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hedging

 
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Rookie

hedging

New thread to explore the fine art of hedging, lets define it. Hedge Finance A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment.

Wikipedia https://en.wikipedia.org/wiki/Hedge_(finance) A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. In simple language, a hedge is a risk management technique used to reduce any substantial losses or gains suffered by an individual or an organization. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles,[1] many types of over-the-counter and derivative products, and futures contracts. Public futures markets were established in the 19th century[2] to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.

https://www.investopedia.com/articles/basics/03/080103.asp A Beginner's Guide to Hedging Although it sounds like something that is being practiced by your gardening-obsessed neighbor, hedging is a practice every investor should know about. There is no arguing that portfolio protection is often just as important as portfolio appreciation. Like your neighbor's obsession, however, hedging is talked about more than it is explained, making it seem as though it belongs only to the most esoteric financial realms. Well, even if you are a beginner, you can learn what hedging is, how it works and what techniques investors and companies use to protect themselves. What Is Hedging? The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it everyday. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters. Portfolio managers, individual investors and corporations use hedging techniques to reduce their exposure to various risks. In financial markets, however, hedging becomes more complicated than simply paying an insurance company a fee every year. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another. Technically, to hedge you would invest in two securities with negative correlations. Of course, nothing in this world is free, so you still have to pay for this type of insurance in one form or another. Although some of us may fantasize about a world where profit potentials are limitless but also risk free, hedging can't help us escape the hard reality of the risk-return tradeoff. A reduction in risk will always mean a reduction in potential profits. So, hedging, for the most part, is a technique not by which you will make money but by which you can reduce potential loss. If the investment you are hedging against makes money, you will have typically reduced the profit that you could have made, and if the investment loses money, your hedge, if successful, will reduce that loss. How Do Investors Hedge? Hedging techniques generally involve the use of complicated financial instruments known as derivatives, the two most common of which are options and futures. We're not going to get into the nitty-gritty of describing how these instruments work, but for now just keep in mind that with these instruments you can develop trading strategies where a loss in one investment is offset by a gain in a derivative. [Technical traders will often hedge their positions with options to limit risk or enhance returns. If you want to learn more about technical analysis and how to identify profitable trading opportunities, Investopedia Academy's technical analysis course is an excellent start.] Let's see how this works with an example. Say you own shares of Cory's Tequila Corporation (Ticker: CTC). Although you believe in this company for the long run, you are a little worried about some short-term losses in the tequila industry. To protect yourself from a fall in CTC you can buy a put option (a derivative) on the company, which gives you the right to sell CTC at a specific price (strike price). This strategy is known as a married put. If your stock price tumbles below the strike price, these losses will be offset by gains in the put option. (For more information, see this article on married puts or this options basics tutorial.) The other classic hedging example involves a company that depends on a certain commodity. Let's say Cory's Tequila Corporation is worried about the volatility in the price of agave, the plant used to make tequila. The company would be in deep trouble if the price of agave were to skyrocket, which would severely eat into profit margins. To protect (hedge) against the uncertainty of agave prices, CTC can enter into a futures contract (or its less regulated cousin, the forward contract), which allows the company to buy the agave at a specific price at a set date in the future. Now CTC can budget without worrying about the fluctuating commodity. If the agave skyrockets above that price specified by the futures contract, the hedge will have paid off because CTC will save money by paying the lower price. However, if the price goes down, CTC is still obligated to pay the price in the contract and actually would have been better off not hedging. Keep in mind that because there are so many different types of options and futures contracts an investor can hedge against nearly anything, whether a stock, commodity price, interest rate and currency – investors can even hedge against the weather. The Downside Every hedge has a cost, so before you decide to use hedging, you must ask yourself if the benefits received from it justify the expense. Remember, the goal of hedging isn't to make money but to protect from losses. The cost of the hedge – whether it is the cost of an option or lost profits from being on the wrong side of a futures contract – cannot be avoided. This is the price you have to pay to avoid uncertainty. We've been comparing hedging versus insurance, but we should emphasize that insurance is far more precise than hedging. With insurance, you are completely compensated for your loss (usually minus a deductible). Hedging a portfolio isn't a perfect science and things can go wrong. Although risk managers are always aiming for the perfect hedge, it is difficult to achieve in practice. What Hedging Means to You The majority of investors will never trade a derivative contract in their life. In fact most buy-and-hold investors ignore short-term fluctuation altogether. For these investors there is little point in engaging in hedging because they let their investments grow with the overall market. So why learn about hedging? Even if you never hedge for your own portfolio you should understand how it works because many big companies and investment funds will hedge in some form. Oil companies, for example, might hedge against the price of oil while an international mutual fund might hedge against fluctuations in foreign exchange rates. An understanding of hedging will help you to comprehend and analyze these investments. The Bottom Line Risk is an essential yet precarious element of investing. Regardless of what kind of investor one aims to be, having a basic knowledge of hedging strategies will lead to better awareness of how investors and companies work to protect themselves. Whether or not you decide to start practicing the intricate uses of derivatives, learning about how hedging works will help advance your understanding of the market, which will always help you be a better investor. Read more: A Beginner's Guide To Hedging https://www.investopedia.com/articles/basics/03/080103.asp#ixzz5ColPHYx2 Follow us: Investopedia on Facebook

We have some really smart finance folks in the hive and would really value there suggestions. Hak on another thread has pointed out many options for financial planning of investments. We would like this tread to focus on hedging in relationship to trading forex while in planing and excuting a trade or series of trades as a method of money management reducing risk.

Mon, 04/16/2018 - 3:26am
 
gpdno

I hedge to reduce my risk. I know some people will hedge to break even or even turn a profit. I don't. I want the hedge to stay on as long as the positions is running too far against me but then close for break even when the price turns back in my favor.

I try and keep my hedging simple. like my trading ;)

Peace,
Greg

 
Rookie

Gregg, I suppose hedging is like buying life insurance some do and some don't. Obviously from an interest income perspective it is not a good investment. If you can't seem to save a nickel its maybe a good forced savings. I'd like to see an insurance study of trades on the buyers vs non buyers of life insurance and trading methodologies.

Gregg could you write up an longe explanation. or maybe a chart example or orders example of a hedged order and the order?

Here is what I am not understanding, if you take a position lets say 400 pips log. and your take a sell for the same 400 pips, you see my problem with this.

We buy life insurance for our family not for us, after we a dead what do we care.

 
hakchinoy

"Remember, the goal of hedging isn't to make money but to protect from losses."

Although the primary goal of hedging is to protect something from losses, please keep in mind that hedging can be--and periodically is--used strategically to generate profits too.

Roo7: I'll use your example. Let's say that you place a buy and sell on the same pair and price goes up 400 pips, and the interval between both orders is 1 pip. Let's also say that after closing the long, that price retraces another 21 pips, and then you close the short. Even though you'd close the short with negative pips, you actually would have made money from the long and short.

Does that make sense?

 
Jean-Francois

If and when I find myself hedging, it's usually +1 (order) so that I make a little while waiting.

 
Rookie

I understand the concept of what you are saying and have considered that but my thinking say;
1 that's a lot of time maybe i'll spent.
2. once it turned back I would not get out until the retracement was over.
3. Makes me wonder what the odds are for 50%, 75%, 90% or greater retracement?

I think I will set up a test using Doug's MSA 30 LT strategy and when a trade is cancelled just add the opposite order.
Two sessions ago it was up 4,025 pips and negative closed trades of 500 pips.Today it was at just under 3,000 pips, As I don't have access to more data but it did appear the the 1,000 missing pips was in normal market ebb and flow.

 
gpdno

Ed,

So to expand on my hedging a bit more... ->"MY"<- only reason for hedging is to reduce my risk ;)

In my funded account, I'm willing to risk 1.5% on each position I take. Shawn will close my trade at 2% and I would probably get yelled at ;) so 1.5% works for me.

But 1.5% is still too much money for me to lose so I will start to hedge if the position goes more than 0.75% against me. When I place a hedge it's TP is the same as the SL of the original position. So if the original position get stopped out, the hedge closes for a profit and the net result is I've only lost 0.75% on the trade.

