I’ve been trading in Liteforex since 6 years ago and still making money with. I like this broker, they are very fair broker, it makes me fall in love with. Here, i can do any style trading strategy such as hedge, scalping,multiorder, and so on…
There are no absolute rules. Everything is variable. People who totally support hedging should know that in some cases and for some traders it wont work well or it is a max energy min result game. Hard work. People who are totally against it should realize there are rules to hedge consistently and make profits.
There are many ways to hedge, a full hedge (simple/complex) or a two pair hedge, or a hedge on stocks using options.
Lets stick to the simple full hedge on the same pair, same price same entry levels and same volumes.(if your country/broker allows it):
1-Choose a very low spread pair/index/stock
2-Choose a low pip value pair/index/stock
3-Choose a ranging chart or a weak/gentle trend (avoid strong trending charts)
4-Choose a small time frame
5-Choose a broker with no commission or very low commision
6-Use a very small % of your capital (0.25 to 1.0% of your total cap: $25-$100 for a cap of 10K)
7-Do your analysis, draw your lines, Know the strong Sup and Res levels and potential turning points in all time frames
8-Have a clear plan for your entries and exits and trading scenario
9-Start the Hedge at a key Sup/Res barrier (horizontal or diagonal)
10-Calculate how many times you want to keep hedging up/down and where your turning point is
11-Make a plan for when things go wrong, are you going for bigger time frames? or you will wait it out? or you minimize your exposure using scalping?
12-Decide how long you will monitor the Hedge (on a 5-15 min chart it can take up to 2 days or less to complete a hedge)
13- Neutralize the trade if you need a break or use profit targets for the different scenarios in line with your chart.
14- Once you are done, measure your performance, was it a good hedge or things went wrong?
Good Luck!
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Its great to hear that you have been profitable with the hedging strategy because most of the traders tend to lose due to confusion in the price action.
Hello Royal Blood.
Thank you. Yes indeed, it is hard work and a mix of ongoing calculation/math, adjusting the chart/trends and S&R levels and scalps. I dont hedge as a rule, but as the exception. I still prefer the straight forward basic method of using a suitable stop, trailing it, and waiting it out. It is less energy consuming and can be very profitable for swing trading on longer term charts. But no harm hedging every now and then especially when markets are ranging. Some very interesting and longer term hedge strategies include two pair hedging which can be very profitable in the long run and does not need much effort aside monitoring the correlation between the two currencies you choose. The main benefit of hedging for me is, it eliminates the risk of stop loss activation yet there is still equity risk stop that needs to be monitored. The less you expose the longer you can sustain the hedge/scalp hybrid unless you are two pair hedging (which only uses two contracts/limited exposure). In all cases Hedging can be a very powerful learning tool and actually fine tunes your understanding of market mechanics as you tend to interact more with the price and so can turn you to a very successful swing trader eventually.
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Thank you for the response, with regard to the hedging of correlated currency pairs, i have almost found it strange because when i try to hedge GBP/USD, GBP/JPY the trade directions most of the time resulted in loss even with a hedged trade. Is there any particular currency pair that you suggest.
Hello Royal Blood
The pairs GBP/USD and GBP/JPY are not suitable for hedging since the correlation between $/JPY are invesre, meaning USD and Yen are not positively correlated. A better two pair hedge would be EUR/GBP using EUR/$ and GBP /$. So if you are bullish on the EUR/GBP you are long on the EUR and short on the GBP you can either
1- Just Long EUR/GBP (not a hedge) but then you need a stop loss…or
2- Go long on EUR/$ and Short on GBP/$ and then you dont need a stop loss but simply monitor the EUR/GBP relation, as long as EUR/GBP is rising then you are ITM, this can be profitable on longer term horizons (use day charts/week charts).
A third option is triangular hedge (hedging the EUR/GBP) in case it goes the other direction, this is a temporary hedge to profit from the counter move against your trend (compensates your loss in the other two pairs)
One of the reasons why two pair and three pair hedging doesnt work is either your quantities are imbalanced or your horizon is too short. make sure to equate the $ value of the hedged pairs.
yes I was helding and done well in that.
Yes, I use hedging strategy . My trading system is automated and mechanical. I add position in the direction of trade and when there is ranging I add position both side. Once price get a direction and my take profit reach to a desired level I close all the trade.
I use hedging, but not to make profit in two directions.
