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Hedging NQ and MNQ 1-10...


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Hedging NQ and MNQ 1-10...

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  #1 (permalink)
 kcrawford 
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Has anyone tried this?

TECHNICALLY, its not the same instrument...but it is the same account. Seems a great way to at least NOT LOSE, even if you can't win until you are down to one side or the other.

I was about to try this in my account to qualify, but I'm afraid of getting banned.

Any suggestions or comments?

-V

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 kevinkdog   is a Vendor
 
 
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kcrawford View Post
Has anyone tried this?

TECHNICALLY, its not the same instrument...but it is the same account. Seems a great way to at least NOT LOSE, even if you can't win until you are down to one side or the other.

I was about to try this in my account to qualify, but I'm afraid of getting banned.

Any suggestions or comments?

-V

You can do it, but other than fleeting arbitrage moments which retail traders will never capture, those 2 are the same instrument.

Maybe it would help if you explain how/what you mean by hedging, because I've heard forex traders talk about this for years, and it is nonsense (the US gov't bans being long and short at the same time in same symbol in forex because it simply generates extra $ for the broker, with no economic benefit for the trader)..

Example: If you are long 10 MNQ and short 1 NQ, you won't lose anything, but you will not gain anything either. You are flat.

But if you explain what you are doing, that would help.

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 ZviTradingCoach   is a Vendor
 
 
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kcrawford View Post
Has anyone tried this?

TECHNICALLY, its not the same instrument...but it is the same account. Seems a great way to at least NOT LOSE, even if you can't win until you are down to one side or the other.

I was about to try this in my account to qualify, but I'm afraid of getting banned.

Any suggestions or comments?

-V

There is a heavy psychological side to these "hedging" strategies worth pointing out.
This may or may not apply to you - I apologize in advance if I'm barking up the wrong tree as I don't know you personally, but it does apply to others I've seen, so think of this:

Long NQ and short 10 MNQ is like being flat, right?
Isn't being flat also "a great way to at least not lose"?

So, you must ask yourself why you prefer the former to the latter.

It could be for a legitimate reason, for example:
* If you're a supersmart arbitrage player, there may be an advantage to the hedge in some cases - probably not the case here :-)
* If you're a long term holder considering tax benefits of not selling your core position - there's an advantage (probably also not the case here).


This leaves us with reason #3: IT FEELS BETTER. Being hedged gives you a feeling you're actually doing something.

Imagine 2 scenarios:
1. You flattened (=inactive, looking at the market from the outside). and then the market moves in your initial direction. Your self talk is something like: "DARN, WHY DID I FLATTEN? I MISSED THE MOVE! FOMO FOMO FOMO"
2. You are hedged (="still in the market, with 2 positions") and then the market moves in your initial direction. "Hey, at least one leg of my position was right (emotional satisfaction, I'm still good at predictions). True, I didn't make money, but hey - it could have gone against me and then I would have lost (subconscious justification that 0 profit is actually better than some theoretical alternative), so I "paid for insurance" (= I actually did something useful!)

Which story sounds cooler in your mind? Again, I don't know, but for many others - sadly, #2. Many of us see activity in itself as an added bonus of trading, feel better when performing complex strategies vs. simple, and need the confirmation of "I was right" (even if offset by another action, "wrong", which in itself can be justified again) vs. focusing on the bottom line.

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 ninjus 
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I think it makes sense if you are long say one NQ contract and up 100pts. You dont want to cover but you can sell 5 micros effectively taking half profit if pulls back to your original entry and sacrificing half profit potential on any further gains if price continues to go your way.

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 kevinkdog   is a Vendor
 
 
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ninjus View Post
I think it makes sense if you are long say one NQ contract and up 100pts. You dont want to cover but you can sell 5 micros effectively taking half profit if pulls back to your original entry and sacrificing half profit potential on any further gains if price continues to go your way.

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Why not just buy 10 micro at start, and sell 5 when you get to 100 pt profit?

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 ninjus 
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kevinkdog View Post
Why not just buy 10 micro at start, and sell 5 when you get to 100 pt profit?

That works too

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 bobwest 
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kcrawford View Post
Has anyone tried this?

TECHNICALLY, its not the same instrument...but it is the same account. Seems a great way to at least NOT LOSE, even if you can't win until you are down to one side or the other.

I was about to try this in my account to qualify, but I'm afraid of getting banned.