When I place the hedge, my initial SL for the hedge is 10 pips but I will move that to break-even asap. Ideally, I would like the original position to turn around before getting stopped out. When this happens, I want to get out of the hedge will little to no damage.

Peace,
Greg

 
Rookie

Thanks Gregg, got it.

 
hakchinoy

I wouldn't hold a hedge trade--at least for any non-metals pairs--for 400 pips, because 400 pips exceeds their ATR(D1). Besides, most non-metals pairs wouldn't run 400 pips straight without a single retrace, so I'd have have multiple opportunities to remove the hedge (during the retracement phase).

The sooner one recognizes that the trade is retracing, the sooner one could remove that hedge. Please keep in mind as long as price continues to retrace after the hedge is removed, that the hedge--even after it's removed--continues to insure the married trade up to the price where one removed the hedge. So one also could get an added pop if one scales into a larger position on the recovery.

 
Rookie

ok I'll give that some thought.. thanks Hak.

 
hakchinoy

Oops, I just realized--after having reread what I wrote--that I had the directions mixed up.

The process of removing the hedge still is the same, but I'll rewrite it here with the corrections.

Please keep in mind that I'm building upon Jeff's notion of the phases of a trend: GRR (growth, retracement, recovery). For a brief refresher, a market enters the growth phase when price breaks out past the prior H or L. A market enters the retracement phase during a pullback; a market enters the recovery phase when the pullback ends with a reversal and the prior trend resumes--but price still hasn't reached the origin of the retrace (i.e. the prior H or L).

With that in mind, I apply the hedge only during the retracement phase, and I remove it during the recovery phase.

What I initially wrote (backwards) also works, and I periodically will use that method too for trading in certain consolidating markets, but I technically wouldn't consider that a traditional hedging strategy. Instead, it's a double-directional, mean-reverting strategy. I had it on my mind when I wrote my previous reply, because I was trading with that technique at the moment.

 
Rookie

Interesting I'll will put some thought to this and draw both methods out.. very good food for thought. thanks I think...:)
appreciate you Hak.

 
Rookie

so far I like JF +1 hedge the best.

Haks, reversal hedge has good merit to break even but you could always fade in with another trade or two.

Searching thru the forum threads,

In this theread https://apiaryfund.com/forum/best-feature-alveo-hedge-your-trades, tigger bee says you only hegde because you din't get out when you should have. Anf triguy agrees with that opinion. I really agree with this but I'm still dealing with throw away trades.

Some other points a view. https://apiaryfund.com/forum/hedging-001-trade-size-seems-win-day

https://apiaryfund.com/forum/how-i-manage-my-longer-term-swing-trades
GC wrote;
I do "set and forget" but it's a hedging strategy. I only place two orders around the trend, one long above, one short below, I set conservative take profits (+20 pips only) and no stop losses. Many will say running with no stop loss is dangerous but my orders are never over 2 micro-lots, and I never place more than 6 active orders at a time. I blew up a real personal account using the stop loss strategy. I only close winners. When a winner closes, I place a new order just above or below the trend depending on which order closed (short or long) I never ever close out a losing trade. All of my losers so far have eventually swung back in their favor and I've been able to close for profit. What this does is rapidly build your profit and your 90 day rolling risk average by only banking winners. I let the losers ride, eventually the trend almost ALWAYS swings back in their favor. If you chose your pairs carefully the trend is going both ways. Name a currency that has continually upgraded or downgraded over a long term (say 3 months) If you can, then don't play that trade. I've been able to grow my demo account to 10123 in two weeks using this strategy. Right now I only have two outstanding losing trades on the GBP/USD pair that are -181.60 pips total, and they've only been open since Wednesday the 4th. As you can see, by only taking the winners and profits, there is no other way to go on your money management but up. If I decide at some point that this trend is not going to come back my way, for example if the -pip number gets too close to unbalancing my total winning pip accumulation, then I can close and still be ahead on total pips won, So far this hasn't happened. If I do close the losers (which I haven't had to do yet) It's the same as taking a bunch of stop losses all the time, only cumulative, and much more careful, and definitely less nerve wracking. I am more in control of the amount I lose, and I choose when I want to loose it. I can better manage my risk/reward ratio this way, no surprises with fast moving up or down trends. Since I am hedging I always catch winners because I've got the trend fenced in. Before I enter any order I check the market volatility. I find the pairs with the largest strength/weakness spread. I also look at all the pairs long/short ratio, and read the market news. I look for trends that are sporting a classic sine wave movement in the last 24 hour period. Since some of my losers end up being long-term riders (more than a day), I try to make sure all my winners are closed out before Friday close of market to avoid extra charges or loss of profit. So far I've not had to ride a loser longer than 3 days. This strategy is working for me and I'm not going to change until it is proven that it can beat me. So far it hasn't.

https://apiaryfund.com/forum/what-techniques-do-you-use-disengage-hedgin... hak wrote.
You have 3 options: 1) add another leg in the direction of the trend, 2) break the hedge (by closing the losing leg), or 3) do a shift (or place a trade with another pair that has enough momentum to enable that trade to help you recoup the trading related costs of that hedged set along with the trading costs of that additional trade [optionally plus enough for a small profit]). Each option has its own pros and cons.

Well that's the just of 10 pages of the forum for a hedging search. One item I did leave out hedging will not save your bacon from a 2% auto shutdown... just saying.

 
triguylm1

Yep,

The market moved back and forth today and I hedged both my long position on Silver and Gold and made money both ways. Up over 3.6% today.

Capture 114.PNG
 
hakchinoy

TGL: Yep. I was doing the same thing with U/J today. :)

 
Rookie

sounds like wobbling to me, of course you folks use the %R to the max for multiplied leveraged results.
Something that is one of next to days, right after the 29th.
Wobbling on a 1hr chart sound devilishly delicious.
Triguy and Hak what time frame are your using for this?

 
triguylm1

Hak, excellent results, thanks!

007, Nothing new on TF, just as one would think; Check S/R levels with H2 chart and use M5 for candle formation to verify entry and exit in strong sell zone near resistance and also strong buy zone near support. (Tuesday -- Gold @ 1337.00 up to 1348.00) Today low so far is 1342.5 and so I think we may see another push up to 1352.00, Just my thought on this one, Canadian monetary policy coming into play later today. Please check the economic calendar for time.

 
hakchinoy

Roo7: My approach essentially is similar to wobbling--especially whenever I'm scalping off lower TFs. Yet, it also differs slightly, because--like Jeff--I periodically will use this method to load the boat whenever trading within those ranges. Shawn periodically will do that too, but Jeff and I are more intentional about it. ;) Check out my comment here (https://apiaryfund.com/forum/love-triangle-all-wins#comment-84045) for a bit more info on it.

 
Rookie

Doing now and thank you

BTW, you had sent me this in another post, All of that stuff enables me to assess the market conditions and make adjustments in real-time. After that, I let my money/risk/trade management do the heavy-lifting.

https://apiaryfund.com/forum/gbpjpy-2#comment-103550

am enjoying his series of course I like folks that draw good geometry like me....:)) thx Hak.

 
hakchinoy

I thought I did, but I just couldn't remember if it was via PM or thread. ;)

I'm all about the geometry too. =)

 
Rookie

Hedging chart complements of JF and a really long title....

hedging.jpg
 
hahgit

thank you Greg. It is a good explanation.

 
Rookie

I hedged the EURUSD yesterday but after a few pips negative I closed them out, Today's action showed there was no error in my judgement, it just took a little longer.

So I tried a lot of hedging this morning trading with Shawn. Lost 200 pips over several trades. I said to myself when the trading room opened I was done for the day. But for the second time this month the qst being the trading day. So what did I learn? Trade my plane not someone else. Even if it the best trader in the world.

Anyway I'm tired and not as good as loser as Todd. Have a great day folks.

 
Jean-Francois

Speaking of Hedging - this 77 page thread on the matter of the 'impeccable' hedge, started in 2006 on my favorite bulletin board Kreslik.com - - - - > https://www.kreslik.com/forums/neoticker-indicators/fpi-fractional-produ...

