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Close the winning trade. If the market retraced 50 pips, that will be your profit. I concur with your thoughts on hedging. Every time I do this it seems to make so much sense. However, every time I lose money one way or the other. You can hedge, ofcourse! You just need a sub-account to open the opposite position which requires margin on two accounts. Hedging implies that some risk remains in a trade. This is an offset. As long as you have both positions on your have zero net risk.
You cannot profit or lose regardless of where prices go. My question for those who use this so-called hedging in place of a stop-loss is what exactly do you think you are achieving? Sure, you may not be able to lose any more. You essentially just locked in your loss just as if you had exited the trade. My dictionary has two definitions. With that said, I use hedging for only one reason. When I make too large of a trade and it goes in the opposite direction that I had anticipated, then in lieu of experiencing a margin call I implement hedging.
Meaning you cannot lose any money nor is it possible to make any money. However, when I use it that is exactly what I want to have happen - freeze everything. I want to put my self inflicted problem in suspended animation. Because not only do you freeze margin, but you can take a profit on your hedge trade at a turning point in the market and wait for it to come back to your original trade. If it does not, you place another trade in the same direction as the original thus lowering your average.
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Keep taking those hedge trades to boost balance and keep averaging down. Eventually when price retraces you make a killing. It happens all of the time by some stout traders and banks alike. But it works the same way. Plus stop hunting is out of the question. Brokers love to malign this technique as Martingale but it is not even close. What it is, is managing your equity until the market turns favorable.
Hedging Forex: How to Hedge Currency Risk | CMC Markets
With Martingale your first bet that you lose is a dead horse. Not so with hedging. I used Hedging to benefit from market swings, assuming I can identify a clear reversal point for my trades. I also used Hedging to stoploss until I see market reaction and give myself the room to think about solving my loss. No stock trader would ever short Google to hedge a long position in the stock.
No futures trader would buy February Gold to hedge a short position in February Gold. Maybe this is just my university finance education coming in to play here, but I look at hedging in terms of the intent. A hedge is meant to isolate a certain risk involved in a position or a transaction to be made at a future time and either reduce or eliminate it.
Avoiding a margin call should never be the basis for any kind trading.
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It takes a lot to come back from losing that percentage of your portfolio, both financially and psychologically. Somewhere folks seem to have forgotten that spot forex trading is like futures.
Your account is marked-to-market. To say that taking profits from these so called hedges boosts your balance is incorrect. As some of you already know- trading is a zero-sum game. In other words, for every winner there is a loser. I am sorry if my English is not perfect, but it is not my native language.
I still believe that for trading there are no barriers and traders should follow their dreams. I will do my best to help you reach your goals financial , but there is one thing I cannot do for you- I cannot teach you how to be disciplined!
Grid Trading
That is something that you need to discover yourself in order to be a successful trader…. Fx crosses are probably the best in trading rangebound environment. Currency crosses present the best opportunities for the range-trading trader. That is why, it might be a good idea to stay away from the ranges, since they might cost you. In contrast to the crosses, commodities and majors offer traders the strongest and longest trending opportunities. Should be considered as trending.
What Is Hedging as It Relates to Forex Trading?
Should be considered as range-trading and thus ignored for the sake of the successful implementation of this system. Determining where to place the stop loss is pretty easy. Have a look at the picture below to see where I would have placed my stop in different crossover situations. You need to make sure that you ride a position for as long as it is possible, because that is where you make the big bucks.
You can end up having a few small winners and a few losers, but the point is to have at least a small number of home runs huge winners. An approximate result after 10 trades by correctly using this system would be: — 1 Huge winner — 5 Losses — 4 Small winners The important thing here is to make sure that you get to hold long enough to have a huge winner. And that is when the fun part starts….