Is hedging a good strategy?

[darthdimsky]

@TP89

What you are doing is comparing someone’s who opens a trade and closes it immediately,

There is no close position. There are 2 open positions. 1 Buy + 1 Sell. Edit: Refer to the graph TWB just provided, which demonstrate the 2 simultaneous positions.

@TP89

To someone who opens a trade and decides to wait with a 50 pips sl.

This is the exact definition of a SL. You get stopped out if the price approaches or exceeds threshold.

@TP89

you lose the spreads, explain to me for what for? WHAT DID YOU GAIN WITH THIS?

From the math below Trader 1 has a floating loss of 2xspreads, while Trader 2 has a loss of [1x spread + 50 pips]

@darthdimsky

Well, here’s the result at 134.25

• Trader 1 incurs loss of spread for 2 trades
• Trader 2 incurs loss of 50-pips worth in quote currency

Conclusion: Trader1 (with the hedge) has a favorable position.

[TP89]

@darthdimsky

To me trader 1 is a favorable position because he can still manage his trade by:

• adding another sell if price goes south, or
• closing the sell @ 134.50 if the price goes north to minimise the loss (alternatively he can simply add another buy position and just close all 3 together if they go further north for a net profit)

Wrong, trader 2 can also

Add another sell
Add a buy in case price goes north, add another one, add another one.

[darthdimsky]

@TP89

Wrong, trader 2 can also

Add another sell
Add a buy in case price goes north, add another one, add another one.

So you’re basically saying both traders hedge now.

Then whats the point of even having a SL then? Now you’re basically agreeing with TWB altogether.

[TP89]

No, tell me what stop’s a trader that uses a stop loss to enter more traders?

Do traders use a stop loss and when it gets hit, that’s it, can’t trade anymore?

[TP89]

@darthdimsky

From the math below Trader 1 has a floating loss of 2xspreads, while Trader 2 has a loss of [1x spread + 50 pips]

EXPLAIN TO US WHAT DO YOU GET IN RETURN FOR THOSE 2 SPREADS THAT YOU PAY?

you pay 2 spreads, if the market drops 50 pips, you are still losing 2 spreads, if it went up 50 pips you would also be losing 2 spreads
WHAT DO YOU GAIN?

It’s even more stupid when you pay 2 spreads and you have no idea off what you’re gaining? You don’t gain anything.

[darthdimsky]

@TP89

Do traders use a stop loss and when it gets hit, that’s it, can’t trade anymore?

In the same manner trader 1 can take an identical additional trade and still have the advantage. Because Trader 1 has a floating loss.

You’re adding an additional variable to the scenario to give Trader 2 an unfair advantage (the option of a 2nd trade). This isn’t a valid scenario:

I’ve taken the time to create a scenario and apply the math to it to prove that trader 1 has the edge.

Scenario:

• Both Trader 1 & Trader 2 enter go long at 135.00*
• Trader 2 has a SL at 134.50 (50-pip SL)*
• Trader 1 open a sell position at 134.50*

[darthdimsky]

[quote=“TP89, post:65, topic:735161”]
EXPLAIN TO US WHAT DO YOU GET IN RETURN FOR THOSE 2 SPREADS THAT YOU PAY?

you pay 2 spreads, if the market drops 50 pips, you are still losing 2 spreads, if it went up 50 pips you would also be losing 2 spreads
WHAT DO YOU GAIN?

Stop repeating the same question like a broken record. This was already answered to earlier. What part of the math below didn’t you understand?

@darthdimsky

From the math below Trader 1 has a floating loss of 2xspreads, while Trader 2 has a loss of [1x spread + 50 pips]

[TP89]

@darthdimsky

Scenario:

• Both Trader 1 & Trader 2 enter go long at 135.00*
• Trader 2 has a SL at 134.50 (50-pip SL)*
• Trader 1 open a sell position at 134.50*

In this scenario trader 2 has an advantage, because trader 1 will lose the same as trader 2 plus the spread

[darthdimsky]

@TP89

In this scenario trader 2 has an advantage, because trader 1 will lose the same as trader 2 plus the spread

No, trader 2 has a realized loss. Trader 1 has a floating loss. That’s a huge difference.

A floating loss can be managed to minimize the loss or make a profit by an experienced trader. Trader 2 sill has options and is still in the game. [Edit: Trader 1 is still in the game]

[TP89]

@darthdimsky

From the math below Trader 1 has a floating loss of 2xspreads, while Trader 2 has a loss of [1x spread + 50 pips]

I have explained, trader 1 opens a trade then immediately closes it while the other waits for 50 pips to close it, those are different scenarios.