 
Rookie

JF, great post about hedging, I understand the concept.

Is that where the phrase trading between the quotes comes from?

Here is the part I have a hard time with "FPI relies on your broker not being a bandit"

I see a lot of finagling just on information web sites I can't imagine how you folks would determine if the broker is a low end scalper themselves. Sufficeth to say it will be long time until at get to that level of precision.

But hay JF thanks for the site referral. I like the way that was written. Even me could understand the principles...

 
hakchinoy

"I have a hard time with 'FPI relies on your broker not being a bandit'"

One needs to understand how one's brokers/LPs get paid to determine the ways that they could cheat.

For example, some brokers who get paid simply for matching orders could use slow fills (on closing trades) to pay out less money on one's profitable trades. The also could use slow fills to earn more money on one's losing trades. And so forth. . . .

 
Rookie

Thx Hak, your POV is valuable to me and others I am certain but for me i am not going down down that rabbit hole just now, my plate is full. Thanks for the post.

 
hakchinoy

You're going down that rabbit hole!!!! ;) Besides, Jeff already has taken you there anyway. :P

 
Rookie

Hak, thanks for the heads up, I think...)

I think it's like a black hole, I'm ok with cruising around the edge and maintaining my distance...

 
hakchinoy

You're standing with your toes at the edge of a 10 meter diving board pondering whether or not to dive into the water. You won't know how much fun you'd have in that water until you take your next step. :)

 
Rookie

Ha, Hak as a previous diver I can avoid that dip again... just saying... I know what I am missing and I have a bigger agenda just now.

A wise hungarian proverb said if you want to drown yourself don't play in the shallow water.

 
hakchinoy

So as a diver, did you ever do any cannonballs off a 10 meter platform? :)

I don't know about that Hungarian proverb, but I learned awhile ago that one could drown with only 1tsp of water.

So jump and focus on breathing the air--not the water. :)

 
Rookie

I have and much more however at this moment in time my focus will be almost 100% on my efficiency and expectancy vis position sizing, When completed and consistently profitable day in and day out I'll get back to my playbook and the momentum+sentiment=trend thread and after a bit incorporate or fold this concept into the topic. What can I say hedging is more than I can handle right now. It is good for one to know when it is enough.

 
hakchinoy

I was just teasing you for a moment. :)

Seriously, though, you eventually realize in time that position sizing is a relationship that depends upon your transaction related costs, SL, and risk per trade--regardless of the strategies/techniques that you'd opt to use.

One's trading efficiency depends upon how optimally one manages one's trading range costs, transactional costs, and losses.

 
Rookie

NP Hak, I knew that because it was out of character for you my friend. Fro what its worth I have been burned with WP and hardly flinched and it burns about 3,000 degrees. A hot seat is ok by me.... I'm glad you livened up my afternoon. I have realized that a logically controlled position sizing is the key to a great equity curve. I started the S+M=T thread for just that purpose. Last week is my last negative week in the beeline. I will not be side tracked by the task at hand until I make that happen.

 
Rookie

Hak, quick change of subject sort of. Maybe it was JF that mentioned VAR. https://www.oanda.com/forex-trading/analysis/historical-value-at-risk-ca... if your looking at EURUSD-Day on this VAR modle. What is it telling you besides the avg number of pips for XXX previous candles and the confidence that level that it is going to continue. ?

And if a novis were to create a hedge would this type of tool be most helpful?

 
Rookie

THIS IS A REPOST BUT IS ON TOPIC.

POSTED BY TRIGUY/Leslie

Hedging strategies work better when markets are range bound, so the idea is to continue to buy at the bottom and sell at the top. So that begs the question how can one pick the top and bottom? I think it's possible, I have had a few lucky cracks at it, but that's because I kept adding to a position in the market and landed an entry at the pivot high of the day.

So, the way to approach this system is, to begin with, a buy and a sell position near the middle of the trading range, or one may elect to simplify by using the 200 ema line for the entry point. As price enters a price zone near support add another long position or more positions if the risk to reward ratio is above average.and tighten trailing stop on short position(s).

As price returns to the 200 ema line take profits and re-enter positions (Ladder strategy) both ways again. As price decides to run bullish and test resistance add another short position and begin to tighten trailing stop on long position(s).

So, each time price returns to the 200 ema, take profit, and every time price runs to Support or to Resistance, take profit and reverse position.

Please keep in mind monthly reports come out the first week of each month, so beware of larger runs during those events. `

Tue, 05/29/2018 - 3:53 pm

 
Trader1

Good stuff

 
milspasystems

Are US citizens allowed to do hedging strategies using Alveo? I haven't been able to find anything in the Apiary forums regarding this question.

 
Rookie

Yes, Apiary Fund uses non-USA vendors. No sweat the software will deal with it when you place the rade.

 
Rookie

Leslie wrote:
"Doesn't have to be like that.
I'm using hedge system to build off bullish run last 2 hours on XAG/USD
Capture 160.PNG
Sun, 07/08/2018 - 9:54 pm
In Random Walk Not.

Leslie would you add detail to the Hedging statement;
How long were these trades open etc, So I can compare to my 2H example with no hedging.?

I was showing 29.0 pips for that period and your showing 47.0 of which 29,5 are unrealized.

triguy.PNG
 
hakchinoy

"Hedging strategies work better when markets are range bound"

Hedging strategies can work effectively in consolidations and trends. The real question is whether one intends to use them to play offense or defense. If one intends use them to play offense (or make more pips), then they definitely work better in ranges. If one intends to use them to play defense (or protect another trade), then they can work effectively in consolidating and trending markets.

RNM: Instead of asking TG what he did, try to reverse-engineer his result using your trading approach (along with your results today for tuning). Doing so will help take your trading to the next level.

 
Rookie

Thx Hac, I will try... once again but in your statement one for defense and one for profits there is a missing link in my noodle.

Maybe hedging for profits isn't hedging at all but scaling in.

 
Rookie

So in thinking about "hedging for profits" I think its a misnomer a question of semantics.
Placing trades when the PA is going in your direction is scaling in, laddering increasing your lot size as you build the ladder.
This is not a hedging technique at all. Just the normal building of a position,
Am I missing something?

 
jpgrissom100

Hedging is a practice I've been curious about for several months, but I've been focusing on enhancing my fundamental trading skills. Is there a topic in the library about hedging practices?
Thanks,
Jim Grissom

 
Mike Smith

@hakchinoy

"then they can work effectively in consolidating and trending markets." Can you explain please

 
Rookie

@jpgrissom100, read up above there are a few.

 
triguylm1

Sorry it takes me a while to respond, My work is still a priority, as I'm now under contract with the Union. So, I.m only working 10 hour days instead of 12 to 14 hour days. LOL

@ Rookie no more. I certainly didn't mean anything negative in my comments, but was pointing out the market will move so slow at times in some currency pairs while others are moving in a whipsaw.

Anyway; Did anyone capture more than 1% profit today? Since we saw a trend reversal around 8:00 GMT.

Also, Keep in mind a hedge trade is very temporary in most of my positions. Since, the idea is too provide counter trend profits when PA and market conditions begin running in a hedge direction. In Shaw's class on Stop settings he explains this method very specifically.

See @ https://apiaryfund.com/training/discussion/strategy-behind-stops

So, a hedge for profits, can simply be a process of collecting 3 pips x number of hedge trades executed during the counter trend run. How far the counter trend runs is certainly a challenge, especially when market begins to run in a sideways price range.

Perhaps, another name is entering trades under the "counter-trend line" signal, but I figure S/R zones provides a similar entry with a little better entry price. Not that the simple break-out system can provide the same results in some cases, depending when market is expanding.

Keep trading, the experience will pay off!

Best wishes everyone!

 
Rookie

Thx, Leslie, to me if trading in the direction of the trend is not hedging, building a buffer or position but hedging is when the PA is going against you and you then hedge against a negative position.

Thx again.

 
triguylm1

Yep, that is what I meant as well.

Also, I tend to hedge short term. More often than not, the negative position is short lived anyway.

The difference then is reading the reversal signal correctly.

Does that make sense?

