Guys I am about to go Live in a couple of days. I was thinking to hedge my positions. I will not use a Stop Loss for this strategy. My plan is to open positions on micro lots and set the same Take Profit for both buy and Sell positions. In this case the winning positions will close automatically when they hit the take profit point. I will keep the negative positions open till the price come backs and they close in the profits. Since I will use 0.01 lots so I don’t have to be worried about any sort of Margin calls or Loss as I will have 5000 dollars to back up my trades and I will only trade 0.01 lot size and I think for such small lot size 5000 is enough. Please correct me if I am wrong. I will only target for about 500 dollars profit per month.
What you say about a strategy like this? Also from your experience which pairs have very high volatility? I need pairs which are very volatile for this kind of strategy for obvious reasons. Please do share your knowledge and suggestions that if a strategy like this will work in long run.
That is not a hedge. That is giving your broker money.
If you open a long position in EUR/USD and then open a short position in EUR/USD you will lose money. For every pip you gain when EUR/USD goes up, you will lose a pip in your short EUR/USD position and vice versa. You will remain perpetually at break even except for the fact that you paid spread twice in order to open two positions from which you cannot possibly gain an advantage from.
It doesn’t matter how volatile the pairs you trade using this strategy are since you will always have a one-for-one gain/loss on each pip of movement in either direction making the balance stay the same, except for giving your broker the spread – twice.
A hedge is completely different. This is a hedge:
If you believe the USD will rise over the coming months you can take long position in a USD-based pair and then purchase a USD put option on the futures market. If the USD falls instead of rises, you can close your position and exercise your put option minimizing exposure. If the USD rises as you originally thought you simply fail to exercise your put option and let it expire, costing you very little while still profiting on the original long position.
That is an option to consider if you wish to hedge. What you described is… baffling.
try your system on demo for a few weeks and post the results on this thread. I am using a similar idea but implementing Stop Losses - see 301 Moved Permanently .
JohnLeonard’s comments are valuable, but sometimes when you announce an idea on a forum you will not have had time to test it, and you are therefore unable to know its strength: if you make it work for you by trial and error, it will be more interesting for forum users, because you will have charts and/or data to show what worked and what did not, putting the system/strategy through real price action scenarios.
Guys, I’m about to head out Reside in a few days. We ended up being thinking to hedge our jobs. I am going to not utilize a Cease Damage due to this approach. My personal strategy would be to open up jobs about small a lot and also fixed exactly the same Carry Profit pertaining to both buy and sell jobs. In this instance the actual earning jobs may shut routinely after they struck the actual carry benefit stage. I am going to keep the bad jobs open up till the retail price come back plus they shut inside profits.
“I will not use a Stop Loss for this strategy”
, but then saw the 0.01 lot size. You may never loose much but, will definitely not gain much either and in fact you may end up loosing more. What I really think you need to do is forward test on a demo for at least two months and see whether it holds out.
I was doing something very similar to what you are planing on doing about 4 years ago. I would open the positions up , but i would not place T/P on them. When the pair would start to reverse i would take profit on the winning trade and wait for the other one to do the same. It was working great for me, but something happened. I live in the USA and the government changed the rule to First in , first out accounting and that was the end for me.
The rule change has nothing to do with your performance. “Hedging” is nothing more than a method of accounting. It does not determine your profitability, except in a negative sense. You could have kept your general strategy and executed in a non-hedging way.
No, yes it did because at the time the government executed the cut off date for the rules to start all the accts started fresh and they closed all the trades. So if you were running negative , you lost that money.
Overcoming the brokers edge is difficult enough, doubling the size of their edge is just insanity, particularly when you don’t have to.
The people suggesting this crazy stuff have to be paid shills, or IB’s, or benefiting from some sort of broker kick back. There’s no other reasonable explanation
Hate to tell you, but if you were running negative you had already lost that money - especially if you were “hedged” since all that does is lock in your gain or loss.
Besides, there was plenty of advanced notice to set yourself up to account for the change.
Thanks for your reply and explanation but I dont know anything about options and futures market!!!
Thanks. I am reading your thread right now. Will post there about it.
Thanks bro.
Thanks Man.
Sorry to hear it but I think everyone here is right about it that this strategy maybe not fruitful in long run and I dont think I am going to give more time testing it.
Hedging is a good alternative way to protect yourself against heavy losses. Think of a hedge as an insurance on your trade. Kind of a back up plan. Hedging is one of the ways to reduce the amount of loss you would suffer if something unexpected occurs. Some brokers allow you to place trades that are direct hedges while other wouldn’t-yet consequent ways of hedging include the complex hedging: multiple currency trading, forex options. It is becoming strictly illegal for US brokers to support hedging as it is said to increase market volatility; still it is one thing traders would mourn for long.
If you’re talking about hedging including things like using options then there is absolutely no illegality here. US forex brokers are only refrained from allowing “hedge” accounting, and increase market volatility has absolutely nothing to do with it. Anyone mourning that particular ruling doesn’t really understand what they’re doing.