hedgin BN with N : my views about sid's thread

following are my views about sidhdharth's thread

http://www.mudraa.com/trading/136566/0/interesting-hedging-technique-siddharth.html

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good strategy

but it has some serious traps. some of these i am listing below (as much as i can recall; i tried this strategy in many forms and finally abandoned)

1. what if BN and N start going saperate ways. we assume in this strategy that BN and N have positive alpha. that is, when one goes up, other also goes up, and vice versa. this doesn't happen always. also, the rate of change of both varies. i found many a times that BN moved much slower to N. e.g. if IT moves opposite to BN (which does happen many a times) and moves faster than BN (assuming it is not BN's day), then the situation i mentioned can come (and it did many times when i tried it). many times, N remained in a range and BN moved a lot.....i bleeded like hell!

2. brokerage factor has to be very low, otherwise whatever profit you get is eaten by brokerage leaving you gasping for breath.

3. you need a lot of buffer fund to fund this ambitious method.

4. one has to do this method for a long time to cover for adverse unforeseen moves in BN and N. if you quit after one or two negative trades you are dead. and having guts to keep trading even when u r bleeding requires a drunkered's head....very very tough.

overall, thrilling strategy but as difficult and unpredictable to control as is controlling a bull in a bull fight!

saw this thread and couldn't resist sharing my views.

however, with deep pockets this is a practical and doable and winnable strategy. can't be brushed aside.

only that we talking about playing with a monster of a method.