Can you be long and short at same time?

[Hakuna Matata]

The most interesting thing to come from this thread is how vocal Hakuna Matata has become.
I always took him for a bit of a "whateva man" kinda guy.

What was his previous nic?

That's the timsk factor for you.

Like a red rag to a bull he is.

 

[Shakone]

I thought I’d do this on paper just to show what I am talking about – I didn’t actually trade it and you’ll just have to trust I did it in real time. I’ve put in 5 minute slots so you can see where the various events arose.

800-805 LONG ftse at 6310

845-850 seems to have stalled and I’m getting nervous because we’re approaching the 0900 reversal time where there’s often a sharp move. I’m 30 to the good so I think I’ll lock it in and review it after 0900. SHORT ftse at 6339 locking in 29.

855-900 er, looks like this might cost me, no it’s come back

905-910 no sharp 0900 move so I’ll just bracket it at 6343 and 6334

910-915 close LONG at 6333.5 and put stop on residual SHORT at 6337 (2.5 points**). I’ll trail the stop if it goes right, gradually widening. This gives me a realised profit on the LONG of 23.5.

920-925 cover SHORT at 6324.5 giving me a realised profit on the short of 14.5 and total profit of 38 with all costs (the 1 point spread on each) accounted for.

** If this stop had been hit it would have reduced my “locked in” profit to 26.5 and would have represented the cost of trying it this way.

added a screen shot from when I finalised it all (on paper of course )

long 6310, exit 6339 - profit 29 minus commision x2

short 6333.5, exit 6324.5 - profit 9 minus commission x2

Total profit - 38 minus commission x 4

Your way, profit - 38 minus commission x 4

What have you gained by doing this?

Then once you've realised you've gained nothing, go back to hakuna's post until it's clear that doing what you suggested may have cost you.


This must be a wind up from the mods

 

[barjon]

long 6310, exit 6339 - profit 29 minus commision x2

short 6333.5, exit 6324.5 - profit 9 minus commission x2

Total profit - 38 minus commission x 4

Your way, profit - 38 minus commission x 4

What have you gained by doing this?

there are no commissions - it's all in the spread and accounted for. These are the bid/offer prices not the mid.

 

[Shakone]

there are no commissions - it's all in the spread and accounted for. These are the bid/offer prices not the mid.

Fine, ignore the commissions and you've still not gained anything by doing it the way you suggested. Profit is the same.

 

[barjon]

long 6310, exit 6339 - profit 29 minus commision x2

short 6333.5, exit 6324.5 - profit 9 minus commission x2

Total profit - 38 minus commission x 4

Your way, profit - 38 minus commission x 4

What have you gained by doing this?

Then once you've realised you've gained nothing, go back to hakuna's post until it's clear that doing what you suggested may have cost you.


This must be a wind up from the mods

ps: hit the button too quick. You are assuming that anyone would take the "new" short trade which is by no means certain. In the example you are focussing on exiting rather than entry, albeit that you effectively create a position when you close the other. Two different animals don't you think?

Why is it people don't read what I have said before leaping in.

"Or going flat on a profitable trade leaving you with the prospect of going for a bit more in circumstances where you might not have the confidence to take a brand new trade of that type. The vast body of opinion is that this is an equally dumb idea."

 

[Shakone]

ps: hit the button too quick. You are assuming that anyone would take the "new" short trade which is by no means certain. In the example you are focussing on exiting rather than entry, albeit that you effectively create a position when you close the other. Two different animals don't you think?

Why is it people don't read what I have said before leaping in.

"Or going flat on a profitable trade leaving you with the prospect of going for a bit more in circumstances where you might not have the confidence to take a brand new trade of that type. The vast body of opinion is that this is an equally dumb idea."

It's by no means certain you'd close your long at 6333.5, but you did, that was a trade decision. You chose this scenario, not me, and you've gained nothing by being long and short at the same time. IF you think you've gained something, tell me how many points you've gained.

You're making the mistake that timsk also made. You're assuming that people haven't read what you wrote. We have.

 

[barjon]

It's by no means certain you'd close your long at 6333.5, but you did, that was a trade decision. You chose this scenario, not me, and you've gained nothing by being long and short at the same time. IF you think you've gained something, tell me how many points you've gained.

