2% per day!
- Thread starter TradStSOX
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Roulette is not equivalent here, because in your example it's more like simply trading different trading strategies at once to diversify than to HEDGE the given position. In roulette, max risk of any bet is defined in advance, so placing several bets is an analogy of simply trading several methods at the same time.
That kind of risk diversification is absolutely clear to me and no problems here.
But your usage of word HEDGE while you state to trade directionally is another story.
If you are say, long @ 100 and it goes to 90 and you hedge with a short that is EXACTLY the same as simply bailing out with a stop-loss. The only difference is paying double commission.
So as a risk management for a speculator I state, hedging has NO ADVANTAGE.
Your words about protecting the strategy don't sound too convincing, cause I see absolutely nothing special in such a widely known technique as hedging.
The other story would be if you traded some arb models, which indeed should be protected for others not to exploit an arb edge and erode it, but you claim to trade directionally, not using stops and instead hedging... In reality if you hedge an outright position its EXACTLY THE SAME as decresing it's size or bailing out. But has a disadvantage of more deal costs.
Thats my point and I picked it up because I see the risk for newbies here to be misguidedn with wrong ideas, such as, that a hedging of a speculative position has any advantage over stop-loss.
when you say hedge with a short... what do you exactly mean? that it would translate to "..bailing out.."?
This statement could only be true if one hedged using the same instrument in a different account which I have already rejected! If not the same instrument then your statement IS wrong.
The other thing is, do not think of hedging as plain out shorting! That is the complex part which sets it completely apart from what YOU'RE INDICATING.
The topic we are discussing here is quite advanced and no new B's should try to even understand this before having a well defined signal for going long and 1 for short. The need for existence of Bias is NEVER eliminated, hence none of this can be fruitful without a directional bias in the first place.
Again, 29 Roulette example I gave earlier, best explains my method.
This statement could only be true if one hedged using the same instrument in a different account which I have already rejected! If not the same instrument then your statement IS wrong.
The other thing is, do not think of hedging as plain out shorting! That is the complex part which sets it completely apart from what YOU'RE INDICATING.
The topic we are discussing here is quite advanced and no new B's should try to even understand this before having a well defined signal for going long and 1 for short. The need for existence of Bias is NEVER eliminated, hence none of this can be fruitful without a directional bias in the first place.
Again, 29 Roulette example I gave earlier, best explains my method.
You place a naked trade...what else could you do that would reduce your risk while it could increase or decrease by variable amounts your potential P/L. Since you are supposed to have a directional Bias, then the hedge is taken accordingly whereby price deficiencies should work to your advantage.
Half way through the above a short term opposite direction signal comes along. then you accordingly adjust to benefit from that while your original position is suffering losses.
The trend is changed completely for some reason, your signals should accordingly warn you and you would reverse into the new bias.
All along you have been winning and losing and the end result depends on how the market played into your bias and hence no STOP was necessary.
A sideway situation if met should cause you to go sidelines, again no stop necessary.
The whole point of successful trading should be about having reliable signals that point you towards a direction and the same signals should guide you and NOT predetermined losses.
What does exactly a predetermined loss supposed to tell us? How much exactly is that loss supposed to be and why?
Doesn't that prove the lack of a game plan? Is that how other competitive sporting games are played? After so many goals just give up or change your strategy would be a better option?
STOPS too have other better alternatives, or NOT?
Half way through the above a short term opposite direction signal comes along. then you accordingly adjust to benefit from that while your original position is suffering losses.
The trend is changed completely for some reason, your signals should accordingly warn you and you would reverse into the new bias.
All along you have been winning and losing and the end result depends on how the market played into your bias and hence no STOP was necessary.
A sideway situation if met should cause you to go sidelines, again no stop necessary.
The whole point of successful trading should be about having reliable signals that point you towards a direction and the same signals should guide you and NOT predetermined losses.
What does exactly a predetermined loss supposed to tell us? How much exactly is that loss supposed to be and why?
Doesn't that prove the lack of a game plan? Is that how other competitive sporting games are played? After so many goals just give up or change your strategy would be a better option?
STOPS too have other better alternatives, or NOT?
A hedge is either equal by it's influence to a stop, or it's not the hedge at all!
Because if you REDUCE risk on a position that means EXACTLY THE SAME as simply bailing out some part of the initial position.
And it absolutely doesn't matter if you hedge with the same instrument on another account or a basket of some other instruments.
Thats the idea of the hedge, it simply can't be another way.
Nothing wrong about playing on the short side, while keeping a longer term long, but doing so for intend of reducing risk on the losing side is still THE SAME as a stop-loss.
There is only one way different from stops to directionally speculate - net long option positions.
All other "hedges" are simply synthetic stops and profitable only for brokers getting an extra commission...
