Edit - for the record, I'm still talking about hedging a winning position below, despite thread title.
No.
If a new position has a 70% chance of not surviving, it may on average take 2 or 3 attempts to successfully open a new position that survives. That is a real cost you haven't factored in.
An original long term position has already survived, meaning it is one of the 30% of positions that will yield some profit. If it isn't then don't bother "hedging".
What you mean is that when you are hedged, nothing is running? - which is true. But that is too short term.
My point is that after you close the hedge you have the potential to run the original position because you went flat in such a way to keep the original position open i.e. 'hedged' it.
Nothing is running when the hedge is on - was not the point I'm making.
I don't mean less spread, I'm saying you are flat, except you are still paying the spread - it was a turn of phrase.
I do agree that what I'm talking about probably shouldn't be called 'hedging'. It is about creating a flat position (although paying double the spread) in order to keep an original position alive.
Once the original position is closed, it is closed forever. Hedging allows you to keep that position open, I'm NOT talking about attempting to profit from both legs of the hedge, I'm talking about i) not having to try and re-establish a new position at a low win rate and ii) running the original leg further after the 'hedge' leg is closed.
Hedged outcomes:
-You hedge. Equity is frozen. Price moves against your original long term position, you close both positions. You paid some extra spread.
-You hedge. Equity is frozen. Price moves with your original long term position. You close the hedge for a small loss. (Optional: You cover that loss by taking off some profit of the original long term position). You let the original position run. You paid some extra spread. You don't have to attempt to establish a new position.
There are many other permutations, I'm sure you can think of them. Don't know how I can be clearer.
V
Dislikedi) a significant cost in establishing new positions
Since you open the same number of positions you have the same cost.Ignored
If a new position has a 70% chance of not surviving, it may on average take 2 or 3 attempts to successfully open a new position that survives. That is a real cost you haven't factored in.
An original long term position has already survived, meaning it is one of the 30% of positions that will yield some profit. If it isn't then don't bother "hedging".
Dislikedii) 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.Ignored
My point is that after you close the hedge you have the potential to run the original position because you went flat in such a way to keep the original position open i.e. 'hedged' it.
Nothing is running when the hedge is on - was not the point I'm making.
DislikedThe 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.Ignored
I do agree that what I'm talking about probably shouldn't be called 'hedging'. It is about creating a flat position (although paying double the spread) in order to keep an original position alive.
Once the original position is closed, it is closed forever. Hedging allows you to keep that position open, I'm NOT talking about attempting to profit from both legs of the hedge, I'm talking about i) not having to try and re-establish a new position at a low win rate and ii) running the original leg further after the 'hedge' leg is closed.
Hedged outcomes:
-You hedge. Equity is frozen. Price moves against your original long term position, you close both positions. You paid some extra spread.
-You hedge. Equity is frozen. Price moves with your original long term position. You close the hedge for a small loss. (Optional: You cover that loss by taking off some profit of the original long term position). You let the original position run. You paid some extra spread. You don't have to attempt to establish a new position.
There are many other permutations, I'm sure you can think of them. Don't know how I can be clearer.
V