You're making the mistake that timsk also made. You're assuming that people haven't read what you wrote. We have.

I've made another 9 by staggering the exits because I wouldn't have taken a new short trade had I already closed the long. There'd be no reason to do so at that point , no set up of the kind I use, nothing. The only reason I effectively found myself in a short trade was in the process of exiting.

 

[Shakone]

I've made another 9 by staggering the exits because I wouldn't have taken a new short trade had I already closed the long. There'd be no reason to do so at that point , no set up of the kind I use, nothing. The only reason I effectively found myself in a short trade was in the process of exiting.

You're trying to reframe the question.

It's a simple question. How many points did you gain by doing it your way, above what I suggested? Doing it without nedging, would have given you 38 points.

If the answer is you gained nothing, then why not accept that. That it is never better to do it your way, and sometimes, it is much worse.

 

[barjon]

You're trying to reframe the question.

It's a simple question. How many points did you gain by doing it your way, above what I suggested?

If the answer is you gained nothing, then why not accept that. That it is never better to do it your way, and sometimes, it is much worse.

Of course, I accept that if I'd done it your way the result would been the same.

The point that I'm desperately trying to make is that I WOULD NOT HAVE DONE IT YOUR WAY since having taken my 29 points by a straight close, rather than going flat by long/short, I would not then have even considered taking a short trade let alone taken one.

 

[Shakone]

Of course, I accept that if I'd done your way the result would been the same.

The point that I'm desperately trying to make is that I WOULD NOT HAVE DONE IT YOUR WAY since having taken my 29 points by a straight close, rather than going flat by long/short, I would not then have even considered taking a short trade let alone taken one.

If you would not have even considered taking a short trade, then why exit the long? Presumably by doing that you were deciding that you don't want a long and a short any more, that you wanted just to be short. Is that not correct? The mystery of your mind deepens.

Incidentally, did you ever get to watch the game theory classes that DT linked to. In particular, that you should never play a sub-optimal strategy? Or in other words, if strategy A is always the same or better than strategy B, you should never play strategy B.

 

[Hakuna Matata]

OK Jon, I'll take you through it and show you how closing the original trade is preferential to opening the short.

Firstly, I'll label each trade in this way:

Buy = open a long position
Sell = close a long position
Short = open a short position
Cover = close a short position.

Now, let's surmise the trades you make in your example:

08:00/05 - Buy @ 6310
08:45/50 - Short @ 6339
08:55/00 - "er, looks like this might cost me, no it’s come back"
09:00/10 - "no sharp 0900 move so I’ll just bracket it at 6343 and 6334"
09:10/15 - Sell @ 6333.5
09:20/25 - Cover @ 6324.5

Which nets out to: -6310 + 6339 + 6333.5 - 6324.5 = +38

Now, let's look at the implications of closing out the first trade and opening a second:

08:00/05 - Buy @ 6310
08:45/50 - Sell @ 6339 // you are now flat, having taken your profit of 29
08:55/00 - "er, looks like this might cost me, no it’s come back"
09:00/10 - "no sharp 0900 move so I’ll just bracket it at 6343 and 6334"
**Here, you place a buy stop order @ 6343, and a short stop order @ 6334,**
09:10/15 - Short @ 6333.5
09:20/25 - Cover @ 6324.5

The PnL of these two trades is:

-6310 + 6339 = 29
6333.5 - 6324.5 = 9
and
29 + 9 = 38.

So, the PnL of the two trades is identical.

Now, let's examine in a little more detail what happens after 09:00...

In one scenario, you have two open trades on, and in another, you are flat. I mentioned in an earlier post that this exposes you to the possibility of additional costs in the form of:

1) Additional transaction costs
2) Additional financing costs
3) Opportunity costs.

1) Examples of how additional transaction costs could occur:

Let's say that, on this particular occaision, after 09:00 the market stayed within a 5 point range for the remainder of the day - so neither of your bracket orders were triggered. Come the end of the day, you will have to close this position or face rollover costs. To do this, you have to make two more trades - closing your long and closing your short. These are two trades that someone who set identical orders, but was flat, doesn't have to make.

