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I saw a video on youtube about changing your net R just by letting your winners run, and converting losers into BE, i.e., cutting losers more quickly, and how these two things can really change the math in your trade logs.
This got me thinking hard about how much I'm missing out on in the market. Call it FOMO if you must, but I've backtested this new money management strategy and I'm just here looking for someone to tell me where I messed up because it seems too good to be true.
The new money management strategy is as follows:
If that's unclear please let me know and I'll clarify. I just thought it was a clever way to attempt to limit losses, but I'm curious what y'alls thoughts are. Some issues I can think of off the top of my head:
- you're waiting for an opposite signal to hedge, but you don't get it, leaving you with a huge loss and no stop loss
- Not enough capital to continue stacking hedges until you get a winner
- Commissions
I have never seen that idea , another one that I have seen is to enter with a half position , when price moves the distance of your risk add the other half and move your stop to brake even on the first half entry . this way if the boat goes down its only half full , if you get a runner you get paid for all the passengers . hope it helps .
You aren't allowed to open position in the other direction on the same instrument, but wouldn't flattening would yield the same result?
Regardless, and maybe I am not understanding the concept, but if I knew how to successfully remove risk when price was going against me, then wouldn't I be better off doing the opposite during that period? If it is 50/50, then thinking all I am doing is increasing my transactional costs.
An early step in this procedure is "Open opposite position to hedge, so you are both long and short."
There's a problem with this, and it's that when you "open opposite position" you do not end up both long and short. You end up with no position. It simply closes the original trade. Example: I'm long 1 contract and I "open" a 1-contract sell. The sell sells me out and I am net flat, no position. You can't be long and short the same thing at the same time in the same account. Going short sells out your long, or vice versa.
It is possible to have a long in one account and a short in another one, or with another broker even, but this is explicitly against exchange wash trade rules.
I'm trading the NQ. I have 2 systems. I use 2 different brokers for each system. My first system I'm long on the NQ. The second system I'm short on the NQ. Does this violate the hedging rule.
…
Even if you did use different accounts (and the broker didn't catch you), or different brokers, you would still be net out of the market between the two. You would have no exposure to risk, because you would be net flat.
I didn't really follow the rest of the diagram, because it seemed pretty complicated and the issue of you having simply closed your position out in the "hedge" step made it not work anyway, at least as I understood it.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
the wash trade rule mentions at the same strike price. Given this is futures and not options, the "strike price" would be different if the buy/sell orders on different accounts are 1 tick apart?
I think a simpler solution is to do 1 e-mini:10-micro on the same account
I agree on the micro/mini idea in the same account, as far as the wash rule goes. They don't wash each other out, because they're not the same product. Also, 10 micros is generally equivalent to 1 mini, and so you would be hedged and not have an issue with the wash sale rule. But you would still make the same amount on one side that you lose on the other (a true hedge), and so I don't see an advantage. You would pay additional commissions to stay effectively flat, basically. Whether it makes this hedging strategy work I couldn't tell you, since I thought the strategy was complicated enough that I didn't really follow it.
As to the "strike price", that's the price, in an option, where the underlying item can be bought or sold, when the option is exercised. The strike price is not affected by the price of the buy or sell of an option, and there's no strike price for futures, anyway. https://www.investopedia.com/terms/s/strikeprice.asp
Here's the wash trade rule. What it's concerned with is that you not both buy and sell the same item, so it lists the parts of an item's description, including "product and expiration month" and "strike price", which is mentioned only in the case of an option.
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.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Disclaimer: I'm not a paying customer nor endorsing anyone/anything in this comment, and only sharing my personal opinion and experience.
Hi all,
I've recently listened to a podcast of "Ben Omer" from Trading Nut, where Ben discusses his background and his use of Dollar Cost Averaging and Hedging and found it very interesting.
After listening to the podcast, I searched around for just about any information I could find on Hedging and came across Nick Shawn, a FOREX trader who publishes a bunch of youtube videos and so on. I checked his stuff out and it gave me some ideas to try out, so I tried hedging using my Pivot system, and the results are nothing short of excellent so far.
What I do is use Blackbird to manage my trades, and have side by side charts up of MACRO (say, NQ) and MICRO/HEDGE (MNQ). While FIFO prevents USA folks from entering an opposing trade on the same account on the same instrument, it does NOT apply if a different instrument is used, and I'm hedging with Micro using the same account. In my use case, I enter one MACRO, and 22 MICRO. I define my targets and risk as a "unit", and depending on the day, either trade my 50% levels or 100% levels. For now, I'm risking two Units to make one (yes, I know how this sounds, but that is my method).
Over the past few weeks, I've defined potential outcome scenarios.
Outcome Scenarios: Scenario 1: Macro Win, No Hedge:
This is the best possible trade outcome, where the macro entry takes profit and the hedge is never entered to begin with and thus no factor.
Scenario 2: Macro Loss, Hedge Win:
This is the second best trade outcome, as the macro trade was stopped out, but the hedge trade hit profit, thus covering the loss incurred by the macro trade; this outcome includes covering the commission cost for both trades.
Scenario 3: Macro Win, Hedge Loss:
This is the worst case scenario and a failing outcome, as the macro ends up winning 1 unit, but the hedge loses 4 units, resulting in a net loss of 3 units plus commissions
Example:
1 Base Unit = 38T/$190.
Hedge Loser: 76 Ticks × 22 Contracts × $0.5 per tick + $22.40 Commissions = - $848.40 in Loss
Macro Winner: 38 Ticks x 1 Contract x $5.00 per tick − $3.98 Commissions = +$186.02 in Wins
Result: -$672.38 in Loss
In my discovery so far, it's apparent that Scenario 3 MUST be dealt with, as this is an outcome that is going to occur from time to time. The only viable solution I've come up with so far is to attempt to get out a breakeven on both trades, but this involves using discretion, which I don't personally like. I'd prefer a system/method that I use EVERY single time, but I'm not quite there yet.
In the attached screenshot, you can see where the market was doing it's usual consolidation (oh thank you NAS-CRACK, we love it so much! LOL), yet the trade was covered by the hedge. The "trick", if anything, is knowing which level to enter at in my case, and this is largely luck in my practice (so far) but I'm working on that.
In any event, I was saved by 5 trades this week alone with real $$ by using this hedging technique, and I think it might have finally given me the confidence to truly not care about a trade outcome. Anotherwords, I've gained confidence due to hedging.
I hope this thread gains more traction, as I think we poor retail traders NEED better money management and risk control, and so far, Hedging has proven its merit in practice.
As mentioned above, opening a position in the opposing direction in the same instrument in one account closes the position. You can do it in two directions if you have two combine accounts,, i.e., Apex or Leeloo for example. You can do it with a Leeloo bundle or just two different providers. If you do it with a Leeloo bundle you buy on discount when they have the 96% sales would make more sense. You can test it. I've tried going long and short as these are essentially throw-away accounts at $11 each and only one will qualify for funded PA, so they are almost designed for this type of trade. But the reality is that in practice it doesn't work well. It's never that simple. Futures don't move so predictably in either direction. It's impossible to time consistently for what you propose. You could try it on major news events, but the spreads are huge and the price discovery is impossible to really time. Certainly not consistently. You might get lucky once or twice but as a rule, you won't. There are much better ways to trade than trying to do this. Clearly. Otherwise, everyone would be doing it.
You can't outsource confidence in trading decisions