Your example with a roulette is completele irrelevant here, because as I already said, EVERY roulette bet DOES HAVE IT'S RISK PREDEFINED.
So you basically just adjust odds by playing different bets at once.
An equivalent of it is playing different methods on the market, but when EACH HAS IT'S OWN RISK DEFINED.
If you use one to reduce risk on another, it's syhthetic stop, nothing else.
Because if you REDUCE risk on a position that means EXACTLY THE SAME as simply bailing out some part of the initial position.
And it absolutely doesn't matter if you hedge with the same instrument on another account or a basket of some other instruments.
Thats the idea of the hedge, it simply can't be another way.
Nothing wrong about playing on the short side, while keeping a longer term long, but doing so for intend of reducing risk on the losing side is still THE SAME as a stop-loss.
There is only one way different from stops to directionally speculate - net long option positions.
All other "hedges" are simply synthetic stops and profitable only for brokers getting an extra commission...
Your example with a roulette is completele irrelevant here, because as I already said, EVERY roulette bet DOES HAVE IT'S RISK PREDEFINED.
So you basically just adjust odds by playing different bets at once.
An equivalent of it is playing different methods on the market, but when EACH HAS IT'S OWN RISK DEFINED.
If you use one to reduce risk on another, it's syhthetic stop, nothing else.
An interesting discussion and brainstormingâ¦
OK., based on your statement that ââ¦Because if you REDUCE risk on a position that means EXACTLY THE SAME as simply bailing out some part of the initial positionâ¦..â
If you bail out some part of the initial position, you completely lose the opportunity to make any further profit on the bailout part, correct?
Whereas if hedged(Iâm using the term hedging term loosely, meaning engaging other methods that would reduce the risk while keeping the opportunity window open)there still exist the chance to make additional profits on the part you would have otherwise have bailed out!
Does your quote below then relates trading with predetermined stops to equivalent of roulette? Since a Trade with a predetermined Stop Loss is also a Bet with Itâs risk PREDEFINED, or NOT?
ââ¦Your example with a roulette is completele irrelevant here, because as I already said, EVERY roulette bet DOES HAVE IT'S RISK PREDEFINEDâ¦.â
OK., based on your statement that ââ¦Because if you REDUCE risk on a position that means EXACTLY THE SAME as simply bailing out some part of the initial positionâ¦..â
If you bail out some part of the initial position, you completely lose the opportunity to make any further profit on the bailout part, correct?
Whereas if hedged(Iâm using the term hedging term loosely, meaning engaging other methods that would reduce the risk while keeping the opportunity window open)there still exist the chance to make additional profits on the part you would have otherwise have bailed out!
Does your quote below then relates trading with predetermined stops to equivalent of roulette? Since a Trade with a predetermined Stop Loss is also a Bet with Itâs risk PREDEFINED, or NOT?
ââ¦Your example with a roulette is completele irrelevant here, because as I already said, EVERY roulette bet DOES HAVE IT'S RISK PREDEFINEDâ¦.â
Nope. It's still the same.
Cause nothing to stop you from simply getting in again at the same point where you would take out your hedge. Here is an example similar to earlier: u long, then see an opposite signal, u hedge (no matter with what - option, basket or same instrument), then it goes to point where u see another long signal. You close your hedge. It goes back up where went before. What you get? EXACTLY THE SAME RESULT AS IF YOU'D SIMPLY GET OUT OF INITIAL TRADE AND RE-ENTER IT WHEN IT RETURNS TO IT'S INITIAL PLACE. AND! You get LESS than if you'd GET OUT and SHORT, ride the short and then re-enter long. If you look at these things closely, you'll see that in reality hedging and closing a position is about the same from speculative POV. Because the essense of hedging is exactly that - to ELIMINATE RISK.Paying the price of no directional profit too. That's the idea behind futures markets in general, thats what they were created for. So whenever you hedge, you FIX the price of this deal. Which is exactly the same as when you realize profit/loss by just using orders.
No, trading several setups at once (using several accounts, correlated mkts etc.) is the same as placing several bets on roulette, each of them has it's own odds and R/R. Doing so is IMO absolutely reasonable way to diversify risk. But it has nothing to do with hedging, because it still assumes you use risk control for every of these trades separately. By using stops. Of course you can use hedges, but hedge and stop is the actually the same thing.
Try to "hedge" a long ES position with a short ES position in the same account. What do you get? Right, ZERO POSITION (aka offset). You are disciplined enough to be a good trader. However, your discipline is placed on the wrong side, meaning that you should be disciplined to limit loses instead of being disciplined to limit gains. The old adage say "Cut loses short and let profits run". If it's being said often and by many that's because it was proven a good method and continue to be good forever BUT it's EXTREMELY difficult or almost impossible to do so. Our fear nature always order us to do exactly the opposite.