Like on the GBP/USD today, Notice my set-up position I posted yesterday on the GBP/USD thread. I will attach here for convenience:

Chart shows a bearish break-out as price runs down past 1.32775

And that is what happened after price tested a bullish run earlier. Isn't that typical of a "daily" candle?

Capture GPBUSD H1 Chart with 40 SMA & 9 ema Using  Price Range.PNG Capture GBPUSD continued break out.PNG
 
Rookie

Thx Leslie. What I was thinking about the hedge. That GBPUSD move this AM was one I meed! WoW 150pips...

 
hakchinoy

"Placing trades when the PA is going in your direction is scaling in, laddering increasing your lot size as you build the ladder.
This is not a hedging technique at all. Just the normal building of a position,"

Straddling a consolidation is 1 of many variations of hedging. Another alternative, which technically isn't hedging, is to implement the the straddle with a buy/sell stop order and OCO.

Strangling a consolidation is another variation of hedging. The key difference here is that the prior structure assumes a continuation; whereas, the latter assumes a reversal.

Offensive example:
One could strategically leverage the phases of a trend (or market cycles) to time when to remove a hedge. For example, one could hedge one's position right before (or immediately after) price begins to retrace, and scalp that hedge trade once price enters the recovery phase. That way one could profit on the hedge and one's original position, because scalping off the hedge reduces the cost basis (https://www.dough.com/blog/cost-basis) of the original position (which essential lowers the b/e point for buys or raises it for sells).

Defensive example:
Another alternative is simply to place the hedge (as before), wait for price to retrace and recover, and remove the hedge as price breaks out (aka the growth phase).

That's only the tip of the iceberg. Jeff went over these--and more--strategies/techniques in his hedging series.

 
Rookie

Thanks, Hak for this insightful post. I'm going to have to think on some of this info and draw out the scenarios you are describing.

 
hakchinoy

Think of it this way: straddles expand and strangles collapse. :)

 
Rookie

Thx, I will need to draw it out for the scenario...

 
cdowis

Straddles are the basis for a butterfly, strangles for an iron condor, but you are talking about something else. Just ignore me.

 
Rookie

Works for me, thx cd.

 
Neil G

3 comments:

1-I'm pretty sure that the reason that we can hedge with Alevo is because all of our collective orders are processed as one (or two accounts - eg. one long and one short) with each of the LPs. Not because of the location of the LPs. The long/short reconciliation takes place during the 5:00 pm (ET) unavailability of Alevo.

2-I have used hedging successfully to prevent myself from hitting the dreaded 5% (I believe this what hak is calling "Defensive example:" above). Like everything else, timing is important but it can turn a huge loss into a pretty good day.

3-Use it to freeze time while you think about how to get out of problem (Shawn has mentioned this in at least one TR).

 
hakchinoy

"'m pretty sure that the reason that we can hedge with Alevo is because all of our collective orders are processed as one (or two accounts - eg. one long and one short) with each of the LPs."

Actually, Shawn explained back in 2014 that Apiary is structured with an IBC, and that enabled Apiary to work with Divisa (using an institutional feed). Later, when transitioning from MT4 to Alveo, he explained that Apiary would work directly with some LPs (again as an institution). Plus, he explained that Apiary isn't a (NFA retail) broker. He's an accredited investor (or ECP [https://www.investopedia.com/terms/e/eligible_contract_participant.asp]); we're trading his money; Dodd-Frank--thankfully--doesn't apply to us.

Additionally, I'd include both cases 2 and 3 as defensive examples (they're 2 sides of the same coin for me).

 
Neil G

"Actually, Shawn explained back in 2014 that ..." - Ok hak.

Yes, 2 & 3 are defensive... just showing examples.

 
hakchinoy

I knew you were, and I appreciated the assist. :)

It helped to confirm that the concepts are general, and that I wasn't just making stuff up. ;)

 
Rookie

Hak, "Besides, isn't it interesting how catching something so subtle like that logical grouping could radically transform one's trading results? :)" That never occurred to me, I trust but test in my own way just don't have your skills but I know you have done your homework and made it your own.

 
Rookie

This CATT class started with Jeff referring to Shawn's wobble but more importantly, it's about proper hedging in a range bound market.
Wednesday, August 29, 2018, 7:00 am America/Chicago change timezone Instructor: Jeff Crystal
http://apiaryfund.com/training/webinar/instruction

For me the biggest point here is getting lopsided and how to avoid it with range balance between potential max move and whats left to move. Keeping a proper balance between unrealized pips, Pips Today, Daily Return, Positions remaining vs Max positions available.
When a trader gets out of balance or lopsided why it's oh so important to close the losers early.

I use the one-click now all the time. If at 1%R and .02Q with a 10 TP and a 10SL the calc says to take 7 trades for 1% risk I do. That will maximize the return, however, the inverse is also true (your win-loss ratio should make the positive equity difference) and if you move your SL and let the loser run guess what, you just changed the 1%R to many more %R. Then and here is where traders really get into trouble. Oh, it will come back!! No Problem. Ever Said That? And the PA may but do you have enough equity to wait it out? Do you have enough positions left to trade out of it with hedging one side or the other?

Absolutely great class.

 
BobCat

I'm not yet strong to hedging. This information is very valuable. Thanks.

 
Rookie

Another Great session from Jeff, https://apiaryfund.com/calendar?event=40571&d=#calendar-event
while I am calling this hedging, you could also call it playing both sides of the fence. Today Jeff focused on balancing his orders along with buy stops and sell stops to maintain a 50% or less of his available positions to trade.

Jeff used the 1M chart for the increased volatility of this methodology as opposed to longer time frames where the volatility is flattened faster.

Hak, if you still reading the posts how would this work on much higher time frames of saying several hours or day??

 
jberry25

I realize markets tend to move up and down and I've heard of a hedging / straddle strategy that can be used by stacking lot sizes. For instance lets say long term eurusd is poised to go up as it's trend is up long term, but in the short term there could be retracement/correction. One could place a buy and sell order to profit from both market directions while also increasing the lot sizes as market moves in favour of the intended direction.

 
Rookie

@Jberry, Jeff is teaching that the last week or two in Catt Tools. But with balanced trades on both sides and mindfulness od the risk and positions. It's a good series if you get the chance check it out.

 
josefpfister

Where is the forum that discusses Jeff's hedging techniques. Is this it or is there another forum that Jeff started. He mention last week that he started a forum for that purpose, however, I haven't been able to locate it. This one you started Rookie.

 
Rookie

Josef, I have searched and can't find it. Like it vanished!

 
Rookie

Josef, Kim had the link,
The last five Cattools class and Q and A
https://apiaryfund.com/forum/last-five-cattools-class-and-q-and?page=0#new

Not sure why the search could not find this as I used several of the keywords in this post.

 
bob.bowers40

As Rookie reposted, I find myself hedging from the middle and working towards support and resistance. It has gotten me thousands of PIPS and only 1 major burn. I placed to many open trades so that I could take a weeks vacation without watching daily. The run in one direction was swift and painful. I was able to go without watching the trades for 24hrs thanks to being shutdown. I learned that lesson the hard way and now I know to use the strategy with micro lots and fewer positions. That has worked very well. I am still studying Fibs, as I want this as another tool for my belt when I have the chance to take time and grab SIPS as Shawn does. My opportunity to spend that much time in front of the screen is rare unfortunately. I would rather SIP then let the trades run but you have to do what is working best for you and that is where I am currently. It serves me well but I do love to SIP and enjoy when I can. I have found this journey to be very fulfilling. Thanks for all of the insight folks. Getting inside your noggins has been so enriching as I travel this path.
Have a Blessed Day!

 
Rookie

Bob, thanks for the post, sounds like you longer term trading to doing great! As with Lindsey's S & R trading if it's not broken don't fix it. I understand the desire to have two strategies as I have a similar desire.

