First you have to know a very important thing. NOT ALL BROKERS ACCEPT HEDGING!
What is hedging?
In my words hedging is a new trade to protect your existing trade from an unwanted move.
For example: This week, I placed an EURJPY BUY trade @124,345. It started to go down. I set up the HEDGE trade (SELL STOP @ 123,700) instead of an SL. It opened next morning and I saw it, so I watched the moves. I’ll write about PRICE ACTION soon, but if you already know what is it, I saw in many timeframes that the down move is stopping (the bulls are going to beat the bears 🙂 ), so I closed the hedging trade.
Than you can see that the trade is started to go to the right way so it went to positive. I saw the the up trend is stopped again, so I closed this trade with low profit.
CONCLUSION: I earned 2 low profit instead of a SL.
So how I use this strategy. On each trade, I place a SELL/BUY STOP to the other direction. The place of the HO (hedge open) is in the same place like the SL.
When a hedge opens, so freezed the loss. Than you have to find a right spot to closed the hedging trade. I suggest to use PRICE ACTION formations to find it.
Sometimes the market moves to the other way than you wanted, so you have to wait a lot. Your heging trade will go to big profit, the starting will go to a bigger loss. Than you don’t have to wait for a full market change. When you have an option to trade to your first trade’s direction, place that trade and close your hedging trade with big profit.
Three options can happen:
- THE BEST: The market goes to the first trade’s direction long term. You will close your new trade and the earlier too with profit. The first one with a low profit, the new one with big profit.
- NOT BAD: You close the hedge, and it started to go up (for example the hedge placed to 50 PIPS), but it stopped @ 20-30 pip higher and turned back. Your new hedge opened again a little higher and you made profit with your new trade. This is good, but you have to wait for another trade to close the first trade finally.
- BAD: Both trade goes to the bad direction. You made double “-” with the first trade and a new hedge with your new trade. But don’t worry, you can solve it later, if you make some good trades.
Very imortant that I’m using TP/SL SLIDING when I’m trading actively. So, if I’m lucky enough, I can make real high profit if the maket goes to the right direction.
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