[darthdimsky]

@TP89

while the other waits for 50 pips to close it

Do you know how Stop losses work? Trader 2 doesn’t manually close anything. This was set as part of his trading rules in the beginning.

[TP89]

@darthdimsky

No, trader 2 has a realized loss. Trader 1 has a floating loss. That’s a huge difference.

A floating loss can be managed to minimize the loss or make a profit by an experienced trader. Trader 2 sill has options and is still in the game.

Try telling that to your broker, i have a floating loss, didn’t blow my account yet.

Your floating loss will be showing in your equity, if you don’t want to look at it, it’s your problem, but it’s there

[darthdimsky]

@TP89

Your floating loss will be showing in your equity, if you don’t want to look at it, it’s your problem, but it’s there

This is incorrect. No, it takes up my free margin. The equity is only realized after I close both positions.

[TP89]

@darthdimsky

This is incorrect. No, it takes up my free margin. The equity is only realized after I close both positions.

Nope, it will show right away

[darthdimsky]

@TP89

Nope, it will show right away

I don’t know what you’re trying to argue anymore.

The realized loss was game over for player 2. Player 1 has used margin equivalent to 50 pips. This can still be managed. Player 1 has the ability to manage the trade and is in an advantageous position.

I put up an example and laid down the math you wanted so badly. Now you’re simply wasting time.

If you feel that strongly about it please take your own advice and devise your own parameters (that favor both parties equally) and demonstrate why your idea’s supposed to work.

[TP89]

@darthdimsky

I put up an example and laid down the math you wanted so badly. Now you’re simply wasting time.

I have explained, your examples

@darthdimsky

The realized loss was game over for player 2. Player 1 has used margin equivalent to 50 pips. This can still be managed. Player 1 has the ability to manage the trade and is in an advantageous position.

Fucck me man, you are going to Guarantee a place in heaven for me.

Both have a 1000 dollars account, both buy at 135.00 same position,
One places stop loss at 134.50 other one places is sell hedge 134,50.
Lets say for the first one that 50pip drop to sl is 200 dollars. He now has 800

For the second one, when the sell hedge is triggered 50pip he also has a 200 loss, because they where the same position size.he has 800 dollars.

BOTH OF THEM HAVE 800 DOLLARS, THEIR EQUITY IS 800 DOLLARS. EXACTLY THE SAME POSITION.

There is no realized loss or floating loss, there is a 800 dollars equity, and even if you that have hedged say, it’s a floating loss, THE TRUTH IS THAT YOU LOST 200 DOLLARS, the same as the other guy.

[darthdimsky]

OK. My bad. I mixed up balance and equity.

@TP89

There is no realized loss or floating loss

It’s floating as long as the hedges are open. Why is this so hard for you to understand? What I’m worried about eventually is the balance after all the trades are closed. That’s all there is to it.

And that’s the advantage of hedging. That’s what folks like RRAM2 have practiced and applied successfully in many threads past. This isn’t rocket science.

You’re probably the only person I’ve met who’s accounted for the losses of trades that are still open. That makes no sense at all.

[TP89]

@darthdimsky

It’s floating as long as the hedges are open. Why is this so hard for you to understand?

You are net flat, your equity isn’t moving, nothings floating. Why is it so hard for you to understand?

Get the previous example, both have 800 dollars equity. What you call, i can manage the trades, is you saying at one point i will be net long or net short, you will have to, because while you have the hedge locked nothing happens,
So both have 800 equity,
You decide you will close the sell,
Now you turn to 1 net long, this is your position.
If the guy that used the stop loss opens a 1 lot buy, he is 1 net long, exactly the same as you.

[darthdimsky]

@TP89

You decide you will close the sell,
Now you turn to 1 net long, this is your position.
If the guy that used the stop loss opens a 1 lot buy, he is 1 net long, exactly the same as you.

No I will close nothing at this stage because there’s no benefit to me. I will now manage the trade as I see fit with the myriad of options available to me. You are making this weird rule about having to close the position at this point in time. Is this how you thought hedging was applied?

You’ve managed to create you own unique definition of how hedging is applied. You’re needlessly arguing about applying a method that no one anywhere suggested using.

[TP89]

@darthdimsky

No I will close nothing at this stage because there’s no benefit to me. I will now manage the trade as I see fit with the myriad of options available to me. You are making this weird rule about having to close the position at this point in time. Is this how you thought hedging was applied?

Jesus will make me the king of heaven.

If you buy 1 lot and sell 1 lot, you hedge.

At one point you will have to do something, right? If you stay 1 lot buy and 1 lot sell forever nothing happens right?

Are you going to keep your hedge forever?

You keep saying you will manage the trade at one point, but then if i give you an example, you say i keep adding weird rules.

How are you going to manage your hedge then?