When I look at your successful post or Linsey's posts and the new guy Plunger all are longer-term traders or at least longer interday traders. In reading a few books and about other traders with the exception of a few scalpers that for the longer time frames it appears that scalping or wobbling is not the best road to travel. I am not putting these traders down in any way just saying it is harder than most folks think to be consistently profitable.

 
mmidave55

Very interesting topic. Thank you everyone for sharing.

 
teejay.gray

My schedule only allows me evenings EDT. I keep thinking hedging would work for positive pips but whenever I try and let a loser go because the range says it will come back it overshoots the range briefly, then turns. I lose both ways. Can"t seem to get in snych with the market. Just seems to me if you could lose 50 pips you could win 50 pips. I'm not nearly as smart as all of you guys. I study price action a lot cause that is what all indicators are based upon.

 
solagtech

I recently added hedging to my trading strategy... I place a trade in the direction of my research for 30pips profit, and place a negative 10pips to my open position hedge, for 30pips profit. My stop-loss is 200pips. I keep trading within the -200pips and +200pips stop-loss range, taking 10 to 30 pips profit and carefully closing out the losses before the 200pips stop-loss once I have a net 30pips profit. Still working and improving on this trading strategy.

 
rothgtr

I saved myself a lot of headaches with that by making use of buy/sell stops, you dont have to watch it nearly as close, Set your openers 10-30 pips of asking price. Good Luck..

 
markpowers80

Okay, so I'll ask a question. I'm curious what the Bees out there think.

I have learned a bit about trading on a time-frame of a day or more, which appeals to me. Certain trading philosophies, such as support-and-resistance and supply-and-demand, tend to longer TFs.

In hedging, one sets up at least two opposing trades. Let's assume a situation where there's a long and a short. After a time, one of the two trades looks acceptably profitable, and it is closed. If left to itself and given enough time, the other trade will likely also become profitable due to the "natural" movement of the Market, and could represent an opportunity for desirable pips, if left alone long enough.

Possible drawbacks? Of course, one would have to have enough lot size in the account to allow such trades to develop without feeling that one needs to close the hedge b/c one needs the lot (the capital) to trade with. Also, leaving the "hedge" running may require a new counterbalancing trade in order to avoid the dreaded Risk Monster. Again, one assumes a large enough account that the pips in the two hedging (opposite) trades are not needed in daily trading.

What I have heard about supply-and-demand is that there is no randomness in the Market, that instead the Market is constantly manipulated (except for things like the SNB unlinking from the euro, but couldn't one say that was only manipulation from a different group?), and that by the big market makers such as banks or large funds or traders like G. Soros. In such cases, it seems likely any position the Market takes will be altered by those that NEED the Market to move in order to make a profit. For this reason, it seems likely that any trade one could put on would eventually make a profit?

What think ye? Could hedges just be played over and over, given a large enough account?

I appreciate any thoughts.

Best wishes, and one fine day I WILL be funded!

Mark

 
huntb44

NO they cant be played over and over given a large enough account. All you're doing is refusing to suck it up and take a loss. Hedges work in a tight ranging market. As soon as the market starts to trend it's game over, get out before a small loss becomes huge. Ex. what a pro will do is ID a range at 1.14 to 1.15 and as it approaches 1.15 sel .01 at 1.147, .01 at 1.1475 etc all with a stop say at 1.1512 and when the turn comes he rides it out collecting pips and taking profits along the way. He may have 5-7 positions on with an average price of 1.4787 and he is never at risk for a huge loss but at 1.43 and lower he starts to have some really decent profit all within a predicted range of 1.14 to 1.15.

 
huntb44

I used .01 bc as Bees that is your 1st time funded amount the pro could be trading 50 full lots at each price point looking for millions before it's all over. As minnows in a whale's ocean we are just going with them.

 
Rookie

Mark all good questions and yes your just around the corner of being funded.
So I break hedging into three categories for all practical intent and purpose.
1. the Shawn wobble type for building positions.
2. The defensive hedge when a trade goes against you, I close the trade and open the reverse hedging.
3. When a trade that was going against you reverse, then I may scale in going back to the target
4 this one doesn't count, never add to a losing position...LOL

Your drawback is quite correct, especially the longer time frames. This is a real issue for those less than 10K accounts.
Another drawback may be if your trade a basket or place multiple trades per pair, covering the positions may well put you close to or over the 50% of available positions optimal do not cross the line and thus lose the ability to wheel and deal.

Mark, there is no random walk market no matter the strategy deployed. There are road signs always, candles, small patterns and of usually suspect indicators. To fully understand the big boys is beyond my pay grade at this time:)

Sentiment drives the market fast and slow I simply try to understand the momentum of the move according to its time frame

 
TraderHewitt

@markpowers80

Sounds to me like you have been listening the The Plunger worrying about what George Soros is doing!

My 2c is no, it doesn't work like that. There is no guarantee a market will always trade at a particular price again.

In your example, assuming a longer timeframe, what if you had done this and the open part of the hedge was say Short Crude @ 30.00, or Long EU at 1.5900 ?

Will crude ever trade at 30.00 again, or EU as high as 1.59 ? Who knows, anything is possible, but the point is you are going to wait years carrying that drawdown that is pretty large (and these are going to add up, over time you will get more and more open sides that are taking months or years to trade that price again)

I know those are extreme examples, but it illustrates the point.

Yes, very big traders and market makers push the price around to some extent (and obviously the less liquid the market the easier this is, i.e. its much easier to manipulate the DAX future with only a few lots on at each price than say Treasuries where 1000's of lots can trade at each price), but this does not mean it will go to every price again.

I wouldn't worry about manipulation either, sure there is definitely manipulation, but so what? They are not moving the market to target your stops or trades personally (though its true in general the market seeks liquidity, which is typically where retail traders place stops, which is why it appears the market makers target your stops personally), if a market is moving up, try get in long, if its moving down, get in short, whether is moving because its a valid fundamental reason or collusion/manipulation, who cares?

 
Pips for Profit

I tend to also agree with previous statement that we are probably hedging to protect from further loss.....but from a position that we should have closed. Especially in a trending market........In a range bound market it can be ok, but I made the mistake of hedging my position in my prefund $1000 account. Regardless if your positions are hedged or not, if your loosing position gets to 2% drawdown....(only 20 bucks) you are automatically closed out for a big loss. Also if you are hedged in a position to protect say from having a 5% automatic closeout on your account and the spreads get really horrible after market close, you can very quickly get closed out at max 5% loss. So.....especially trading with $1000......hedging strategies should be avoided because their benefits can't really be realized in such a small account without taking on too much risk.

 
Rookie

@Pips, but would you not say what is a truism at the 1K level is the same truism at the 10K level?
The odds are the same It's just a bigger playground?

 
Pips for Profit

I think to an extent this is true. But at 1K level you can have your positions completely protected....(Hedged) and the 2% loosing side of your position can get hit very quickly.....even though you protected the loss with the opposite side...with winners. So there is a bit of a difference with a very small account where there is just not much room for much play in price action. In a larger account size....you have much more room in a range bound market.....or more time for a reversal in order to work out of your open positions.

 
Rookie

Pips, I know very well about the small account...
What I am repeating what Apiary is saying is learn to handle the same and we will give you big,
The odds are no different the amount of equity just the trader.

 
Pips for Profit

yes....the odds are the same regardless of any account size. I was just saying that there is more flexibility to work out of loosing trades with larger account size without being forced to book a loss.....that's all.

 
Rookie

agreed, BTW I still have one of those small accounts...:))

 
Rookie

I thought the following is a good example of a few things. I could not trade last might as Medicam decided to do whatever from midnight to 5 am. Ak no internet and no cable TV at the same time.

1. how to get into a negative pip situation.
Started trading at 5 am m, lost a bit but cam back to about +50 pips by NY open, left a few trades on and went to fix a quick breakfast. Upon returning I'm down about 2:25 pips. A real WTF.

2. the two choices
I can either close out and start over again or wait for the PA to turn back in my favor. Checking the longer term trend I decide I'll hold em.
At 800+ pips negative and almost 4% down I'm beginning to think I am really, really a fool.
Ak made it thur the lackluster news at about 700 pips down.

3. what I should have done
Discretion being the better part of valor and the wise decision is to play the odds. I should have closed out and quite for the day vs waited a bit and started trading again.

