because there is i) a significant cost in establishing new positions, and ii) there is a significant benefit in establishing long term positions and letting them run with the trend.

The point is that yes, once you close a position you are flat, you take whatever you have off the table and if you want to enter again you have a 70% chance your new position won't last. The benefit with hedging is that whilst you mimic a flat position (less spread) the original long term position is NEVER closed, meaning that you can close the hedge at any point and attempt to run the long term position further without having to try and establish a new position in the market.

Tada.

Hanover is not wrong with his maths btw - he is spot on.
  • #100
  • Oct 12, 2015 6:21am Oct 12, 2015 6:21am
i) a significant cost in establishing new positions
Since you open the same number of positions you have the same cost.

ii) there is a significant benefit in establishing long term positions and letting them run with the trend
Since you "hedge" one of your two positions is against the long term trend. When the price continues the trend the profit is frozen hence you let run nothing.

The benefit with this hedging is that whilst you mimic a flat position (less spread)
There is no less spread since you open and close the same number of positions. You just pay the spread at different time.

Your point is valid in a multi-timeframe perspective where the retracement against the long term is a tradable shorter term trend. But it is no longer hedging (what I said Post#96). They are just two positions open on their own reasons. I'm fine with that.
No greed. No fear. Just maths.
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