I’m a fresh new beginner at forex. And I have a question that i hope you experts are willing to give me answer to…
it’s about hedging.
it makes sense to me. Why not enter a position in both direction? set a stop loss in both and let the profit run? either way we’d make money rite?
specially with scalping.
just set stop loss at 1 and take profit at 3 pips in both direction.
It sounds almost too good to be true to me. And in my experience if things are like that usually it is. So there must be something wrong with this method if it doesn’t achieve any popularity as a trading strategy rite?
So what is the flaw of hedging? And why don’t people use this method?
well, i’m new to forex really myself, but i usually play around in sclaping the most, and it sounds to me that if you did it that way, if its set up the best your loss to reward ratio would prolly be 1:1. and since the market is very sporadic at times, you’d prolly see it go into profit then fly back down and hit your stop loss a lot
but than again, i’m not the shiniest apple on the tree
Because you’re assuming that price is moving in a straight line, which it doesn’t. So price will take out both your stops a lot of the time.
But the bigger problem - even if it did work would be the spreads. That’s why scalping, especially with retail broker spreads is harder than longer-term trading, because the edge you require to be profitable is a much higher % because of the ratio of spread:profit.
Hedging does not work. It only works if the
price is moving fast fast fast in your favor
and you can close out the losing position
and the winning position will make up
for that hedge loss. Hedging is a waste
of time. Don’t get sucked into it. Never
hedge! People hedge because they never
know why they entered a trade in the
first place. If you know, why hedge?
And stop loss of anything less than 20
is a waste of time and money. You
will lose every single time. In the
described scenario, you will lose every time.
Though i think hedging is used if you left a positon open (that you shoulda closed) and just want to wait for it to come back up or at least higher than the point you enter the hedge.
Basically you just tie up your margin for a bit. Though of course you wouldnt have to do that if you had used proper money management and set your SL accordingly.
Sorry but I disagree. My system uses hedging as an important part of it and it works for me. I spent 3 years finding a way that worked for me and for me the answer was hedging. I was unable to get over using a stop loss so I found away around it. I now average 15% a month consistanly so I just think that everyone needs to find what works for them imho.
Unfortunately I left an open 1:200 short position when the Euro Dollar ratio was around 1.475 and nobody knew for sure if it would go up or down. It went upto 1.5900, increaseing my floating loss upto around - $ 800. Now, with the parity was going up, diminishing my free margin, it was obvious that another wave upwards would blown my open positions. So, I decided to open a hedge accound at 1.5960, long 1:200. In this way, even if the rate hit 1.600 or more… I would be safe from having margin call. Well, one day, when I was off, I realised that the ratio fell down and I was in a limbo with two open hedge positions.
Last week, when the ratio hit down 1.5300, I decided to close my short positions thinking that 1.5300 was the bottom and a reversal would fallow. This way I was able to clear my open position @ 1.5960 since I assumed the rate would go up again.
And last fateful friday when I woke up in the morning I saw that the ratio fell to 1.5200. My open position at 1.5960 cleared all my free margine and my account blown by a margin call when I was sleeping.
Now, never hedge; the ratio may never come back where you left again. (For example we never know if we ever see 1.6 again).
aw mann… looks like you found your stable system. I know this is a long shot but… do you mind sharing?
btw thx to all the reply here. I do have a clear idea why the idea i posted won’t work. Since price could move both way it’ll eat up both my stop loss and i’ll end up with no profit lol. How silly of me to overlook that.
If a broker allows hedging (opening two opposite orders with the same currency pair) will it work to place a hedge, for example, near the top of a trend when the price is showing a strong sign of reversal? For example, as you near the top of a trend place a hedge order so that if price still goes up it won’t set off a margin call. Then when it starts going down and is majorally confirmed to be a trend reversal then close the bullish order and let the bearish order ride.
I’m pretty sure that for US brokers, you can no longer do hedging in the same account.
One idea I’ve toyed with is having two simultaneous accounts (Oanda makes it easy with sub-accounts) where if I got “stuck” waiting for a trade to reach target in one, I could scalp trades in the other sub-account. The biggest issue would be handling the situation where trader activity might be needed in both at the same time (I guess I’d want to be out of the sub-account by that point).
So far I have not done anything with this idea. Something tells me it is probably not a good one.
There are definitely legitimate reasons for doing trades in seperate accounts - like working with seperate strategies so you can easily differentiate performance. Expectation that you can somehow improve performance by doing so, however, is not one of those reasons, because it simply can’t happen.
