lets discuss a bit about hedging strategy - page 2

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Keith Watford:

That is not my opinion, that is fact. Fact that was proven in my topic that Enrique linked to.

"Hedging" is pointless as it is mathematically impossible to make additional profit by opening an order with the same symbol in the opposite direction with the same lot size.

The surefire (or sure-fail as Enrique puts it) cannot make any profit from the "hedging" element. It is the martingale element that makes a profit (or blows the account).

Anybody who believes that "hedging" can make a profit are dreamers, coupled with martingale, their dreams can often turn into nightmares!

simply believing hedging can make huge profit is like downloading ea from forum and hope to sleep and wake up with profit in your account. just like any other strategies, the tool is there, how you use it , how you manage the money is the key for long run.

lets take a very simple example, the rsi divergence, lots of ppl use that as their strategy. does it give 100% success? no, otherwise everyone would then jump at it.

as well as all other strategies, no matter how sophisticate a guy makes his chart, there is just simply no way to win 100%.

so it all comes down to a strategy's win rate, easiness to use, max drawdown and so on...

 

The problem with "hedging" is that so many people think that it is some sort of mystical element. "Hedge" a losing trade and suddenly the loss does not increase. What they don't seem to understand is that the profit doesn't increase and the only possibilities are to tread water and get nowhere or add to the loss with extra dealing costs, swap, spread and commission.

What worries me is that so often these people refuse to accept mathematical proof that "hedging" does not give the trade any advantage whatsoever. This sort of mindset is dangerous in trading as they will refuse to admit that they are wrong. That is the downfall of so many traders, they have to be right.

I've issued this challenge before.....

Show me any strategy (it doesn't have to be profitable) that is improved by "hedging" instead of simply closing the losing trade.

 
Keith Watford:

The problem with "hedging" is that so many people think that it is some sort of mystical element. "Hedge" a losing trade and suddenly the loss does not increase. What they don't seem to understand is that the profit doesn't increase and the only possibilities are to tread water and get nowhere or add to the loss with extra dealing costs, swap, spread and commission.

What worries me is that so often these people refuse to accept mathematical proof that "hedging" does not give the trade any advantage whatsoever. This sort of mindset is dangerous in trading as they will refuse to admit that they are wrong. That is the downfall of so many traders, they have to be right.

I've issued this challenge before.....

Show me any strategy (it doesn't have to be profitable) that is improved by "hedging" instead of simply closing the losing trade.

Spread and commisions do not add if positions are closed using CloseBy. There is a catch though, some brokers do not allow CloseBy.

Anyways, arguing is impossible when incorrect reasoning prevails. Typical case of traders fallacy.

 
Been there, done it. Be careful because once your size gets to big, there's no way out but down haha 
 
Keith Watford:

The problem with "hedging" is that so many people think that it is some sort of mystical element. "Hedge" a losing trade and suddenly the loss does not increase. What they don't seem to understand is that the profit doesn't increase and the only possibilities are to tread water and get nowhere or add to the loss with extra dealing costs, swap, spread and commission.

What worries me is that so often these people refuse to accept mathematical proof that "hedging" does not give the trade any advantage whatsoever. This sort of mindset is dangerous in trading as they will refuse to admit that they are wrong. That is the downfall of so many traders, they have to be right.

I've issued this challenge before.....

Show me any strategy (it doesn't have to be profitable) that is improved by "hedging" instead of simply closing the losing trade.

i agree with what you are saying here, same like other ideas such as renko and some others, ppl get fixated on it. the idea itself is not the holygrail, it is how you incorporate it. i would use marco as the example here, at the end of day, you showed that the same result of the same strategy he is using can be achieved without and 'hedging' element, yet he might not be able to implement your version of strategy, the extra 'hedging' element might not have actually helped him to get any extra profit, but a strategy with the 'hedging' element might be the one he is comfortable using to achieve such a profit. again, trading style.

 
Enrique Dangeroux:

Spread and commisions do not add if positions are closed using CloseBy. There is a catch though, some brokers do not allow CloseBy.

Anyways, arguing is impossible when incorrect reasoning prevails. Typical case of traders fallacy.

hi enrique,

with all due respect, i am not sure what do you mean by incorrect reasoning. let's leave the original content of the post aside for a minute, just talk about general trading strategies.

mostly all strategies are being used because they stood the test of history data. if you decided to use a certain strategy, your reason might be something like 'it has been proven historically to have a say 70% of win rate, and 70% is good enough a result for me', right?


so now, within the context of the post, i clearly stated out the main flaw of this strategy. so i adjusted it and tested it, and as far as the historical data shows (i stated the pairs i tested and the settings i use), there is literally zero loss from jan this year till now. so the purpose of this post is, having the result contradicting common belief (or common fact if that's how you prefer to call it), am i missing anything intepreting the strategy?

i am not an advocate of this strategy nor against it, i am simply putting out the facts which can be tested. yet you conclude it simply saying 'it is pointless' and talk about incorrect reasoning? i am not here to defend the strategy, after seeing its result, i honestly am ready to hear as much negative insights as possible, just to be sure i am not missing something out there.


cheers.

 
John Obermaier:
Been there, done it. Be careful because once your size gets to big, there's no way out but down haha 

hi john,

would you mind explaining a bit how the strategy was going, and finally how the 'bad end' happened?

 
Leonard Liu:

hi enrique,

...

i am not an advocate of this strategy nor against it, i am simply putting out the facts which can be tested. yet you conclude it simply saying 'it is pointless' and talk about incorrect reasoning? i am not here to defend the strategy, after seeing its result, i honestly am ready to hear as much negative insights as possible, just to be sure i am not missing something out there.


cheers.

Exactly, that is why there is no point to argue.

 

Forum on trading, automated trading systems and testing trading strategies

Any great idea about HEDGING positions welcome here

Fernando Carreiro, 2018.09.26 00:35

In order to educate you and others, here is a breakdown of the so called "Sure-Fire Forex Hedging Strategy" (using up to 5 levels), presented in the video (and attached PDF), as well as the non-hedged netting equivalent (Stop & Reverse - look at the S/L placement). Remember to also have a look at the mathematical equations I presented in my post #91.

As you can see, the non-hedged netting equivalents offer better profits at the same volume, or equal profits at reduced volume that also reduces margin requirements and lower spread costs for the lower volumes.

Obviously, this Stop & Reverse equivalent is still not a true alternative for a properly devised strategy, because even with the non-hedging equivalent, this naive strategy still suffers from many other factors and problems.

However, my main goal here is to show that "hedging" is not a solution because there is always a better solution available with the "netting" equivalent.



EDIT: Added a column to the show the build-up of Potential Catastrophic Loss that can occur should things go wrong at some point (like computer crashing, EA or MetaTrader stops responding, Internet connection goes down, power goes out, critical news event causes massive widening of spread, etc.)

ok, i am convinced now...in this particular case, fernando suggested a far better way with the same result, while having smaller potential loss and without the need of having all those positions being opened at once.
 

This could be a dead end, as was suggested by many, and even given more strength by accompanying pow in the form of math or code.

But hedging on a single pair and multi instrument hedging are two very different things.

So my advice to you is to study the correlation of momentum between pairs.

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