Hedging

[Hotch]

All I asked for was an example.

 

[TheBramble]

You wouldn't place a trade unless you thought conditions were favourable .
Unfortunately every trade you place is not a winner .

Well, believe it or not, I am aware of that. And even at my advanced level I often have a losing trade. Sometimes even two in the same year.

My point, which I must have worded badly for you to miss it, was that you thought the conditions for the initial trade were favourable, obviously, or you wouldn’t have placed it. But subsequent events show you that you were wrong.

You then stick on what you call a ‘hedge’ (I call it closing the trade with double spread costs and unnecessarily boxing your assets, but that’s just me being pedantic) to stop the pain of being wrong.

You then suggest there comes a time when it’s ‘favourable’ to remove the ‘hedge’ – presumably whichever leg looks like its not going to be running on.

My point, hopefully more clearly stated this time is, what makes you think your new assessment of conditions is any better than your first attempt, which went wrong?

E.G. You go long. It tanks. You put on a short. You’re out double spread whatever happens and you’ve boxed double your original margin. It looks like it’s going up again. You take off your short. It tanks again. You put another short on. It carried on tanking. You take off your long. Just as it moves up again and you put the long back on. While this is certainly placing trades, this isn’t trading. Your broker(s) love you.

 

[volatiliti]

Well, believe it or not, I am aware of that. And even at my advanced level I often have a losing trade. Sometimes even two in the same year.

My point, which I must have worded badly for you to miss it, was that you thought the conditions for the initial trade were favourable, obviously, or you wouldn’t have placed it. But subsequent events show you that you were wrong.

You then stick on what you call a ‘hedge’ (I call it closing the trade with double spread costs and unnecessarily boxing your assets, but that’s just me being pedantic) to stop the pain of being wrong.

You then suggest there comes a time when it’s ‘favourable’ to remove the ‘hedge’ – presumably whichever leg looks like its not going to be running on.

My point, hopefully more clearly stated this time is, what makes you think your new assessment of conditions is any better than your first attempt, which went wrong?

E.G. You go long. It tanks. You put on a short. You’re out double spread whatever happens and you’ve boxed double your original margin. It looks like it’s going up again. You take off your short. It tanks again. You put another short on. It carried on tanking. You take off your long. Just as it moves up again and you put the long back on. While this is certainly placing trades, this isn’t trading. Your broker(s) love you.

You get to assess where you went wrong and why the market moved in the opposite direction than you expected .
Its suited to smaller lot sizes .
I wouldn't continually hedge the same position over and over again .
I would just hold . Its a second chance .
Double the spread is debatable ,don't forget you will pay spread on your next trade .

 

[robster970]

Are you familiar with the phrase cut your losers?

You're not cutting whilst waiting for a directional call if you were wrong and commissions are double.

Nobody does this.

BTW - if your trade goes offside, what does that tell you about the likely direction of price?

If it's still ranging, your entry was sh1t.

BTW - this isn't a hedge.

 

[Barramundi]

I wouldn't continually hedge the same position over and over again .
I would just hold . Its a second chance .

So what do you do if, when you take off the hedging position, but the remaining (original) position suddenly moves against you. Do you use a real stop this time? Surely you don't 'just hold' and hope for the best?

Out of interest, how many trades would you have taken using this strategy?

The only possible advantage I see from what you have said so far is that it gives you more confidence. But I am not convinced that even that confidence is well placed.

 

[Hotch]

Surely you don't 'just hold' and hope for the best?

I wouldn't bet on it.

 

[TheBramble]

You get to assess where you went wrong and why the market moved in the opposite direction than you expected .
Its suited to smaller lot sizes .
I wouldn't continually hedge the same position over and over again .
I would just hold . Its a second chance .
Double the spread is debatable ,don't forget you will pay spread on your next trade .

You got to assess that before you went into the original trade. And got that wrong. Being wrong isn't a crime. Not getting out should be classed as one.

Losing money isn't suited to any size account. Size makes no difference. (Honest luv'...).

If you wouldn’t continually ‘hedge’ when do you decide to stop (after how many whipsaws?) and what do you do then? Take the loss? Eventually, anyway?

Just holding isn’t a second chance. You’re sitting on an unrealised loss. If you continue to just hold and it comes back in your original direction your ‘hedge’ position will now be at a loss. At some point you have to make the decision to close one or the other – you could be wrong again.

 

[volatiliti]

You got to assess that before you went into the original trade. And got that wrong. Being wrong isn't a crime. Not getting out should be classed as one.

Losing money isn't suited to any size account. Size makes no difference. (Honest luv'...).

If you wouldn’t continually ‘hedge’ when do you decide to stop (after how many whipsaws?) and what do you do then? Take the loss? Eventually, anyway?

Just holding isn’t a second chance. You’re sitting on an unrealised loss. If you continue to just hold and it comes back in your original direction your ‘hedge’ position will now be at a loss. At some point you have to make the decision to close one or the other – you could be wrong again.

Hey what? , your making the second assessment days or weeks after, unlikely the same day .

