Your opinion please - page 3
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For testing purposes i always prefer the hedging solution since it allows easily to keep track of your open positions. Once you reach a stable state you can simply add 2 functions, one for keeping track at your current betting level and one to CloseBy() the net position
Well for testing it is fine, although I would have thought it was easier to keep track of one position rather than N of them.
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zzuegg:
BTW, if you are trading different systems involving different timeframes on the same account 'hedging' is kind of necessary
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In that case they are different strategies and they are independent trades. I wouldn't consider that hedging, they just happen to be opposite positions and I have no objection to that at all :-)
5k deposit better?
This business of "hedging" by betting against yourself is bizarre.
We start with say 0.1 lots LONG.
The market turns so we put on 0.2 lots SHORT. The net position is 0.1 lots SHORT. Now we have to ask this question: Is it better to close the LONG position and open a SHORT position or do what we are doing by betting against our own position? To me it is self-evident that betting against yourself is stupid.
Let's look just at the hedged part. We have 0.1 LONG and 0.1 SHORT. They cancel. Price changes make no change for this position. HOWEVER the net swap will always be against us. Unless these are high swap pairs this will not be a huge amount, but it will nevertheless be against us. Hence the longer we hold the position the greater the loss.
Then there is the spread cost. When we open our hedged position we have to pay the spread. I therefore assert that betting against yourself like this makes no financial sense. All it does is calm the ego so you don't have to book an actual loss and you can pretend that the open loss is not as important as a closed loss. But this psychological warfare against yourself is actually costing you real actual money.
Well, it all depends upon your Bias. There's the story of the boy and the wise old man. Chuckles* please give me a chance, perhaps my story would help. Anyways the boy decided to test the wise old man by grasping a bird behind his back and ask "wise old man, wise old man, since you're so wise, answer me this, I have a bird in the back of my hand, is it alive or dead?" Upon which the old man replied, "the life of that bird, is in your hands".
Any scenario I provide to support Hedging. You'll counter with a non-hedging equivalent. But if I was to ask you "wise old man, wise old man, which direction is the market going to go from here?" You'll more than likely respond with a smart answer :). Similarly, for those people who beat up on hedging, grids, progressions etc. They don't provide a viable alternative either. Because:
Any scenario they provide to support their stop-loss single position I too can provide a hedging or grid equivalent. If someone is advocation stop-loss then they must have a Bias that the position is likely to keep going against you, else why are you closing the position. If you believe it's going against you then you should stop-and-reverse. If you believe it's going to keep going your way then you should add. If you believe its going to move Sideways then you should hedge.
Most believe their next position would stand a better chance. It's all false. I could simply say -what if- the market turns against your position. A roulette player who sets stop-losses will not fair any better than a roulette player who does-not. The emphasis should-not be placed on the trading method but rather upon it's Edge.
Lastly, if one believes that 2 different EA's can place opposite orders on a particular pair and both of these EA's ends up with a profit. But somehow this same person finds it hard to believe that 1 EA can place opposite positions on a particular pair and can also turn a profit in the same scenario then I rest my case.
- Btw, the only way these 2 EA's can end up with a profit is unless the price makes a Sideways movement. And the reason hedging can be an attractive option is because I don't know which direction the price might move in first. <-- Unlike the common argument where everyone -for_or_against hedging seem to know where price is going.
Well that's my 2-cents.
Yes! So when you hedge like this you are reducing your edge because it is costing you money for no benefit. My objection of course is that whichever way the market goes from this hedged position you lose. Now remember that I am only talking about the "perfectly hedged" part of the trade. Once you freeze the value of the position by cancelling a LONG against a SHORT you guarantee more loss than if you had just closed the position. I am sure brokers would encourage hedging in this manner; they get paid the more you trade!
>Lastly, if one believes that 2 different EA's can place opposite orders on a particular pair and both of these EA's ends up with a profit.
If both EAs are profitable on their own then allowing them to have opposite trades on is not unreasonable. They are unlikely to be put on and taken off at the same time and not all trades have to be winners. That is an entirely unrelated argument.
They are unlikely to be put on and taken off at the same time and not all trades have to be winners. And the hedge is never put on .. nor taken off at the same time. Same orders, same price, same argument.
Yes! So when you hedge like this you are reducing your edge because it is costing you money for no benefit. Because of the above, you stand to benefit from a up-movement as well as a down-movement. The gains will negate the spreads.
They are unlikely to be put on and taken off at the same time and not all trades have to be winners. And the hedge is never put on .. nor taken off at the same time. Same orders, same price, same argument.
Yes! So when you hedge like this you are reducing your edge because it is costing you money for no benefit. Because of the above, you stand to benefit from a up-movement as well as a down-movement. The gains will negate the spreads.
