Sounds very similar because the facts are the facts. The “fixation” on costs (commissions + spread) is because they are unnecessary. They serve no functional purpose. It’s not like buying an option as insurance or as a hedge. You’re paying for nothing. If you only trade occasionally, then whatever. No big deal. If you trade frequently, though, then it will add up.
So I’m deluded and have been doing it wrong all this time because losses aren’t bad, I should have been taking losses to be doing well??
I have no idea if you’re deluded. If you are profitable over a reasonable period of time, then you are generally making the right calls when to put on long/short exposure and when to get flat, with position-sizing decisions also potentially factoring in there. Whether you use “hedging” or you exit the market is totally irrelevant - though “hedging” [I]could[/I] reduce your returns, depending on its usage.
My biggest issue with hedge accounting is that it seriously muddles the link between long/short/flat decisions and their outcomes - especially for inexperienced traders who need the proper feedback in their learning process. If you make a long call you want to be able to know afterwards whether the market did indeed go up as anticipated. With “hedging” you have the potential for all sorts of additional directional decisions obscuring the original one - and others made along the way.
Using your earlier example, your initial trade sees the market go against it. You put on a hedge at -12, then later take it off at say -20 when you see support hold. The market rebounds. It rallies 22 and you close with a 10 pip profit (-12 + 22). You made 4 different decisions in that sequence. When to get long. When to get flat. When to get long again. When to get flat once and for all. If you count that as one complete trade instead of the two trades it really was, as “hedgers” seem to so often do, then it looks like your initial long was a good one when in fact it wasn’t. It was the second long decision that was the winner.
Who cares if you have to count that as 1 win and 1 loss? You can do quite well for yourself if you have a 50% win rate and your winning trades are bigger than your losing ones. Heck, I’d take a 25% win rate if my winners were sufficiently larger than my losers (though admittedly, the ride is bumpier). On the flip side, I can quite easily show you systems with win rates in the high 90% range that lose money.
Returning to the point, I see traders who attribute their success to “hedging”. That is a complete misattribution. Hedging is nothing more than a method of accounting, just like FIFO. A method of accounting is not a trading system or strategy. It plays no part in net profit (unless it incurs added costs). A trader who believes it does is missing the real source of their performance - their entry and exit decision-making.
I know you don’t trade and have no wish to do so…
You know that, do you? That’s interesting. I’ve been in the markets for close to 30 years now. Still have the original account I opened way back then. Must never have used it, though, since you say I don’t trade.