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As an example:
During the last drawdown of 6/17 to 6/27 my 4 portfolios GAINED about
2% during that period (calculated by 100 * ($$$ gained / $$$
invested). As I said below, all of my positions are long stocks with
strong fundamentals. The short index futures eliminated the losses in
the longs, plus generated a profit.
I've had bad experiences using options to hedge. If your market
timing isn't perfect, or the size of the move isn't large enough, plus
the very large bid/ask spreads all will kill you. Futures bid/ask
spread here at 10:55am Friday is 1 point out of 10,332 for YM
according to my screen running at Interactive Brokers - thats REALLY
THIN!. I pay about $3.00 per side commission.
So to specifically answer your question, most of the time hedgeing
totally eliminates my drawdowns. Some of the time I get lucky with
market timing - if I do, I make a profit as the example above shows.
I try to continually improve my skills and trading systems in this
very competitive business.
Reef-Break
--- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
<andysmith_999@xxxx> wrote:
> Sebastian, Ed -- thanks for taking the time.
>
> Ed -- do you have a ballpark number for your annual profit degradation
> arising from hedging with short stock index futures? I have tried
> hedging with index puts and it gets expensive.
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes" <reefbreak_sd@xxxx>
> wrote:
> > My way of avoiding this is to diversify. I learned this from "Trade
> > your way to Financial Freedom" by Van K. Tharp - Chapter 12.
> >
> > Example:
> > $100,000 account equity.
> > Invest in 20 - $5000 positions. This is position sizing.
> > For Risk Management - use the following:
> > 1% loss in the PORTFOLIO
> > Or $1000 loss in a given position
> > Or 20% loss per position
> > is the maximum catastrophic loss sell point. 90+% of my sells are
> > generated by my technical indicators.
> >
> > It can be shown that this system will avoid most of the problems that
> > you are worried about.
> >
> > I only trade from a list of ~100 stocks that have strong fundamentals,
> > then EXPLORE that list using my technical indicators, looking for
> > buy/sell signals - and trade long only.
> >
> > During market drawdowns I only sell my longs when the indicators tell
> > me to, plus I hedge with short stock index futures YM, ES, ER2 at the
> > rate of 1 future per $50,000 of portfolio value.
> >
> > Cheers,
> >
> > Ed Hoopes
> >
> >
> >
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> > <andysmith_999@xxxx> wrote:
> > > I understand from time to time, a position will take a huge loss.
> > >
> > > Perhaps something happens after-hours and the stock opens 15% lower,
> > > well below the stop. One way to avoid this is to not hold over
> > > earnings. But a plunge can still happen for reasons unrelated to
> > > earnings.
> > >
> > > I have found very little in the money management literature on this
> > > subject, so can a few of the experienced traders please provide some
> > > guidance:
> > >
> > > 1) How often has this kind of catastrophic loss happened to you?
> > >
> > > 2) Are there cost-effective and practical ways to protect
against it?
> > > (eg. buying put protection for long stock that is held for a few
days
> > > is not practical).
> > >
> > > 3) How have such losses affected the long term return of your
> > portfolio?
> > >
> > > 4) When these catastrophic losses happen, is it isolated to one
> > > position or does it affect all your open positions?
> > >
> > > 5) What were the psychological effects?
> > >
> > > Thanks!
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