Using a hedge instead of a stop

[SimpleTrades]

Quote from PocketChange:

Your strategy logic is independent of your net position.

Just do the math...

If your long 2 on time frame x in sub account A and short 2 in time frame Y in sub account B. You are just flat.

Keep your strategy logic separate and just consolidate and trade the net position per instrument.

Forgive me for being pigheaded, but ...

In Time Frame A, total price change is A2-A1.
In Time Frame B, a smaller subset of A, the path one follows to traverse A1 to A2, is a longer path.

The net position is NOT the sum of the two positions. Your adding apples and oranges.

 

[badvestor]

1. RTM or Range breaks out entries fail as often as they suceed
2. There are few high probability entries.
3. There is a quantifiable opportunity cost for a missed entry
4. If you are using trade stops, there are quantifiable costs associated with reentering a trade that is stopped out
A. Additional Broker fees
B. Slippage on exit
C. Slippage on re entry
D. Time and emotional (trader dependent) costs
E. Further possible stop out costs when market whipsaws
5. For low float stocks, if your position volume > 10 x average hourly bar, your slippage on exit will erode profits. There is a time dependent risk to profits with iceberg orders.


Hedging is therefore advisable for large multiday positions.

Can it be argued Hedging is advisable for fleeting intrday positions?

 

[SimpleTrades]

Quote from Scataphagos:

Hedge or stop? Both are ways of limiting risk. It's all a guess as to which is better... no pat answers.

Neville McJunkin.. any of you remember him? He used to hedge his positions, then take profits on the profitable leg. That still left him with a loser leg with which he had do something... Still a guess.

That's what I am dealing with. You take the profit on one leg, and IN THEORY wait for the other leg to either become profitable, or become a smaller loss.

It makes your stop variable, LESS THEN OR equal to STOP + FEES. Ideally, if you're patient, exit correctly, both legs can become profitable.

Also, this adds further protection from a Black Swan event, and allows you to take a larger position than you might otherwise take without fear of a margin call.

 

[SimpleTrades]

I also like it because it gives full contol over entries and exits. It greatly reduces the chances of being a victim and gives you full control over when you exit a trade, whether losing or profitable. It gives you a chance to wait a little longer without taking even greater losses.

 

[Visaria]

Quote from bhardy307:



Thought of in a different way: This is a little like being invested in a stock and day trading the stock at the same time. You use a buy and hold approach believing that over the long run the stock will trend up, but in the mean time you try also to trade the price changes along the way.

Yes, i often do this, not with stocks but futures. Use different accts for different time frames.

 

[GordonTheGekko]

What about your broker stops?

Also, hedging is also great with huge positions (depending on volume, anywhere from a million to hundreds of million $+ positions)

 

[SimpleTrades]

Quote from GordonTheGekko:

What about your broker stops?

Also, hedging is also great with huge positions (depending on volume, anywhere from a million to hundreds of million $+ positions)

My available margin is my broker's stop. A hedge frees margin. A short + a long = 0 margin usage. So, the margin is freed to place another trade while I wait for the hedged position to go in my favour.

I don't quite understand why large volume should be the determining factor when hedging. I can see that hedging enables one to take a much larger position with less available margin.

 

[Peternam]

Quote from PocketChange:

You can't hedge a position using the same instrument.
No matter how many sub accounts you use to open both long and short positions they all consolidate into a net position.

You are really just stopping and reversing, accumulating losses and fees.

Hedge with options or another related instrument with different leverage profiles. ie. 2x and 3x ETF's against an underlying future position etc.

EXACTLY, "hedging" with the same instrument was just called in existence so that those scammy forex brokers can make more money through the spread of those extra positions.

LOL, you really can recognize the amateurs who fall for this crap

 

[GordonTheGekko]

Quote from bhardy307:

My available margin is my broker's stop. A hedge frees margin. A short + a long = 0 margin usage. So, the margin is freed to place another trade while I wait for the hedged position to go in my favour.

I don't quite understand why large volume should be the determining factor when hedging. I can see that hedging enables one to take a much larger position with less available margin.

Because moving $1b of Apple shares in and out five times a day will not only give a bad price, but will be obvious for other people watching the open book tape

 

[GordonTheGekko]

Btw have you considered hedging with super leverage, i.e. going net neutral by putting money in leveraged ETFs or shorting cash in forex on huge margin?