Any suggestions or comments?

Yes. For one thing, in a practical sense you would not have a net position, but you would have paid some extra commissions to not have one. Just being flat is cheaper.

There might be a reason to do this, but I'm not sure what it is. Can you explain more fully?

Aside from that, there's no issue with the rules (at least that's what I think -- but I am not an expert nor a lawyer.) The appropriate rule is Rule 534:

Rule 534 (“Wash Trades Prohibited”)
No person shall place or accept buy and sell orders in the same product and expiration
month
, and, for a put or call option, the same strike price, where the person knows or
reasonably should know that the purpose of the orders is to avoid taking a bona fide market
position exposed to market risk (transactions commonly known or referred to as wash
trades or wash sales). Buy and sell orders for different accounts with common beneficial
ownership that are entered with the intent to negate market risk or price competition shall
also be deemed to violate the prohibition on wash trades. Additionally, no person shall
knowingly execute or accommodate the execution of such orders by direct or indirect
means.

Link: https://www.cmegroup.com/rulebook/files/cme-group-Rule-534.pdf
(Italics added.)

It is not the same "product and expiration month," so it is not a wash trade (again, in my interpretation.) That's what the rule is all about.

For a longer discussion with some variations, check out this thread:



Bob.

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 SMCJB 
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Something I will add here is that if you are long 1 NQ and short 10 MNQ you can actually ask your broker to offset the position and both positions will go away - commission free.
Same applies for SI/SIL (1:5), GC/MGC, QM/MCL (1:5) but not CL/MCL, 6E/M6E etc, ES/MES etc.

I actively trade (more buy/hold/invest than trade but do add and decrease at extremes) both MES and MNQ. Then when it comes to roll, if I have say 20 MES, I will actually roll 2 ES not MES, saves on commissions and slippage, and then I have the MES/ES offset in my account.

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 kcrawford 
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Hey Bob?

I hadn't considered trading two different expiry contracts, its a 'wash' also, but doesn't the spread sometimes change a lot? Thus causing divergences/convergences?

In any case, the reason I'm doing it, is because I usually scalp and hate it when the pullbacks I'm entering on create more heat than I wanted. 90% of the time I'm right on direction but could still be chased out due to heat. Now I take zero heat being in both sides until its 'confirmed' its going in the proper direction...or I don't close one side to enter.

Its not any different from simply entering in one direction...but to me, its much more relaxing to do. My entries are protected until it finally goes. *shrug.



One more edit:
When I called Ninjatrader brokerage, they said it was both legal and and a wash, but they sent me an email later warning me that I AM responsible to make sure I have ALL of the proper margin for both sides;, ALL the micros AND the minis at the same time. Just FYI.



@zvTradingCoach: In a way you are exactly right, but it really just seems a ton LESS stressful to trade this way. I know it doesn't exactly make sense, but seems easier to actually catch the moves I generally go "dang, that was my entry".

I don't want to brag or be a boastful jerk, but today was excellent trading this way most of the day, it WAS HOWEVER rather directional, so I won't take any credit for anything. All with nearly zero stress.

I just sort of feel I'm REALLY GOOD at price action, but can still be 'bitten' often, and today none of that happened. I will have to see how it does on a more sideways day.

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 bobwest 
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kcrawford View Post
Hey Bob?

I hadn't considered trading two different expiry contracts, its a 'wash' also, but doesn't the spread sometimes change a lot? Thus causing divergences/convergences?

Actually, a "wash trade" is a particular thing, where a trader is pumping in offsetting trades to create the illusion of a lot of activity to draw in other traders, and it isn't allowed. That's why the rule disallows it if both the instrument and the expiration are the same. But since you're doing NQ and MNQ, they are not the same product, so this is not a wash trade in the meaning of the rule. As to different expirations, sure, there would often be differences in price, and that would not be useful given your scenario.


Quoting 
In any case, the reason I'm doing it, is because I usually scalp and hate it when the pullbacks I'm entering on create more heat than I wanted. 90% of the time I'm right on direction but could still be chased out due to heat. Now I take zero heat being in both sides until its 'confirmed' its going in the proper direction...or I don't close one side to enter.

Its not any different from simply entering in one direction...but to me, its much more relaxing to do. My entries are protected until it finally goes. *shrug.

OK, now I understand. Whatever works for you.

Bob.

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