 

[TheBramble]

Hey what? , your making the second assessment days or weeks after, unlikely the same day .

The length of time makes no difference to your strategy. And I seriously doubt with spot fx (which you claim you use this with) would take weeks to get to a point where you have to make a decsion to put on one of your 'hedges'.

Unless you're using INCREDIBLY large stops which I'm guessing is unlikely.

Look, I don't think there's anything more I can add to this thread so I'll leave it to others to carry the flame.

 

[volatiliti]

So what do you do if, when you take off the hedging position, but the remaining (original) position suddenly moves against you. Do you use a real stop this time? Surely you don't 'just hold' and hope for the best?

Out of interest, how many trades would you have taken using this strategy?

The only possible advantage I see from what you have said so far is that it gives you more confidence. But I am not convinced that even that confidence is well placed.

I don't use stops you should know this .
If the second chance fails I just hold .
I have already stated this is long term trading ,which is not suited to everyone especially the day traders that have converged in this thread .
Before asking dumb questions and jumping to conclusions ,I suggest you educate yourself about hedging .

 

[volatiliti]

The length of time makes no difference to your strategy. And I seriously doubt with spot fx (which you claim you use this with) would take weeks to get to a point where you have to make a decsion to put on one of your 'hedges'.

Unless you're using INCREDIBLY large stops which I'm guessing is unlikely.

Look, I don't think there's anything more I can add to this thread so I'll leave it to others to carry the flame.

you dont come to a point where you have to make a decision ,you make your decision when you come to a point .
Time allows you to use the future .

 

[volatiliti]

Look ,i know your not happy about the way I trade ,but this is how I turn a profit from the market .
There really has been some dumb posts in this thread .
I would ask that you go and research online or read a book about hedging before you embarrass yourselves any further .
Have a break ,go for a walk in the fresh air ,sleep and come back later .

 

[Hotch]

I wouldn't bet on it.

Ha! Knew it.

 

[volatiliti]

Ha! Knew it.

this was stated previously

 

[Barramundi]

this was stated previously

Yes, but it was never explicity stated that you would just hold a losing position indefinitely.

Seriously, I don't think anyone really minds how you trade. It's your business, after all.
If you wish to hold a position that runs against you, fine. I'll hold the other side, take your money and smile. Sooner or later, you will get burnt.

But it would only be fair to warn any newcomers that the strategy of opening a new position in the opposite direction to the first rather than closing the original position by means of a protective stop provides no technical advantage.

And the strategy of using no protective stop at all opens the trader to the possibility of unlimited losses. At some point their account will fall below margin requirements and the position will be closed by the broker for a near total loss of their account. The ONLY exception to this scenario is if they are using very small lot sizes in relation to their account - and if this is the case, they are not going to make any substantial amount of money either.

Have some fun fluttering in the meantime.....

 

[counter_violent]

Already explained this twice on the "edge" thread. Long and short the same instrument is not a hedge.

There are however many good and safe strategies that do involve a hedge. Newbies ought to explore this way of trading as opposed to outright positional plays. No doubt they would keep their money for longer, while learning the ropes.

 

[volatiliti]

Yes, but it was never explicity stated that you would just hold a losing position indefinitely.

Seriously, I don't think anyone really minds how you trade. It's your business, after all.
If you wish to hold a position that runs against you, fine. I'll hold the other side, take your money and smile. Sooner or later, you will get burnt.

But it would only be fair to warn any newcomers that the strategy of opening a new position in the opposite direction to the first rather than closing the original position by means of a protective stop provides no technical advantage.

And the strategy of using no protective stop at all opens the trader to the possibility of unlimited losses. At some point their account will fall below margin requirements and the position will be closed by the broker for a near total loss of their account. The ONLY exception to this scenario is if they are using very small lot sizes in relation to their account - and if this is the case, they are not going to make any substantial amount of money either.

Have some fun fluttering in the meantime.....

Ok maybe the no stop after the second chance thing is wrong . I concede
But I still believe hedging provides a phsycological advantage as well as great trade management tool .
I will be happy to take the other side of your trade knowing that i have a second chance up my sleeve . lol

 

[DashRiprock]

Why don't you trade two accounts at the same time? For one, use your " hedging" technique, and the other, just close / re-open the original trade. Try and spot the difference in the running P&L for both accounts.

 

[Rhody Trader]

Why don't you trade two accounts at the same time? For one, use your " hedging" technique, and the other, just close / re-open the original trade. Try and spot the difference in the running P&L for both accounts.

Actually, since the OP has been talking about position-timeframe holds, there will be a difference because of the carry. And I don't mean that in a good way. He'll be paying more on the negative carry side of the trade than he receives on the positive carry side because the broker is running a spread there too. So basically, he'll slowly bleed cash out of his "hedge" account.

 

[volatiliti]

Why don't you trade two accounts at the same time? For one, use your " hedging" technique, and the other, just close / re-open the original trade. Try and spot the difference in the running P&L for both accounts.

you could never get the same prices and the broker will steal a few pips on the stop anyway .