Scenario is simple, using bollinger bands as oversold/overbought signal and start a position based on signal. Most of the cases go well but sometimes one of these signals is the start of a market breakout, inverted to what was expected and ending in a 150-200 pips loss with huge losses.
Despite of how can this be prevented analytically, is it a good practice that in case we take a position and the market goes in the opposite direction after a certain amount of pips a new position is opened in the opposite direction?
That is called hedging and it can be good if you understand how to hedge. There are different thoughts on it, but I think most dislike to hedge their positions and the US was dumb enough to ban it altogether. It is not as simple as taking positions in opposite directions at different prices and more complicated if you want to use this successfully.
Thanks for your response, it’s very useful. Can you advice me on a UK that accepts hedging?
Any broker in the UK allows hedging, the only country where hedging is banned is in the US.