Anyone have two accounts and do regular hedging?
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If I may...the point Mav is trying to make is that if you have offsetting positions in an instrument like forex or stocks, you have NO position. Period. The only thing you have done was incur commish cost.
And if it is a starting point for some kind of daily "range scalping" scheme, I still don't see it. If you "take profits" by closing one side after a favorable move - boom baddabing - instant onesided risk. You still need the move backwards.
And if there is some sort of "graduated" probabilistic moves inferred at the limits of the "grid", where you expect a better chance of a counter-move...ahh what the hell, still doesn't make much sense...
And if it is a starting point for some kind of daily "range scalping" scheme, I still don't see it. If you "take profits" by closing one side after a favorable move - boom baddabing - instant onesided risk. You still need the move backwards.
And if there is some sort of "graduated" probabilistic moves inferred at the limits of the "grid", where you expect a better chance of a counter-move...ahh what the hell, still doesn't make much sense...
Well I see,
the great minds are weighing in on a totally useless thread....
the great minds are weighing in on a totally useless thread....
I wouldn't say I hedge. But often take opposing positions in ETF`s. For instance, i`ll long some ETF for a few days and then the majors hit some level. Out of all of them i`ll sell the one that looks more apt to roll. Although the risk is kept constant, its never more than a day or so`s hold. I dont want or need to be neutral for longer than I think the move will take. And i`ll only do this if I think the original pos has more upside...otherwise whats the point in holding when you can just reverse.
Micha... ehm, Archangel... this effecting you?
http://news.yahoo.com/s/ap/20060626/ap_on_bi_go_ec_fi/economy_3
<img src=http://us.news3.yimg.com/us.i2.yimg.com/p/nm/20060626/2006_06_26t094126_450x300_us_construction_lennar_earns.jpg?x=380&y=253&sig=o_mDf4OExTTtg94EYOmk4A-->
Colorado housing boom
dd
I can think of only one case when it *could* make sense. This is when the two accounts are with different brokers that somehow differ in the way they fill your orders. In that case some sort of arbitrage could require having both long and short positions in the same currency pair.
Since forex is very liquid, the simple case of observing large enough differences in quotes from different brokers to allow for arbitrage is virtually non-existent. There might be larger differences however in the way orders get filled during times of extreme volatility. It would probably require a large amount of time and resources to detect these differences, and it is not obvious in the first place that you could make money from this--however, it's the closest example I can think of that could justify both open and long positions at the same time in forex.
Since forex is very liquid, the simple case of observing large enough differences in quotes from different brokers to allow for arbitrage is virtually non-existent. There might be larger differences however in the way orders get filled during times of extreme volatility. It would probably require a large amount of time and resources to detect these differences, and it is not obvious in the first place that you could make money from this--however, it's the closest example I can think of that could justify both open and long positions at the same time in forex.
Because of Numerous PM's...I will degrade any chance at credibility I once had...
Lets pick one year of EUR/USD. For our illustration lets pick an open of the year and the close of the year to be the same. It does not have to be a calendar year.
So if you held for one year you would not make anything and actually have a loss of the spread both ways...in and out no matter if you were long or short...lets leave carry interest out of this illustration but understand it would be there on your short.
Now put a daily chart up and look at one year of candlesticks. Now from the far right edge grab the tail of the last candlestick and pull on it like a rope and stretch it out...take all of the slack out until you have a straight line...you will have a line perhaps 12 times longer or more than when your rope was all "candlesticked" up.
Ok are you with me? Now here it comes...I am going to slap you with a slab of raw meat from the butcher...slappo! SMACK!
Now you can directionally trade....or you can go long and short at the same time from day one...
Maverick wants to go long and short at the same time from day one...so lets...shall we? (said in the chipmunks cartoon voice).
Now you place a TP at 25 PIPS in the long. You line up the limit orders like a grid....and you do the same on the short side...line them down like a grid...put em' as deep as you want...25 pips apart Size your trade according to the range, i dont care if you look at the last ten years or heck take it down to zero on the short side...I really do not care..its whatever your risk tolerance is...
Now here is a key thing you must do...as each TP is hit you replace it. You become a trade replacer and get those fills replaced as soon as they happen...ding ding...replace...You have no idea where the price is going to go...you simply look up the original entry price that just executed with its TP and re-enter it...got it?
When one side goes up another side goes down and you are catching TP's (flow or the slack of the rope)....at the end of the year your directional trade yielded nothing but you took twelve times or more the flow with the grid without knowing or caring about the direction or timing...pulling the trigger etc...Imagine a choppy day, you can revisit TP's over and over...this is why you get much more than 12 times the flow on on both sides
Now the highest high will have a trade a the lowest low will have a trade...these are danglers...But a true gridder never trades big enough on each trade to let the range margin call him...ok you with me?
