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, you freeze the loss. Than you have to find a right spot to close the hedging trade. I suggest to use PRICE ACTION formations to find it or RSI divergence.
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 first 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.
Two main options can happen:
- THE BEST: The market goes to the first trade’s direction long term. You will close your new (2nd) 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 starts to go up (for example the hedge placed to 50 PIPS), but it stops @ 20-30 pip higher and turns back. Your new hedge opens again a little higher and you make profit with your new trade. This is good, but you have to wait for another trade to close the first trade finally.
Very imortant that I’m using TP/SL SLIDING and Trailing Stop 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.
If you’re not successfull in forex trading, or you want to start make money with it, read my posts, follow my trades, join the FREE FULL SIGNAL OFFER or just learn my trading strategy!