Can you be long and short at same time?

[Hakuna Matata]

I think the argument Jon and tar are putting forward is that
rollover and margin aren't an issue with certain brokers.
Essentially, no harm is done even if you leave the two open
positions (or flat position...) for a few days or more which is unlikely.

What this argument neglects is the cost of trading with the brokers that allow this,
spreads are generally higher, all inclusive so no chance of a commission
volume deal and, it has to be said, none are ECN / STP (correct me if I'm wrong on that).
At least one of the well known brokers mentioned has indeed been fined for dubious
practices within the last few years...

tar might be, don't think Jon is.

 

[barjon]

No, both traders are net flat!

The first one has the option to enter the market when he sees a trade, the second trader has to enter the market whether he likes it or not...

alright, well you could describe it unfinalised flat and finalised flat since the first still has an obligation to exit the two trades (same obligation as any trade taken)

the fact remains that the first guy is exiting - he is not taking on any new trade, he is merely exiting both those he has already taken at different times.

 

[Hakuna Matata]

alright, well you could describe it unfinalised flat and finalised flat since the first still has an obligation to exit the two trades (same obligation as any trade taken)

the fact remains that the first guy is exiting - he is not taking on any new trade, he is merely exiting both those he has already taken at different times.

You've got to stop thinking about these trades as "entries" and "exits". The effect of the trades is this: they either move you from a position from

No Market Exposure -> Market Exposure

or

Market Exposure -> No Market Exposure

I've made a diagram taking you through the two different approaches.

Look at Trader A's (top line) options at the end of period C - by "exiting" his "long position", he is entering a period of market exposure. This is exactly the same as the transition from A -> B (top line), A -> B (bottom line) and C-> D2 (bottom line). Do you see that?

Trader A, by putting the two "positions" on at the end of period B, moved himself from having Market exposure to No Market exposure. HE ALSO MADE IT IMPOSSIBLE TO GET TO THE CLOSE WITHOUT FURTHER MARKET EXPOSURE. He has to close BOTH trades. Granted, he could close both trades simultaneously, and suffer the increased costs as we have covered. He can also choose to go Long or Short, depending on which "position" he "exits".

Trader B, on the other hand, after closing his first positon and going flat, can quite happily make it to the end of the close without doing anything (path D1). He can also, if he chooses, get further Market Exposure by putting on another trade (path D2), either long or short as he see's fit.

Now imagine both traders are trading exactly the same system - a simple MA crossover, for example.

At the Yellow square, both traders get the same signal - time for another short. Trader A "exits" his "long position" (leaving him short 1) and Trader B, having got the same signal (same strategy remember), enters a new position by shorting 1. Both traders are Short 1, they close, and finish the day flat with the same P&L.

Now imagine that, after the first trade, nothing at all happens at the yellow square and the system does not generate any more signals for the rest of the day. Trader B can just sit on his hands (path D1), he has no exposure, he has nothing to worry about. All he's got to do is take the trades when they come along.

Trader A, however, cannot avoid another period of Market Exposure. (Well, he can, by closing both trades simultaneously and crossing the spread again, but you understand that. I couldn't fit all the options on to the diagram )

This means that, without his strategy giving him any clues (which is all a signal is), he just has to guess.

==========================================================================

Having established how the two traders positions differ, let's examine the implications of that on their P&L.

Let's say that their strategy has an expectancy of 0.3R - that is, it makes 30% of whatever the traders risk*.

Trader B only Exposes himself to the market (lol) when his strategy gives him a signal, and every time that it does, he expects to make 0.3R each and every time.

Trader A also takes every trade that his system generates (they are both on the same system remember), and every time that he does, he also expects to make 0.3R. Trader A, though, also has to make trades when his system is telling him to be flat, because he's got to close out one of his "positions" first (or suffer increased costs).