True grit gridders view danglers as their max drawdown markers and want to build them even wider to be able to trade in between these danglers for years to come. As long as they establish the max danglers they have seen their max drawdown ...the wider they get apart the more likely to trade between them...endure the max drawdown and your NAV grows for years to come in the chop that is between the high and the low...
Now there are so many variations of gridding and so many people doing it...you will just need to go over to another place and read about it...
Michael B.
I do not trade this or condone it. It is like Hotel California, you can check out but you may never leave...
P.S. Now I got to go answer 500 PM's....Because I am incompetent :
http://www.elitetrader.com/vb/showthread.php?threadid=71742
Lets pick one year of EUR/USD. For our illustration lets pick an open of the year and the close of the year to be the same. It does not have to be a calendar year.
So if you held for one year you would not make anything and actually have a loss of the spread both ways...in and out no matter if you were long or short...lets leave carry interest out of this illustration but understand it would be there on your short.
Now put a daily chart up and look at one year of candlesticks. Now from the far right edge grab the tail of the last candlestick and pull on it like a rope and stretch it out...take all of the slack out until you have a straight line...you will have a line perhaps 12 times longer or more than when your rope was all "candlesticked" up.
Ok are you with me? Now here it comes...I am going to slap you with a slab of raw meat from the butcher...slappo! SMACK!
Now you can directionally trade....or you can go long and short at the same time from day one...
Maverick wants to go long and short at the same time from day one...so lets...shall we? (said in the chipmunks cartoon voice).
Now you place a TP at 25 PIPS in the long. You line up the limit orders like a grid....and you do the same on the short side...line them down like a grid...put em' as deep as you want...25 pips apart Size your trade according to the range, i dont care if you look at the last ten years or heck take it down to zero on the short side...I really do not care..its whatever your risk tolerance is...
Now here is a key thing you must do...as each TP is hit you replace it. You become a trade replacer and get those fills replaced as soon as they happen...ding ding...replace...You have no idea where the price is going to go...you simply look up the original entry price that just executed with its TP and re-enter it...got it?
When one side goes up another side goes down and you are catching TP's (flow or the slack of the rope)....at the end of the year your directional trade yielded nothing but you took twelve times or more the flow with the grid without knowing or caring about the direction or timing...pulling the trigger etc...Imagine a choppy day, you can revisit TP's over and over...this is why you get much more than 12 times the flow on on both sides
Now the highest high will have a trade a the lowest low will have a trade...these are danglers...But a true gridder never trades big enough on each trade to let the range margin call him...ok you with me?
True grit gridders view danglers as their max drawdown markers and want to build them even wider to be able to trade in between these danglers for years to come. As long as they establish the max danglers they have seen their max drawdown ...the wider they get apart the more likely to trade between them...endure the max drawdown and your NAV grows for years to come in the chop that is between the high and the low...
Now there are so many variations of gridding and so many people doing it...you will just need to go over to another place and read about it...
Michael B.
I do not trade this or condone it. It is like Hotel California, you can check out but you may never leave...
P.S. Now I got to go answer 500 PM's....Because I am incompetent :
http://www.elitetrader.com/vb/showthread.php?threadid=71742
Michael B,
I admire your activity on these forums and once enjoyed myself by reading through your entire journal on your grid systems. I actually simulated the whole thing in VB/Excel, using all sorts of different rules, grid sizes etc.
Even before I started these simulations, I concluded that these grid system can only work if the pair somehow reverses to its mean in the long run, or (if this is not the case) you know the direction of the long-term trend in advance.
If you have a consistent long-term trend and no rule in place to sell losing positions at some time, you will go broke--big time. Once you start adding rules to cut off losing positions in an adverse trend, you pretty much lose all the profits.
The scary thing that I saw in my simulations is that the system actually can look really good over a considerable period (e.g. several years), great profits, beautiful equity curves, low dd etc. before it suddenly collapses.
I admire your activity on these forums and once enjoyed myself by reading through your entire journal on your grid systems. I actually simulated the whole thing in VB/Excel, using all sorts of different rules, grid sizes etc.
Even before I started these simulations, I concluded that these grid system can only work if the pair somehow reverses to its mean in the long run, or (if this is not the case) you know the direction of the long-term trend in advance.
If you have a consistent long-term trend and no rule in place to sell losing positions at some time, you will go broke--big time. Once you start adding rules to cut off losing positions in an adverse trend, you pretty much lose all the profits.
The scary thing that I saw in my simulations is that the system actually can look really good over a considerable period (e.g. several years), great profits, beautiful equity curves, low dd etc. before it suddenly collapses.