4. oh well let's work my way out of this.
So now unless I want a huge hit I'm going to work this out. On the run-up retracement. With a going with the trend hedge.
One might call this a hedge going in the direction of the open traders.
One I am following the open trades to there original TP target
Two I am always adding to the positions to aid in the reduction of the deficit in case there isn't a 00% retracement and I have to dump the losers.
Seldom will this fully occurs and I would have been stopped out. However "gambling: that I was correct in my chart analysis I could close out at any time and all the while reducing a very bad position.
AS price action is, in this case, lower highs and lower lows as the prove had run up 50 pips the initial traders were out of the channel I expected PA to retrace to.
AS you can see from this image the PA where I started, went to and back down again. At the end of my session, I always close out all trades win-lose or draw, Today I had only four trades left for 30 pips unrealized and closed them out.

So yes I should close out as soon as I saw the destruction.
The good news is I was able to save the session by remaining calm and working my way out.

10-30-2018 Bronx NY open to 1145 AM CST.JPG
 
Rookie

The attached hedging chart is the first hedging strategy that actually makes some sense to me.

While doing your normal short-term or swing/day trading to have an underlying long-long-term-trend trade,
However, given the 2% and 5% rule, I don't know if a trader could utilize the strategy within the Apiary confines.

hedging.jpg
 
getsitdone1

Setting a stop-loss at only 10-30 seems dangerous to me, it moves so quick that i think it will be stopped out before it has a chance to rise

 
JayTea

@getsitdone a SL of 10-30 is only going to be too much if it exceeds your risk parameters for your system. For you it may from the sounds of it,

A larger SL sometimes is needed for a longer time-frame trade, and you can adjust for that risk several ways.

 
burton

"hedge it's TP is the same as the SL" ...this is not true, it does not take into account the spread.

it is possible for only one of the pendings to be triggered.

 
burton

there are some flaws with the "impeccable" hedge, if one is using it to outright trade for profit.

you will find, that the, the suggested pairs, will not reach the point discussed, because the one side of the transaction happens on the ask side, while the other happens on the bid side.

i have had an impeccable hedge open for over a month, watching it, and tracking how it moves.

there is much more to it, than what was written.

in the real world, the math simply is not that clean.

although, it's pretty cool to see the "impeccable hedge" make it's way into this discussion.

 
burton

in my experience, once the negative float hits 1%, unless you get price to move in your favor, a hedge will do little more than if you simply go flat.

it is far more effective to start looking at a hedge around .5%, and, i would offer that there must be a compelling reason to hold a negative .5% float.

at a minimum, the hedge will give you time to consider your options, to reevaluate your positions, the current market situation/context, and then you can decide whether or not you are going to unwind the negative float, or simply start over.

capping a .5% loss, with a hedge, is far better than riding the loss up to .75%, or even 1.0%...why?

- a .5% loss that is allowed to run to .75%, has seen a 50% growth in the loss.
- a .5% loss that is allowed to run to 1.0%, has seen a 100% growth in the loss.

again, once you hit a .5% negative float, you're account is on the edge...especially if price keeps pushing against you.

either go flat, or hedge, just don't let the negative float get any bigger.

this is what i have learned from experimenting, and working with hedging.

once an account gets above a 1.0% negative float, the risk grows exponentially...the forex leverage now begins to multiply the loss, and each small move ends up having a larger, than typical impact on the unrealized amount.

 
elmerroth88

Apiary allows for Perfect Hedging on the Alveo Platform. Its a great strategy to eliminate all the risk and profit from your trading.

Yours in Service
Elmer James Roth

 
klwilliams5000

I hedge a good bit. When I make profit on one, I close it and wait to close the other. I have 2 platforms I use and work them together. If for some reason, I have both with the same position and I need to hedge, I go with a different pair. EX given:
Metatrader EUR/USD- Long and Oanda EUR-USD- Long as well, and they go against me, I go Short on AUD/USD on one platform and not both. I usually try to use one for Long and one for Short, but sometimes if one is going good, I'll go the same.
Recently I was in a trade and I really got turned around in and was loosing about $1200. I worked it down, using the other platform and it did take some time, but I came out really good. Overall loss was less than $200. It was my mistake because I didn't have stops in place, but it worked itself out and I used the one account going short and then I would also do some scalping in between. I would feed my wins to my loosing account.

 
klwilliams5000

I hedge a good bit. When I make profit on one, I close it and wait to close the other. I have 2 platforms I use and work them together. If for some reason, I have both with the same position and I need to hedge, I go with a different pair. EX given:
Metatrader EUR/USD- Long and Oanda EUR-USD- Long as well, and they go against me, I go Short on AUD/USD on one platform and not both. I usually try to use one for Long and one for Short, but sometimes if one is going good, I'll go the same.
Recently I was in a trade and I really got turned around in and was loosing about $1200. I worked it down, using the other platform and it did take some time, but I came out really good. Overall loss was less than $200. It was my mistake because I didn't have stops in place, but it worked itself out and I used the one account going short and then I would also do some scalping in between. I would feed my wins to my loosing account.

 
FrankS

As a futures and options trader, I find hedging in Forex as not the same animal. First, if I am long the SP500 or a futures contract, I might buy insurance in the form of a Put option. In other words, a hedge there is literally an insurance policy. However, it is a fixed cost with a time expiration. On the other hand, I can place an opposite trade with a related vehicle. This I think this fits the Forex scenario more. Correct me if wrong.

Being long the USD/JPY and then shorting the same acts more like a governor on a steam engine. In essence, it is acting as a throttle, whereby the term "balls out" means there is a centrifugal limit placed on the throttling.

With Forex, though, there is no time decay, but there are loss limits on both the initial trade product and the insurance policy as price deviates away from the median of the initial price and the so-called hedge. So, at what point do you remove the hedge? I personally think you're no worse by reversing your position and going with the flow. After all, if you need a hedge, your initial thesis was wrong. No fault in that unless you compound it.

 
Rookie

"your initial thesis was wrong" or the PA reversed.

 
nmvempaty

I am new to Forex trading and still have not placed a forex trade with real money yet. However I have traded stocks and options for a number of years. I usually adapt a hedge strategy on stocks before quarterly results are declared. Sell out of the money calls and buy out of the money puts so no gain no loss if the stock doesn't take a big swing. Like in any field, the devil is in details so have to work out the hedge calculations carefully.
I am trading forex in the simulated account at Apiary fund and my hedging strategy is to buy and sell the same pair at the same time.

 
burton

"With Forex, though, there is no time decay" ...fsherosky, true, although, in forex you can have swap, and finance fees...so, in a sense, you do have decay. also, the spread can impact the value of the open hedge.

"So, at what point do you remove the hedge?"

personally, i look at it quite differently, at least given what i've read, here in the hive forums...

i see a hedge as an asset, for the trader...instead of a negative float, the trader with a profitable hedge, will have an open positive float, effectively changing the overall value of the trader's account.

when trading with an open profitable hedge, the trader is effectively leveraging the positive float, which can provide the trader with several benefits.

there are some extraordinary benefits to maintaining an open positive float...it's all in the math.

the most significant point, with such a trading tactic, is this, the trader must be taking quality, high probability trades. a hedge will not make the trader a better trader, nor will it prevent loss.

in fact, if the hedge is not properly understood, it can be broken, with a single trade, and introduce a level of unexpected risk to a seemingly profitable position. just to be clear...

- if a trader has 5 short positions, and 2 long positions, same asset...this is not a hedge, attempting to mitigate a portion of a trade, with a similar counter position, does not reduce over all exposure. in forex losses/profits can exceed the trader's investment. calling such a position a partial hedge, is not wise, as it does not speak to the open risk, risk that has no limit.

- also important to note, even with equal short, and long positions, a trader is not guaranteed a positive float, as a hedge, can be positive, or negative. yet, in both cases, there will be a ceiling on the overall risk exposure, due to the hedge.

for me, i've been working feverishly to nail down my entry rules, an risk management upon entry, i'm very close to having it sorted out. why?