Without a proven strategy to guide him, these second trades might as well be based on the toss of a coin*. And, in the very very long run, the profit and loss of these trades is going to cancel out*. So, because he's using exactly the same strategy as Trader A, he's taken every trade that Trader A has for the same P&L. BUT HE HAS ALSO TAKEN AN EQUAL NUMBER OF RANDOM TRADES. And each random trade cost him comission.

==========================================================================

It is crucial that you understand this last point.

Given two traders following identical strategies with equal proficiency, the trader who includes trades made at random, over enough time, always make less than the trader that doesn't*. If you take away the profits from their system (which they both made), the difference between the two is that Trader B didn't make any random trades, while Trader A did, and had to pay comissions/spread to make them.

Any "edge" that Trader A had, Trader B has too. Any time Trader A sees a trade, Trader B see's it - and takes it as well. Being Trader A basically means you believe that you can also make money in the long run by trading at random. You can't.

* note to others: alright, I know I'm taking a lot of liberties here, but I'm trying to make is as simple and straightforward as possible. No offence Jon

 

[Hakuna Matata]

Jon,

The tenet of your position is that, by having to trade again, Trader A can in some way extract more "edge" from the market than Trader B. This is a "straw man" argument.

For what you are suggesting to be feasable, assuming we want to make as much money as possible, going "long/short" has to give you opportunities that being flat doesn't.

It does not.

The opportunities are identical, except one approach incurrs higher costs than the other.

 

[barjon]

You've got to stop thinking about these trades as "entries" and "exits". The effect of the trades is this: they either move you from a position from

No Market Exposure -> Market Exposure

or

Market Exposure -> No Market Exposure

I've made a diagram taking you through the two different approaches.

Look at Trader A's (top line) options at the end of period C - by "exiting" his "long position", he is entering a period of market exposure. This is exactly the same as the transition from A -> B (top line), A -> B (bottom line) and C-> D2 (bottom line). Do you see that?

Trader A, by putting the two "positions" on at the end of period B, moved himself from having Market exposure to No Market exposure. HE ALSO MADE IT IMPOSSIBLE TO GET TO THE CLOSE WITHOUT FURTHER MARKET EXPOSURE. He has to close BOTH trades. Granted, he could close both trades simultaneously, and suffer the increased costs as we have covered. He can also choose to go Long or Short, depending on which "position" he "exits".

Trader B, on the other hand, after closing his first positon and going flat, can quite happily make it to the end of the close without doing anything (path D1). He can also, if he chooses, get further Market Exposure by putting on another trade (path D2), either long or short as he see's fit.

Now imagine both traders are trading exactly the same system - a simple MA crossover, for example.

At the Yellow square, both traders get the same signal - time for another short. Trader A "exits" his "long position" (leaving him short 1) and Trader B, having got the same signal (same strategy remember), enters a new position by shorting 1. Both traders are Short 1, they close, and finish the day flat with the same P&L.

Now imagine that, after the first trade, nothing at all happens at the yellow square and the system does not generate any more signals for the rest of the day. Trader B can just sit on his hands (path D1), he has no exposure, he has nothing to worry about. All he's got to do is take the trades when they come along.

Trader A, however, cannot avoid another period of Market Exposure. (Well, he can, by closing both trades simultaneously and crossing the spread again, but you understand that. I couldn't fit all the options on to the diagram )

This means that, without his strategy giving him any clues (which is all a signal is), he just has to guess.

==========================================================================

Having established how the two traders positions differ, let's examine the implications of that on their P&L.

Let's say that their strategy has an expectancy of 0.3R - that is, it makes 30% of whatever the traders risk*.

Trader B only Exposes himself to the market (lol) when his strategy gives him a signal, and every time that it does, he expects to make 0.3R each and every time.

Trader A also takes every trade that his system generates (they are both on the same system remember), and every time that he does, he also expects to make 0.3R. Trader A, though, also has to make trades when his system is telling him to be flat, because he's got to close out one of his "positions" first (or suffer increased costs).