I think the point is that there is the method of this thread, and it is the implementation which is costing an excess of money. The increased complexity confuses the issue so one can't see the extra loss. If you went to play roulette, and you suddenly decided you didn't know if the next spin was going to be red or black, the wrong thing to do would be put a bet on red and black at the same time.
Is there anyone who would fail to agree that betting on red and black at the same time was stupid (loss making)?
So now we go to trading and we put on an equal an opposite position in the market. Again I just want to focus on the balanced part. It is the unbalanced part that allows the possibility of a win. Now this is not a question of opinion, it is purely a question of mathematics. As such there is a definite answer. The calculation, if done correctly, will settle any argument ... provided all parties can understand the mathematics and agree on the method. Obviously the mathematics can be avoided if one just runs a back test in the strategy tester. One method will show more profit (or they will be identical).
Let's go LONG at 0.1 lots and let the market move to some new price, P1. At this new position we become unsure and put on an opposite position. This new position has cost us the spread times the lotsize. The market now moves to P2. Suppose P2 is higher than P1. In this case we might close the SHORT position, leaving us LONG 0.1 lots. Did we benefit by the “hedge” compared to closing the original position and opening a new one later? The SHORT position cost us 0.1 lots times the spread, but closing the original position and putting on one later would have cost the same, assuming the spread was constant. So the two methods appear to cost the same. Ahh, but consider a pair like EURAUD with a swap cost of -1.72 pips SHORT and +1.06 pips LONG. The “hedge” costs us 0.66 pips/day for no benefit. I would object to that.
Of course the market could have gone the other way with P2 lower than P1. In this case we would close the LONG position leaving the SHORT open. Again that is no different to closing the original LONG position then opening a SHORT position later. Conclusion the spread cost is the same for this particular situation, but we incur costs due to the unbalanced swap in all cases.
I think many of these “hedged” schemes may seem better than they are because the complexity of the trade confuses the mathematical calculation. When you can simplify parts of it down to “don’t bet on red and black at the same time” it becomes easier to understand.
As a matter of interest, I do run hedged trades, but mine are hedged “properly”. A proper hedge is not betting directly against yourself. People have all sorts of proper hedges such as using Gold to offset the stock market. This is why I have been putting hedge in quotes. People seem to be thinking (and writing) that applying an exactly opposite position is a hedge and it isn’t. All it is is a guaranteed long term loss.
Well good points. But here's where I'm comming from. I'll try to draw a diagram.
Most people against hedging would argue that there's always a non-hedge equivalent. I disagree that there's a direct non-hedge equivalent unless we're prepared to dance around each other all day with -what if- scenarios. I'm assuming 0.1 lot on each position in my example above.
In your example, you made the price go back up from Point-B. That is if I understand it correctly. Yes, the hedge guy will lose the spreads + swaps or whatever. Buy if the price goes down, the Stop-Loss guy will lose the gains, which to me seems larger.
At Point_C, both the Hedge guy and the Stop_Loss guy will have the same information. But the Hedge guy will be in a better position to Break-Even, or Gain From the sell, or Have Bigger Buy Size moving in the direction of the Long.
But I know what you're going to say next :). "Well if thats the case, I'll just Close Buy at Point-B and Place a Sell at Point-B." ____ And Obviously my response should you jump ship like-that is for me to also jump ship and take you upon your initial Scenario. "What if price went back up from Point_B." <--- You'll end up closing again at Point_A on Stop_Loss. Lets not forget you had no intension of opening a Sell after your stop-loss and at point-B neither of us have no idea where price will go.
In the end all I'm saying is that neither is better-nor-worse. Someone who's saying that the stop-loss option is better is obviously only thinking in terms of how they receive price to move.
And Oh BTW- and I agree. Black and Red on Roulette is dumb as hell ;).
And Oh BTW- and I agree. Black and Red on Roulette is dumb as hell ;).
Hooray!
(sith voice) Your diagram is weak old man.
On my diagram time goes left to right. A net long position is blue. A net short position is red. The net position size is shown mid way along the line. Green nodes are wins where the position is closed. Up is a higher price meaning a win for a long position.
EDIT: image changed as previous one was wrong.
My diagram is simplified to neglect parallel paths that nevertheless end up at the same point. There are actually an infinite number of routes to C3, even sticking to the grid. The calculations then become summations of infinite series or finding the solution to a recurrence relation (this latter one is sadly beyond my mathematical ability).
Assuming a random walk, the chance of reaching C1 is 50%, neglecting the spread. Your homework question is what is the chance of reaching C2?
EDIT: original question asked for C3, but altered plot made C2 a non-trivial calculation.
.5 X .5 X .5 = .125 (but ubzen won't get that one wrong...)
(question edited above so this was an answer to changed question)
Look at node n2 carefully. It is asking this question: What is the chance of going three grid steps up compared to the chance of going two grid steps down? That is not a 50:50 proposition. Because the current price is closer to C2 than it is to node n3, there is a higher chance of going that way.