It seems to me the greatest benefit of this trading strategy is the emotional aspect. Since emotions tend to be the trader's greatest obstacle to becoming profitable. How many trades have you let go by because you just experienced a few nasty stops? It allows you to be in the market but in a neutral position where you can make clear decisions. You can use it to protect profits or stay in a trade longer for a better setup. Say there was a 80 pip run on a long position, you could then box in the position by adding a short position so none of the profits would go away on the anticipated pullback. Or, say the market goes against you but you still believe you are right but don't want to go through the pain of seeing such a large drawdown. You can box in the position and wait patiently for a nice setup. It's just easier on the emotions than taking the loss and trying to get back in. Usually after a few stops people get disgusted and remove whatever they were trading off their screen and miss a great setup later in the day. This would keep you in and monitoring with a cool head. The only "techical" benefit I can see to trading this way is with stocks and the downtick rule. When everyone is trying to short it's usually difficult to get the price you want. Basically you eliminate the downtick rule problems. You could argue higher commisions but it may actually result in less trades since you would most likely be more emotinally stable. The big problem with this method is making mistakes, keeping track of what postions need to be boxed and what need to be unboxed. Hedging with options is more suited for swing/position trading since you have the added cost of spreads and premiums and of course time decay. For anyone that doubts using this method, I say just try it. See how much more relaxed you are when taking your trades, taking your losses, and re-entering setups.
firstchoice, You are wrong here...( I hate that when that happens). There are a few Retail Spot Forex Dealers that allow this. I have always recommended having two dealers and I have heard good and bad about FXSol, as I have heard with IB also. But FXsol is on my list of dealers to consider, as my second account. With Oanda (which I have not heard anything bad about, and have been trading with since July 2004) you need a subaccount and you can manually move money from one to the other with a click of the mouse. Michael B.
FXsolution has new charting, pro-like⦠I am looking at it for the first time. Here is the screen schot.
Oh my God. I can't believe I stumbled on this thread. ET is officially trading at all time lows. It absolutely blows my mind the stupidity on this site of the average poster. Let me try to walk everyone through this and explain what this poster is suggesting to do. First of all, as a few already correctly pointed out, options have something called gamma which can be scalped. The gamma is a reflection of the curvature that exists on the delta of any given option. Spot currency or FX futures for that matter carry no gamma!!!!!!! You are essentially trading a 100 delta instrument. Therefore, by going long the Euro at 130.00 in account A and going short the Euro at 130.00 in account B, produces no net position! Let's walk through this slowly. Say you are dumb enough to put on this position. Say the Euro trades up 100 pips to 131.00. You, thinking you have a a straddle decide to sell your long Euro position that shows a profit of 100 pips. All you have done at this point is take a short position in the Euro at 131.00. You could have done this without your initial position simply by waiting for the Euro to trade up to 131.00 and initiate your short position at this level. If the Euro continues higher, you lose all the way up. Now let's look at what would happen if you bought an ATM straddle at the 130 strike. Now let's say the Euro trades up to 131.00, at this point, because of the gamma of your options, your position accumulated long deltas through the gamma curvature. You could now sell off the 50 long deltas you accumulated and lock in a profit, yes a profit. You are not getting short at 131.00, you are in fact, getting flat. Any move higher will begin to accumulate long deltas again, not generate losses as in the original example. Do you see the difference? In one, because of the gamma, you can trade the moves in the spot. In other other, all you are doing is starting out with a flat position then taking a directional position. And like others have pointed out here, you are actually paying the vig twice. As you can see, these two positions are not even remotely the same thing. It makes absolutely no sense to do this. It's threads like this that make me understand why the FX community targets those with IQ's under 50.
Mav, Over at Oanda, there is group that Grid Trades....They swear by it. Please do not have me explain it, just go over there to their Forum, if you have the energy. I will in no way argue with you about my IQ. Low IQ Retail Spot Forex trader Michael B.
You show me a group at Oanda that grid trades like in the example of the original poster and I'll show you a group of guys that couldn't get hired at McDonalds.
I think posters on this site represent average market participants, that is, this is not a skateboarders' site. Your description of those trading in the market being pretty stupid people, I'd agree with. Simply because, if for no other reason, it's as easy as it is to win against them. That goes for the 'highly secularly-educated' pros, too. *shrug* dRaWdOwN
This was discussed in another thread before -- seems to sprout up every couple of months when someone exposed to the suggestion actually stops and thinks for a second or 2. http://www.elitetrader.com/vb/showthread.php?s=&threadid=47133&perpage=6&pagenumber=16 I said this before and I'll say it again: anyone who suggests the necessity for going long and short simultaneously as part of some "strategy" just cannot be trusted.
ES, you cannot be this naive can you? You cannot be long and short the same instrument outside of an attempted arbitrage situation.