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A 70k bet that I can't make a 50% gain in 2009
- Thread starter geez
- Start date
Quote from snake:
I think he's just following his rules and both basically hit good setups within close proximity to each other. I don't think he viewed it as a revenge trade.
The downside of a trade like this (not his trade but an overall strategy) is that a whipsaw can hurt you pretty good and mess up the risk:reward ratio.
Think of it this way: each winning trade will always trigger the stop loss on the opposite side (if you had a strategy of pair trading these). So, you're maximum win rate on winning trades is 1:1. That is, if you risk $200 on each trade with a target of $400. To get to the $400 target you will hit a stop loss on the other side of the trade for a $200 loss. So, the pair will win $200 net if it works.
However, you could have a situation where both stops get hit in a whipsaw and you lose $200 twice for a loss of $400 on the pair trade. So you're "real" risk:reward is 2:1 with maximum risk of $400 and maximum reward is $200.
no time to explain now...but this is not correct...what if BOTH trades went to tgt??
Quote from TraderSU:
Chances are next to none if both trades were placed around same time and they are exact inverse. The first stop will always hit well before other's target (because of 1:2 ratio) ;-)
Look back at entry times of both fas and skf...different times.
I really didn't want to do the SKF trade, but that setup was just too pretty.
Quote from geez:
I really didn't want to do the SKF trade, but that setup was just too pretty.
This is exactly what I wanted to know.
Anyway, guess we are having this whole discussion because SKF position was opened before FAS position got closed. So you were effectively making bet on fin-sector in both direction at the same time.
Quote from geez:
no time to explain now...but this is not correct...what if BOTH trades went to tgt??
Geez,
In your particular case that could have happened, but in the theoretical post I made whereby one takes a volatility bet on both sides of the trade, it wouldn't really be possible.
I figured with your trade, you had the one going and you leave your trades to play out. Then, the other one made a nice set up shortly thereafter. So, in that situation it would be possible to hit both targets. But, not in a pair trading strategy.
These are slightly different variations but a similar theme.