Without a proven strategy to guide him, these second trades might as well be based on the toss of a coin*. And, in the very very long run, the profit and loss of these trades is going to cancel out*. So, because he's using exactly the same strategy as Trader A, he's taken every trade that Trader A has for the same P&L. BUT HE HAS ALSO TAKEN AN EQUAL NUMBER OF RANDOM TRADES. And each random trade cost him comission.

==========================================================================

It is crucial that you understand this last point.

Given two traders following identical strategies with equal proficiency, the trader who includes trades made at random, over enough time, always make less than the trader that doesn't*. If you take away the profits from their system (which they both made), the difference between the two is that Trader B didn't make any random trades, while Trader A did, and had to pay comissions/spread to make them.

Any "edge" that Trader A had, Trader B has too. Any time Trader A sees a trade, Trader B see's it - and takes it as well. Being Trader A basically means you believe that you can also make money in the long run by trading at random. You can't.

* note to others: alright, I know I'm taking a lot of liberties here, but I'm trying to make is as simple and straightforward as possible. No offence Jon

HM

Yes, I understand all that. As I see it, the strategy of Trader A staggering his exits brings a necessary consequence of "entering a period of market exposure" which is why he limits that exposure with a tight stop. He is not "trading at random" but he is entering that period of market exposure on his best judgement of immediate market direction on information less strong than he would need for a "straight" entry (ie: in your example - no MA crossover signal). If, in the long run, he makes money from it then he has the edge over Trader B who will not have traded in the absence of the signal.

ps: appreciate the time you must have taken on the explanation

 

[Hakuna Matata]

HM

Yes, I understand all that. As I see it, the strategy of Trader A staggering his exits brings a necessary consequence of "entering a period of market exposure" which is why he limits that exposure with a tight stop. He is not "trading at random" but he is entering that period of market exposure on his best judgement of immediate market direction on information less strong than he would need for a "straight" entry (ie: in your example - no MA crossover signal). If, in the long run, he makes money from it then he has the edge over Trader B who will not have traded in the absence of the signal.

ps: appreciate the time you must have taken on the explanation

I am going to get you there if it ****in well kills me.

 

[Hakuna Matata]

Note to self: beano's bells

 

[D70]

When does Hakuna Matata get his MBE for services to the financial industry?

 

[brewski1984]

on his best judgement of immediate market direction on information less strong than he would need for a "straight" entry (ie: in your example - no MA crossover signal).

So an extra trade with no edge?

 

[barjon]

So an extra trade with no edge?

No, if his judgement of immediate market direction from the information he has available makes money over the longer term then that "judgement" represents an edge. That's no different from a fully discretionary trader who does not use any mechanical trigger or specific set-up to launch his trade.

 

[Atilla]

I am going to get you there if it ****in well kills me.

 

[Hakuna Matata]

HM

Yes, I understand all that. As I see it, the strategy of Trader A staggering his exits brings a necessary consequence of "entering a period of market exposure" which is why he limits that exposure with a tight stop. He is not "trading at random" but he is entering that period of market exposure on his best judgement of immediate market direction on information less strong than he would need for a "straight" entry (ie: in your example - no MA crossover signal). If, in the long run, he makes money from it then he has the edge over Trader B who will not have traded in the absence of the signal.

ps: appreciate the time you must have taken on the explanation

OK Jon,

Firstly, you're a good egg for sticking with it until now. It might seem like we're going in circles, but the more you explain yourself, the better picture I get of how you are thinking about this - and where exactly it is that you're not quite joining the dots in the right way.

I'm gonna quote your post out of order, but:

As I see it, the strategy of Trader A staggering his exits brings a necessary consequence of "entering a period of market exposure"

Good man, you're getting there. One down, Three to go.

...he is entering that period of market exposure on his best judgement of immediate market direction on information less strong than he would need for a "straight" entry...

This is the first thing that you're not quite grasping - in your comaprison between Trader A and Trader B, you're allowing one Trader to behave differently than the other. To compare Apples with Apples, we can't do that.

...which is why he limits that exposure with a tight stop... If, in the long run, he makes money from it then he has the edge over Trader B who will not have traded in the absence of the signal...

