Originally Posted by PipMeHappy
If I understand what you said correctly, then this does not seem like a good reason to hedge.
You said you want to use "hedging at the beginning of entering a long-term trade" as insurance. This is not insurance. The mathematical effect is simply that you put off making a decision on the market direction and pay the spread an extra time (on your second trade) for your trouble.
To prove this, I will walk you through the two possible outcomes. For my example, let's assume you are bullish on cable and want to place a long term trade buying 100k GBP/USD at 1.2800. That means, according to your hedging plan, you would go long 100k GBP/USD in one trade 1.2800 and short 100k GBP/USD at 1.2800 in another trade. (I'm ignoring the bid/ask spread to keep this example simple but note the sell price on your second trade would probably end up being a bit lower than the buy price on your first trade.)
Scenario 1: GBP/USD goes up 50 pips in your favor and is now trading at 1.2850. That means you are floating a 50 pip profit on Trade 1, and a 50 pip loss on Trade 2. Therefore your Net P/L at this point is 0 pips. (Again this ignores the spread.) Since your idea of buying GBP/USD seems to be working so far, you decide to close your short trade. This locks in your 50 pip loss on that Trade 2 which on a 100k short equates to $500. You are now net long 100k on Trade 1. Suppose GBP/USD then goes up to 1.3800. You close the trade for a 1000 pip profit. That equates to $10,000 on Trade 1. But remember you have to subtract the $500 loss from Trade 2. That means your P/L overall is $9500. That's equivalent to 950 pips on a 100k GBP/USD trade. That means, even though you took profit at 1.3800, it was as if you initially bought 100k GBP/USD at 1.2850, not 1.2800. That means the whole time you were hedged from 1.2800 to 1.2850 was as if you had no trade open at all.
Scenario 2: GBP/USD goes against you dropping 50 pips and is now trading at 1.2750. That means you are floating a 50 pip loss on Trade 1, and a 50 pip profit on Trade 2. Therefore your Net P/L at this point is 0 pips. (Again this ignores the spread.) Since your idea of buying GBP/USD seems not to be working, you decide to close both your long trade and your short trade. This locks in your 50 pip loss on Trade 1 and your 50 pip profit on Trade 2. You lose $500 on Trade 1 and that is offset with a $500 profit on Trade 2. That means the whole time you were hedged from 1.2800 to 1.2750 was as if you had no trade open at all.
The question then becomes: If you are unsure when you first get a buy signals for GBP/USD at 1.2800, why not simply watch the market without placing a trade at 1.2800 and wait to see if the price rises to 1.2850 before buying 100k GBP/USD there? If the price instead falls to 1.2750, then you don't place a trade at all.