A hedging trade is used as an protection of a trade that has turned against me until it turn back to the direction it was meant to go and since it has been hedged I can take it out on a smaller retracement rather than hoping it will turn back to were the trade started to get a break even…
The idea of hedging is actually more oriented towards suppliers, producers and people involved in products such as commodities who tend to hedge their exposure in those markets. At the same time they might hedge other potential risks such as currency exposure. On the other hand, the FX market has witnessed what is called as hedging strategies. It’s usually someone who is long a certain instrument and at some point would hold a sell position in the same instrument in order to protect from sudden downside. This is reasonable if you expect something to go higher but worried about short term downside. While some would argue that holding opposite side positions is equal to being flat and that’s true except the ability to do so can lower the cost of having to close the positions and reopen them in the sought after direction. Also, the psychological aspect could help the trader make better decision if he can manage to control hedges. The usual issue that traders deal with is the fact that many of them end up hedging themselves often and across a wide range of prices, thus creating the issue of over exposure.
Totally Agree, the risks of hedging range from
A) Over exposure (which can be fixed by using micro trades of 0.20-0.25% of your cap per trade) and
B) if you are not sure what you are doing and your chart reading abilities are weak (this comes by time and experience)
C) strong trending Charts like GBP/Yen or larger time frames of trending price behavior (can be fixed by sticking to ranging price charts or at least weak/gentle trends with 50% corrective moves as a minimum)
If all these obstacles are well dealt with, hedging can be a very powerful and consistent profit making tool (small profits on a daily basis)
I agree with you here! I do hedge my account and it is part of my risk management.
Hedging sounds great in theory but is very hard to pull off and you really need a robust, well thought out strategy to make it work.
Some brokers don’t even allow you to open positions against yourself, and I think even MT5 stops this at the software level.
One of the many fantastic ‘improvements’ of Metatrader 5.
i agree with bobbillbrowne. I personally admire your work through the forum bob. Thank you!
I used to trade a pretty hedge based strategy.
I’d find a big fundemental ‘theme’ (Eg. Feds going to increase rates, short the Eur/Usd). Then I’d place a tiny short order at a nice entry spot. Price will dance around. When price finds downward resistance, I will place a long there, with the stop under the resistance, (So the long will only close if the downward resistance is broken).
I would then go, for hours and hours watching the market and placing lots of shorts when I felt it was a good idea, and longs when the price hit downside resistance.
The shorts will have no stoploss or take profit. The longs just have a stoploss under the resistance.
In this way I’m able to guard against any suprise massive upward moves. I pay small losses on these. I almost look at hedging longs like this as ‘insurance’ for my shorts. I pay a small sum like 5 pips or so to ensure that the price doesn’t make a random 50 pip lead upwards putting me into deep red. Almost like a substitute for a stoploss but instead of kicking you out of trades when the SL is hit, it keeps you in them at a small cost. If you’re 99% sure the general ‘mood’ of the market will go in your way in the end (Like with EUR/USD short a month ago) then you can be pretty confident that your shorts will be in profit in the end.
Eventually, after several hours of watching the market and twitch buying/selling, the overall mood of the market prevails (eg. the EUR/USD takes a dive as originally predicted). Then you close all the shorts at the same time and hopefully the profit you made is much larger than the ‘insurance’ costs of the longs.
Here’s what this looks like:
It’s profitable, although it takes a **** load of time. Like 3-5 hours of sitting there watching the market and placing trades every 10 minutes, changing stops etc.
I don’t trade like that any more, there are objectively better ways. I suppose if you’re bored and want to ‘actively’ trade it’s entertaining enough.
Yea… i remember the gold market dumping something like 500 pips down on Monday at 3 minutes after market open in the space of a minute or 5 last month XD also news event fun times
it was one of those “nooo…” moments for some people
hedging for real market trading works in 2 cases 1 is above, 2 is when your position is well into the profit zone and it comes up to a pivot point that technical analysis can’t figure out if it will hold or not.
Basically allows you to take out a position at the best possible moment and hold on to your old position, effectively saving you the need to close a position that would otherwise be closed for risk management reasons and then reopened over/under pivot point)
Hedging manual, it is very difficult, i never able to mastered this, I tend to use Hedging EA.
I love and success to use this hedging EA.
Do any one here want to buy this EA? but this EA need to be compiled again.
contact me if you want to.
It has been success in Liteforex broekr
I have tried it but it doesnt work at all. I have even tried the sure fire hedging strategy with increasing lot size but didnt work out at all.