Before your orders are filled (and so while you have the two positions on) your Brokers office is raided by the Serious Fraud Office and all open trades are liquidated immediately - you have to do two more trades over someone who is flat.

Come 09:00, you can't get a read on the market. Your analysis isn't working, you feel might as well be using tea leaves. You don't know what you want to do, you just want to sit on your hands for however long it takes for something to tickle your fancy. As it happens, the whole day passes without anything cropping up. You decide to close up and leave the screens for the day - but, you gotta do two more trades to do this, rather than just upping and leaving.

There's a knock at the door - you answer it, it's your Daughter. She want's to introduce you to her new husband Manuel who she met on an 18-30s holiday. She says he's a lovely bloke but he'll need to live with you before some trouble with interpol is cleared up. You close both positions (two more trades) and pour yourself a large one.

It's a gorgeous day and you just want to potter in the garden. Close both trades.

Do you see? All of these can happen. In every circumstance, you have to make two more trades than you would if you were just flat.

2) Examples of how additional financing costs can occur

08:55 While you have the two positions on, and before you can set a new "braket" order, you get a power cut. Your mobile is dead and there is no way to contact your broker until power is restored tomorrow. Not to worry, you your long and short positions will offset one another, and as there are no orders working, you can put your feet up. Although, with two positions open, you're gonna have to pay rollover fees on both of them. Although one position will earn interest (if you've got a decent broker), the premium you have to pay for credit risk negates that. So, instead of being flat, you gotta pay to finance the positions.

None of your braket orders are hit, and you carry both trades over to the next day. Two rollover fees to pay then.

3) Examples of how opportunity costs can occur

If, when you've got the two positions on, your broker holds some of your account in margin - this is money that you can not put to good use elsewhere. The margin you have given up (for now) is not giving you the opportunity to make a profit or loss from any market moves, or even parking it in a MM fund or something just to earn a bit more interest. It's just sitting with your broker (who, I can assure you, will be putting it to use).


Now, however obscure or convoluted you think these examples may be (granted, the Daughter one is stretching it, but not getting a read on the market is totally possible), they exist - and there is a possibility of them happening to you. If any of them did, it's gonna cost you. And it is something you can avoid in entirety by closing the existing position and going flat.

OK? That's the economics of it.

As for your argument that, by closing the original trade, you give up the possibility of making the second trade, this is false. Someone who is flat can replicate exactly any position you may want to put on. Any argument that you get better opportunities by "exiting" one trade to "enter" another instead of "entering from flat" is a psychological flaw. It's just your mind playing tricks on you old boy.

The two approaches can expose themselves to the same market conditions identically, only one approach includes the possibility of additional costs and gives up the possibility of not doing anything.

Please ask if there is anything in this example that you don't get, I've put too much in this f*ckin' thread to have you not understand it.

 

[cablemonster]

Of course, I accept that if I'd done it your way the result would been the same.

The point that I'm desperately trying to make is that I WOULD NOT HAVE DONE IT YOUR WAY since having taken my 29 points by a straight close, rather than going flat by long/short, I would not then have even considered taking a short trade let alone taken one.

after a morning of smashing up the markets I read this and it is clear the penny has not yet dropped with yourself or Timothy. :whistling

 

[barjon]

..............If you would not have even considered taking a short trade, then why exit the long?..............

.

Because I am looking to close off the whole thing in a way that seems consistent with the market direction at the time. The reasoning behind the decision is strong enough for the exiting process but far from strong enough for any outright short trade.

 

[Hakuna Matata]

Of course, I accept that if I'd done it your way the result would been the same.

The point that I'm desperately trying to make is that I WOULD NOT HAVE DONE IT YOUR WAY since having taken my 29 points by a straight close, rather than going flat by long/short, I would not then have even considered taking a short trade let alone taken one.

OK, you would have missed out on the extra 9 points if you didn't put on the second trade.

What if the second trade had lost you 9 points? You'd go from being up 29 to only up 20.

So, in order for your approach to have any merit, you need the profits from your second trade to cover the losses from your second trade - and account for the other, less tangible costs such as loss of opportunity, but we'll leave them aside for now.

