Quote from ElectricSavant:
Interesting...but in Forex when they say Hedge, they mean a long and a short at the same time...[/b] [/B]
I understand. Thats what I was referring to.
Quote from ElectricSavant:
this can be a wasteful way to trade, but you can find the trend... [/B]
Perhaps you see something I don't.
Assuming a forex strategy that risks 1% per trade, a stop of 20 pips (including spread), and hedges by taking the opposite side of the same pair, the net loss for a trade that goes bad should be:
total loss = hedge gain - 1% loss
where,
hedge gain = stop loss - spread / stop loss.
Therefore, hedge gain = 20 - 3 (assuming 3 pip spread) / 20 = .85%
So total loss would be = +.85% - 1% =
-.15%
Assuming a high enough risk:reward ratio, when trades go right, max loss per trade would be limited to 1% (hedge), with the remainder of winnings compensating for the hedge.
This looks good so far. Where am I wrong? Why is this wasteful?
Quote from ElectricSavant:I do not exactly trade like this...but you need to play with it and evolve....the completed hedge can be like an offset on the teeter tottor of balance...[/b] [/B]
You mentioned taking positive carry trades to hedge - or minimize draw down.
But from my understanding, this would only work well for longer term trades; which incidentally also favor classical forex hedging by minimizing the cost of the spread.
On the shorter frequencies (5 min) with tight stops, positive carry trades would earn so little interest in the 5-15 mins they might be on, as to offer very little, or no hedging utility.
Again, I could be wrong.
Quote from ElectricSavant:
You will net out your direction eventually...learn to take some TP out of the flow during your hold...this fortifies your basket making the time worthwhile....[/b] [/B]
A good idea.
Quote from ElectricSavant:
sometimes all this complexity is not necessary, as everything you put on finds its way...react, balance and stratagize....the methodical way is best...
You will eventually be able to withstand whatever the market gives you....you will see...This is more important than yield. when you get this far, then your challenge becomes increasing yield, but you gotta get there first...and this is not gambling...
.[/b] [/B]
Again, much appreciated.
Minimizing drawdowns via hedging isn't something I've explored at much length. So this conversation is really interesting for me.
Holding on don't be a loser!!!!
areyoukidding?
