I have a trading question. This question is not about entry or exit points. I have been developing my strategy, and recently, instead of grabbing pips as they come, only to see if I hadn’t closed a position, it would have run on longer, I have been allowing my trades to remain open, as advised on this site.
Now this has worked really well. I have been trading a small percentage of my account (0.1 Lot on $3000 account – well this is 10x smaller than before )
I have let the positions run, and cut the losses pretty quickly. This works as you guys told me it would, and is opposite to what I did as a newbie, letting the losses run in the hope they would come back round (which I now see is completely futile) and I grabbed any profit as soon as it appeared.
Ok, so I let the positions run, only to find that they too can come back round and close at zero (I would move my stop loss to here)
But, I have realized I would like to stay in the market longer, so in order to bank my profits from a long run, at a reversal, I have entered the opposite position to my original.
This has the effect of preserving my profit until the price decides to break previous resistance / support in either direction. Or it holds the profit until I have time to analyse the market and decide what I want to do next.
Hi Mike
If I understand correctly, At a reversal you keep your position open and enter a second position in the opposite direction thus hedging your trade. From that point on your profit is frozen as any loss from one position is compensated for by a gain in the other
You’re doing what retail forex traders (some, anyway) refer to as “hedging”. It’s no different than if you closed the trade out, then re-opened, except that it may cost you in terms of carry interest and you’d still have margin posted even though you don’t have any risk. This, by the way, is not permitted with US brokers under NFA rules.
If you want to let a trade run when in profit, look two to three timeframe up and see if there is a larger trend. This will show that your trade may be potentially in a retrace, and if you let it bounce back off of 0 it might continue for even more profit.
For larger profits and larger time frames you have to be much more patient. The drawdown is bigger and the time involved in the trade is bigger. On daily candles and up it’s not hard to get +100 pips out of one trade. On smaller than daily candles you are waiting for the big move and trying to catch bottoms and tops, where as on daily and up, +100 can be just a part of the move and taken more easily.
What I do is let my trades go +20 or even +50 depending on the pair, only then do I set the trade to BE. This gives me a postive 20-50 SL, a free trade as they say. From there if it reverses on me to BE I’m out, unless it looked like a sudden spike took me out, where price will go back in my direction.
Setting to break even works really well, IF, your entries are in reasonably good spots consistently. If they are not you will have a whole lot of Break even trades and with some losers, it could potentially really mess with your equity curve.
"Setting to break even works really well, IF, your entries are in reasonably good spots consistently. If they are not you will have a whole lot of Break even trades and with some losers, it could potentially really mess with your equity curve. "
I have been doing this in practice, because I have tried new ideas from reading while the trade has been open.
I like that idea of a free trade, if I am not mistaken, it seems to be a technique between exiting a position and actually opening an opposite position to keep any profit open, even if the price takes a dive in the opposite direction
Hi Mike
What you are doing with this “strategy” is entering a limbo situation. The profit or loss that you have when you enter the second trade remains the same ( except for the second spread ) it is not a free trade. At some point you must close one or both positions to realise any ( hopefully ) profit. I am sure others more knowledgable than me will explain hedging other investments, but I believe it is akin to a form of insurance against currency moves
No, the way I do it is one trade. The one trade gets set to BE, and just let it run or take profit and set SL to profit at rational levels.
I think what you are describing is putting on two or more positions from the same entry, in the same direction. The first postion takes profit early, then the second postion is set to Be when the first take profit and from that point is left to run further or reverse and stop out at BE.
This way you get profit & have potential for more profit.
No profressional finance person anywhere in the world will refer to being simultaneously long and short the same currency pair a hedge. It’s a zero position because you have no exposure at all. You could call it the ultimate hedge, but it’s equivalent to hedging your exposure to gold by selling all your gold - not exactly what one has in mind. Only retail forex traders refer to this complete offsetting of positions as hedging.
When a company is hedging a currency risk it generally means they either have an asset denominated in a given currency (say foreign securities) or are anticipating some kind of cash flow in or out in a specific currency. In the former case the company could sell the currency in question in the forward or futures market with the delivery date set to match when the asset would be sold. In the latter case the company could use currency swaps, or forwards/futures to offset the currency risk of their cash flows, depending on their structure and needs.
No, I’m not meaning two trades in the same direction. I mean, take for example a trending market. I buy at 1.5000.
the price increases to 1.5100, and starts to retrace. (for example)
at the retracement (or potential change in direction), instead of closing the position, and having to wait and risk new entry, I open a Sell position, of the same size.
Now all profit is locked between these two positions. the price can move around inside this horizontal channel, but I can take full profit at any time but closing two positions simultaniously.
both positions SL is set to open price, so when price decides to trend again, I have in effect preserved my profit, and waited. No new fee to the broker, and little new risk.
does that make more sense. ?
I have been doing it all day today and have so far gained over 400 pips, and maybe lost about 50 or so with false breakouts.
This is “hedging”. It is in absolutely no way improving your performance.
Closing the position and waiting for a new entry is exactly the same in all terms as putting on your offsetting position, then lifting it. Run the math. You will never find any difference between the two approaches in P/L or risk.
both positions SL is set to open price, so when price decides to trend again, I have in effect preserved my profit, and waited. No new fee to the broker, and little new risk.
The fact that you’ve put on and taken off the offsetting position means you paid the spread a second time - just as if you had closed the original position and then opened a new one. As noted above, the risk is exactly the same.
I have been doing it all day today and have so far gained over 400 pips, and maybe lost about 50 or so with false breakouts.
Your gains have nothing at all to do with the hedging/offsetting. It is, and can only be, where you buy and sell.
It’s not about “back to the drawing board”. It’s about realizing that it’s where you buy and sell the determines your profitability and that “hedging” is exactly the same as closing your trade, then opening a new one. If you executed the same trades in a non-hedging fashion you’ll get the same results as in a hedged manner.
Closing the position and waiting for a new entry is exactly the same in all terms as putting on your offsetting position, then lifting it. Run the math. You will never find any difference between the two approaches in P/L or risk.
You are correct, well your spread cost will increase.
The only difference is physiological, that is a big part of trading. As long as the trader knows this I don’t see a problem trading this way. I don’t do this but I think I understand why some people like it.
When will traders quit propagating the time frame myth? The chart shows M5 candles inside H1 candles that are inside a D1 candle. It is all the same data. Pick a starting point like the daily, weekly, monthly or yearly open and take your measurement from that point. That will stop you from being fooled by myths.