Well, in the long run, how can you show with 100% certainty that the second trade will leave you with a profit rather than a loss? For what you are suggesting to be worthwhile, you need to show with certainty that the second trades you make will make you more (lose you less) than any other trades you may or may not make from a flat position.
yeah?

For this to be the case, you would have to show that the markets behave differently when you - yourself, not the market on aggregate - have a long and a short on simultaneously than when you are flat, and that the change in behaviour yields your trading strategy more profits than otherwise.

But, the thing is, nobody knows when you are long/short. And nobody cares, either. What your broker labels your trades does not make the market behave differently*.

With me?

* for the sake of accuracy, it is not impossible. If Jons Alpari broker calls up all the spot desks of every major IB, and says "barjon is long/short again, we better make it a trend day" - and, on aggregate, they complied .This is, you'll appreciate, fanciful.

** also, because I'm a pedant, it does depend on where exactly the price Jon is trading against comes from - what venue, whether it's with a bucket shop, etc

 

[Hakuna Matata]

Because I am looking to close off the whole thing in a way that seems consistent with the market direction at the time. The reasoning behind the decision is strong enough for the exiting process but far from strong enough for any outright short trade.

But the "exiting process" with two positions on is EXACTLY THE SAME as an "entry process" from being flat.

 

[barjon]

after a morning of smashing up the markets I read this and it is clear the penny has not yet dropped with yourself or Timothy. :whistling

no, and clearly the penny has not dropped in what I'm trying to explain to you - continue throwing your feeble non-productive stones from the roadside if you must

 

[barjon]

But the "exiting process" with two positions on is EXACTLY THE SAME as an "entry process" from being flat.

Yes of course - IF you would take the entry. Hang on I'm reading your piece

 

[Shakone]

Because I am looking to close off the whole thing in a way that seems consistent with the market direction at the time. The reasoning behind the decision is strong enough for the exiting process but far from strong enough for any outright short trade.

Ok, I understand. It's a psychological flaw.

Perhaps best not to encourage that for others.

 

[cablemonster]

no, and clearly the penny has not dropped in what I'm trying to explain to you

I have read all of your posts and I am afraid you are simply wrong. This was clear from your early posts in this thread on Monday and it is clear today you still don't get it. I have yet to meet a successful trader who cannot apply pure logic clearly in their head.

You do realise the earth is a sphere Barjon dont you, or do you still think it's flat?

 

[barjon]

OK, you would have missed out on the extra 9 points if you didn't put on the second trade.

What if the second trade had lost you 9 points? You'd go from being up 29 to only up 20.

So, in order for your approach to have any merit, you need the profits from your second trade to cover the losses from your second trade - and account for the other, less tangible costs such as loss of opportunity, but we'll leave them aside for now.

Well, in the long run, how can you show with 100% certainty that the second trade will leave you with a profit rather than a loss? For what you are suggesting to be worthwhile, you need to show with certainty that the second trades you make will make you more (lose you less) than any other trades you may or may not make from a flat position.
yeah?

For this to be the case, you would have to show that the markets behave differently when you - yourself, not the market on aggregate - have a long and a short on simultaneously than when you are flat, and that the change in behaviour yields your trading strategy more profits than otherwise.

But, the thing is, nobody knows when you are long/short. And nobody cares, either. What your broker labels your trades does not make the market behave differently*.

With me?

* for the sake of accuracy, it is not impossible. If Jons Alpari broker calls up all the spot desks of every major IB, and says "barjon is long/short again, we better make it a trend day" - and, on aggregate, they complied .This is, you'll appreciate, fanciful.

** also, because I'm a pedant, it does depend on where exactly the price Jon is trading against comes from - what venue, whether it's with a bucket shop, etc

HM

Yes, I fully understand your earlier piece and I don't disagree one jot except that your conclusion So, the PnL of the two trades is identical is right only IF you are prepared to take the outright short after having closed the long earlier.

Which leads on to your quoted post. You would not lose 9 points because you have a 2.5 point stop which means, barring a bit of slippage, your initial 29 only drops to 26.5.

I repeatedly pointed out that you will be stopped out - thus costing you that 2.5 each time - most times but that, often enough to make it worthwhile, you won't.

In this case, fortuitously, the 9 points gives you nearly another 4 goes at being stopped before you start losing overall.