- this is all about opening a hedge, expanding a hedge, and breaking a hedge, as well as taking profits while maintaining a hedge

anyways, in my mind, to use a hedge just to manage risk is a very narrow, and limited perspective, of an extremely powerful tool. a tool, if managed properly, will give a trader an unprecedented edge.

one last note...

to hedge in forex is unlike trading other instruments. forex has a very unique personality, a personality that does not always translate to other instruments.

my point, to compare a forex hedge, to hedge formed with a different class of instruments, is to misunderstand what the forex market actually represents, and how it behaves.

 
FrankS

Burton, you are correct about the spread effect. Sometimes we traders forget the impact of spread swings on our strategies and thus our performance. It is in my mind akin to volatility in options. Values there go up and down based on volatility even if the underlying remains stagnant.

 
burton

fsherosky, would like to know more about options. right now, 100% of my focus is on forex, and dialing in my hedging tactics.

gbpnzd, just pushed 230+ pips in a single one minute candle...a death move for most accounts. my hedge, gave my account the ability to withstand the move, even with one out of balance short. a short which had a matching pending long, that was not hit, do to the early 24+ pip spread.

my lesson...

i wasn't 100% set on the idea of my pending long being hit, at that point, i would have served my account better, by closing the out of balance short.

again, these are the rules i'm working through...i'm so close, to having the balance, and the rules to allow me to navigate hedging in a profitable way.

very exciting stuff.

 
broyles

Thank you for sharing.

 
burton

here's a little more thought for those of you tinkering with hedging...

you can hedge, going the same direction...there is a very specific reason to do so, and yes, it is possible, and it can be a very powerful tool, once you understand.

you must learn to think, unlike the retail trader.

 
Rookie

Burton sounds very much like a wobble...

 
burton

rookie, i guess, if you say so. not really my perspective. if that works for you, then awesome. =)

 
Rookie

Burton wrote if that works for you, then awesome. =)

...... hmm, could be

works for me.JPG
 
burton

really don't understand the point?

 
Rookie

It works!

 
burton

of course it does, no matter what you want to call it...

"sounds very much like a wobble..."

if that's what you want to call it, which is actually pretty cool that you went there, then okay. again, it's not my perspective. i really don't trade like shawn.

 
burton

rookie, i'll get there, i'm just working through the process, and sorting out my rules, and tactics...

while i'm a huge fan of lindsay's trading, i definitely wanna give him a run for his money, despite our different styles, i find his consistency inspiring.

 
Rookie

I know you will Burton! You are rock solid and do a thorough investigation.

Agreed about Lindsey, is one of my trading heros!

 
burton

so, today, Alveo started closing the negative side of my hedge...even though I was up over 1%, and the hedge was balanced.

i just closed it all...i think i'm done.

i'm using a system that is working elsewhere, i keep bumping up against alveo.

i'm not done yet, I'm working with Ivan to sort out how I can do this, while staying within the system risk per position limits.

ugggggggggggggggg, the pain...=)

 
Rookie

Burton sounds like a very smart move, I hope you're still up.
I had two hedges on and the PA was relentless and the moved out of range past 2% on both of them I closed out all my trades as well.

Dha.JPG
 
burton

thanks rookie, i'm down a bit, due to the "risk type" trading rule...which closed the negative side of my hedges, without warning.

i'm not giving up yet, i'll simply reduce my position sizes, and work from there.

rookie, do you know the per position risk limit?

one more thought...

even if i had wanted to keep the hedge open, given my size, per position (0.10), i would have continued to hit the risk wall.

 
burton

actually, as i'm reviewing everything, i didn't need to close my hedge, even at 0.10 position size...

i was able to open a new position, to offset, without much pain.

learning, sometimes, it will push a person to their limits.

like others, i've been hard at this, and seriously thought i was out...given today's turn of events.

now i have hope.

 
Rookie

the per position risk limit is 2% of the current equity.

 
burton

rookie, just in cased i wasn't clear, my hedge wasn't negative, i was speaking of the negative positions that made up the hedge.

 
burton

great, thank you for the help rookie. =)

 
Rookie

NP YW

 
arkilliantorses

Would it be fair to say Trend traders don't hedge ? I think stop loss is their only focus, right?

 
Rookie

@arkilliantorses, overall I would say yes that hedging is not part of trend trading at least not the way I think of trend trading.

In regards to "Trend Trading", I pretty much side with Michael Covel lessons, Ep. 746 (NEW): Michael Covel (Trend Commandments) Skip the 1st 5 mints as BS.
http://hwcdn.libsyn.com/p/d/6/9/d6959c3af06c5e05/746.mp3?c_id=37144493&c...
While no different than what we learn here at Apiary its put out in a different format.

Basically, once the trend stops, your premiss for taking the trade is gone/changed and now you either get out (maybe become a contrarian) or maybe place a hedge. Well, a hedge would be a contrarian which is not trending following. So there are those that argue hedging has its place.in loss mitigation, Well maybe it does.

Attached is my trading for this week, Not the one bad day. That 800 pips at .1 are 800 bucks...:)) bad day in black rock but a lesson learned. Reviewing the price action going forward from where I closed out at 4% has I been able to stay in the hedge all would have been fine and exceptionally profitable. 1. when hedging we much remember the Apiary rules of risk management and not just the percentages but the number of allocated trades as well. In hindsight, I could say if I only used a smaller lot size but you do not know that going into the trade or gee if I only had more equity. 2. Why do I know hedging will eventually workout because PA always returns to the mean even though the mean is always moving with the PA the action is within a range daily, weekly, monthly, etc. so if a trader is really going to use the hedge that trade must make sure they have enough equity to weather the storm at a prespecified lot size. 3. Another way to look at the PA is from the mean outward to 2% or even 3% for safety in planning. This presumes that the trader's bias is that trades start from the mean outward. A logic I am becoming more and more fond of as opped to the contrarian POV of outward to inward trades.

So maybe that digression into my humble learnings will help a bit and explains my reply as generally no,
In the attachment, all days were trend following except today was 1H of wobbling to clear my head from the disastrous previous day.

Bad hedge day.JPG
 
burton

"I think stop loss is their only focus, right?" ...i would disagree with this, their focus is in the trend, the stop loss is simply a technique for deciding when they are wrong.

what's the point...

a) trader focuses on the perfect stop loss; no matter how much they focus on the stop loss, their ability to identify a trend, will not change.
b) trader, who's preference is to trade, and follow trends, can become extremely successful, at finding trends, and still fail to execute on their stops, in a profitable way. misplaced stops, will not change their ability to profitably identify a trade.

for "trader a", when it comes to identifying trends, there is much work to do. mastering stops, does not a masterful trend trader make.

while, for "trader b", simply has to master their stops, a process that has little subjectivity...however, their struggle with setting stops in a losing manner, may have more to do with "fear of loss"...a different topic.

aside from the "fear of loss", "trader b", can objectively review, and evaluate their trades, and quickly determine the best placement of stops...

"which stops levels will produce the most consistent level of profits." ...journalling/tracking trades is critical, for this to work.

again, the habit of using the "best stop placement", is potentially another story.

 
burton

rookie, as always, thank you for the link...i'm listening to it right now.

 
FrankS

Also listening to the radio link. Thanks for sharing the tip!

 
Nick Sammy

Thanks for the info Rookie.

I like hedging when I'm in a long term trade that is currently profitable and a short term set up in the opposite direction is available.

 
bryangriffin

Since the risk number displayed by Alveo at the bottom of the screen shows the COMBINED risk it sounds like it would be helpful to have an indicator that displays your max negative risk PER TRADE.... amiright? :o)

 
Rookie

Bryan, see the Rex sessions on how to plan and set up your trade, This week was as good as they get.
You plan your trade including max risk before hitting the enter button,
For example, a 10K account says you max risk is 2%, that's $200.00.
I'm for spreading my risk so that might be three pairs at .6% each leaving a cushion of.2%.
So If I placed three trades or layered three trades on each of the different pairs I could use a .2 lot on each trade.
That said most Apiary folks suggest a 1% max risk.
Anyway, it's pretty easy to see when a loser is going to hit the preset stop losses. that when combined would equal no larger than the $200 bucks.

So I may be somewhat confusing, but Rex would set up his risk first and then check the open space/trend to achieve his TP. if it looked good, hit enter.

 
bryangriffin

I'm not familiar with the Rex sessions...?