And this is the second thing that is skewing your analysis.

I have a busy weekend, but I will come back to this and explain each of the two points fully. I'll warn you know, there will me more pictures.

In the meantime, I'll remind you of what exactly we are trying to establish:

"For any one trader, are there any circumstances where being long/short is preferable to being flat?"

We have established that, under certain circumstances, there are CONS to being long/short over flat. The reason that I am so confident is that I know that there are NOT ANY PRO'S. If there were any PRO's, that would change the argument into a whole sh!tcan of worms, as we would have to weigh up the PROS vs. The CONS.

What I am going to show you is that there AREN'T ANY PROS, and that we can tell this without making a single trade.

 

[Emini-mouse]

OK Jon,

Firstly, you're a good egg for sticking with it until now. It might seem like we're going in circles, but the more you explain yourself, the better picture I get of how you are thinking about this - and where exactly it is that you're not quite joining the dots in the right way.

I'm gonna quote your post out of order, but:



Good man, you're getting there. One down, Three to go.





This is the first thing that you're not quite grasping - in your comaprison between Trader A and Trader B, you're allowing one Trader to behave differently than the other. To compare Apples with Apples, we can't do that.



And this is the second thing that is skewing your analysis.

I have a busy weekend, but I will come back to this and explain each of the two points fully. I'll warn you know, there will me more pictures.

In the meantime, I'll remind you of what exactly we are trying to establish:

"For any one trader, are there any circumstances where being long/short is preferable to being flat?"

We have established that, under certain circumstances, there are CONS to being long/short over flat. The reason that I am so confident is that I know that there are NOT ANY PRO'S. If there were any PRO's, that would change the argument into a whole sh!tcan of worms, as we would have to weigh up the PROS vs. The CONS.

What I am going to show you is that there AREN'T ANY PROS, and that we can tell this without making a single trade.

yes there are pros
i have used this for a large advantage
same stake
same instrument
same time frame

 

[Shakone]

yes there are pros
i have used this for a large advantage
same stake
same instrument
same time frame

Finally! After 75 pages we're going to get a pro to doing this. Go on then, what's the advantage?

 

[Emini-mouse]

Finally! After 75 pages we're going to get a pro to doing this. Go on then, what's the advantage?

well yes the ploy of being long and short at the same time has made me money
but perhaps not how you may be thinking in the context of this thread
the problem is i dont want to publicize as i might be able to utilize this again in the future

 

[malaguti]

What I am going to show you is that there AREN'T ANY PROS, and that we can tell this without making a single trade.

Did the point made by Intel some posts ago, not give a good reason..a man with 400 open trades going long and short because of multple strategies and you are saying no..I'd rather consolidate those 400 trades and pick this automated system apart and find out where I am flat, and go in just that direction..but Im gonna do it manually..
all you're doing is saying the same thing, time and time again
its getting really boring

 

[Shakone]

well yes the ploy of being long and short at the same time has made me money
but perhaps not how you may be thinking in the context of this thread
the problem is i dont want to publicize as i might be able to utilize this again in the future

Well I'm now convinced, and have converted to Barjon's side.

 

[cablemonster]

well yes the ploy of being long and short at the same time has made me money
but perhaps not how you may be thinking in the context of this thread
the problem is i dont want to publicize as i might be able to utilize this again in the future

ah the old long and short with guaranteed stops prior to NFP.

 

[brewski1984]

Did the point made by Intel some posts ago, not give a good reason..a man with 400 open trades going long and short because of multple strategies and you are saying no..I'd rather consolidate those 400 trades and pick this automated system apart and find out where I am flat, and go in just that direction..but Im gonna do it manually..
all you're doing is saying the same thing, time and time again
its getting really boring

Is it possible to beat commissions with 400 open trades mostly cancelling each other out?

 

[malaguti]

Is it possible to beat commissions with 400 open trades mostly cancelling each other out?

is it possible to sift through all of them and net them all out manually?