I guess I worded my comment wrong. I should have said it would be nice to have an indication of your "current open risk" on individual trades so you know when to management them before the system kicks you out. We do have the risk number in Alveo but it's an aggregate of all realized and unrealized trades for the day.

 
Rookie

I would be a nice addition if on the orders tab it had the risk as an entry option in % or $$

 
triguylm1

Rookie, One thought on the wobble technique; when price is in consolidation and lets say the wobble is a tight 8 to 10 pips, and one begins to use long and shorts in the middle price point; thus, take profit is about 3 pips for each way, but the Stop Loss would need to be enough to account for the market oscillation of a possible 20 pips on an occasional spike move.

My point is do you still consider the continuation of the trend once price expands out of the wobble? In other words, when price moves beyond the 8 to 10 pip swings, the hedge approach as described above then captures the quick 3 pip win but the losing side becomes greater than 20 pips and price continues to run trend direction and price doesn't come back far enough to capture any profit.

I see this as a problem, because it creates larger losses than wins, and even worse, is one is missing out on the continuation phase of the trend!

 
Rookie

Lindsey, this is a very good point and the main reason traders have a problem with the wobble.
Shawn's solution which I have recently learned to do is close the trade and mitigate the loss a much as possible thus ending that trade.

Then when PA moves that 10-20 pips to a new S&R level you call it a new trade and start over. As you one position may have many trades inclosed in that position.

If a trader doesn't close the positions than they get lopsided, over-leveraged and run out of trade positions.

The way I am doing this now is with the 1M and 5M charts, double Bollinger bands, and CCI. One the 1M I try and keep the PA within the 2% deviation and on the 5M within the 1% deviation. Also, only one level opposite the major tread but going with the major trend one to three levels is fine.

The key is to close the trade or move the target within the band before it becomes a bigger loser and suck up available positions.

This week I will move this the 5M and 15 M in my sim account.

 
marco.cardenas.c

Rookie, what lot size per trade and how many trades per position do you use by applying this technique?

 
triguylm1

Excellent, It is working if the price remains within a manageable range bound condition long enough to make profit on both sides.

Consider the monthly price range, btw using the H4 chart with the BB indicator provides a very reliable swing trade analysis; this way, one can use the analysis to provide the main focus toward each intermediate trend,. Meaning; when price is near the edges of the price range near S/R levels, then the highest probability is price will tend to gravitate toward the mean, or toward the 220 ema price. Given, financial news remains consistent to each country's monetary policy.

Currently, we see the Fed's postponing any interest rate increases in the next 4 to 6 months, but that may change as labor data continues to improve.

I'm expecting more hedge style trading as range bound market patterns continue going forward.

Consider the range of the Euro pairs to remain about 350 pips, while GBP pairs are much larger near 600 pips. And so it's more logical to trade a tighter price range when hedging to gain profit both ways!

The other thing to consider is not buying at the top, and not selling at the bottom of the price range scenario.

 
Rookie

Lot size for the small account is 2-3 pips but I use .05 in my small sim and it is doing just fine also. For 10K I use .1.
I don't usually close trades but I always move the TP within the appropriate band. I have found that often what I thought was going to be a looser will turn out to be a small winner or very, very small looser.

 
marco.cardenas.c

Thanks Rookie

 
Rookie

YW Marco, here are some recent examples.
https://apiaryfund.com/forum/any-short-term-funded-traders-moment
My goal is .5% gain per day, Some days it takes 20 trades and some days 120 just depends on my head and the PA.
I find by relaxing you can earn that in 1 Hour more or less.
Remember we can't go big because of our small equity sized accounts.

 
triguylm1

So true! I find it so much easier to make profit with a larger account of 10K to 25K. While, risk has more impact on the small 1K and 2.5K accounts.

 
burton

the wobble really isn't a hedge, it's primarily driven by price cycles...am i missing something?

 
Rookie

If you deff of a hedge is opposite the PA, your just change a lot with the PA on lower time frames.
If you def is different then you are correct.

 
burton

bryan, maybe i'm not understanding...

so long as a trader knows their max risk per open position, the open orders will show a positions current exposure.

for me, it's simply a matter of math, more importantly, doing the math before a trade is taken...

- 2% risk, $10,000 account = $200 is your max risk per open position
- standard lots (i.e. 1.0) $200/$10 = 20 pips, mini lots (i.e. 0.10) $200/$1 = 200 pips, and micro lots (i.e. 0.01) $200/$0.10 = 2000 pips

which means...

- if the trader is trading standard lots, there is a max risk of 20 pips, per open position
- if the trader is trading mini lots, there is a max risk of 200 pips, per open position
- if the trader is trading micro lots, there is a max risk of 2000 pips, per open position

the pips displayed for open orders will quickly let a trader identify if a given position is approaching the risk thresh hold.

for me, again, i may not understand what is being said, still, having an indicator that mimics what is currently available in the open orders list, seems like noise.

from a hedging perspective, and the intention to build an open hedge, such risk will never be an issue, when the hedge is properly managed. meaning, the hedge can continue to grow, by repositioning the negative side of the hedge as it goes negative.

when the negative side of a hedge is repositioned, all that happens is a journal transfer...

- monies move from realized to unrealized, meaning; the realized account shrinks, and the unrealized account grows.
- when repositioning there is likely to be some slippage, a long with the additional trading costs.

ulimately, such a hedge will grow the open float...regardless of the floats net value, meaning...

- if the hedge amount is positive, repositioning the negative side of the hedge will grow the positive float
- if the hedge amount is negative, repositioning the negative side of the hedge will grow the negative float

such a hedge has the ability to absorb some losses. a more advanced discussion.

 
ZachPK

Thanks for the comments! I've enjoyed reading them

 
bryangriffin

burton, I think your understanding is correct and thanks for the additional insight. What prompted my comment were some earlier discussions in this thread about hedges tripping the risk management. I thought maybe an additional column in the Orders window labeled "Risk" that would give a real time percentage for each individual trade might help... especially for trades were the lot size might be a weird number and the math is a little harder to do quickly in your head.

 
Rookie

bryan, methinks you think correctly.

 
triguylm1

Rookie, come to think about it. Hedging helps hold the account at the current balance. The problem I see is> it's difficult to figure if one should take small losses and let the winning side run.

But no one can do that because then the market reverses and puts the winning trade into the negative as well. So what happens is we tend to take profit early and let the losing trade run hoping it will reverse and run into the profit side eventually.

I find it better to enter at the edges going toward the mean. then use the hedge to take advantage of the whip saw pattern.

 
bryangriffin

Lindsey, when hedging to grab some pips from the whipsaw, do you use the M5 to play that price action?

 
Rookie

Lindsey, I agree with your logic as I have stated the same previously. I also think that playing whipsaws is dangerous business.

Unless useing a much lower time frame than the original trade as Bryan asked.

 
Thinkpositive YD

Thank you all for the information. I'll start to use hedging technique.

 
triguylm1

Rookie, Yes, certainly lower time frame means short term trading as well. But then, the profit target is much smaller as well. may not help ones winners to be larger than losses. That's the risky part of doing short term trades.

 
burton

triguy, is so much more fun than lindsey...=)

"then use the hedge to take advantage of the whip saw pattern." ...agreed, that is one way to use a hedge.

"The problem I see is> it's difficult to figure if one should take small losses and let the winning side run." ...what i would say, is this...

hedging has great flexibility, in it's application. still, no matter the hedging technique, it still requires solid trading practices...hedging does not magically make a losing trading strategy profitable. however, hedging can, absorb some losses. this is done by building an positive float. so long as the loss does not exceed the open hedge, the trader can recover the loss by closing the hedge.

once a positive hedge is established, no matter how the price moves, the positive hedge will remain in tact. if the price pushes to the extreme, one side will become negative, by repositioning the negative side of the hedge, the risk is reduced, the positive hedge remains in tact, and offers the trader an edge that simply cannot be found with any other technique.

lindsey, for a trader like you, skilled at capturing significant moves, a hedge can greatly reduce your exposure while working a new edge, and building a new position.