OK....this has gotten too out of hand and I am going to put a stop to it right now. I mentioned the USD/MXN trade to show an example of how to use your leverage in a current to trade to your advantage. I had no idea that the troll(s) would descend. So here is the idea, and you can dispute this until you're blue in the face...I have shown you with an open, live, on the right hand edge trade...and I challenge you (or anyone else) to dispute it with the same.
The markets (and by markets I mean participants producing the order flow) cannot be "boxed in" by absolutes, ie "never", "always", "impossible". In fact the only absolute about the markets that can be said is, the market is "never" absolute. It is always relative. That relativity is dependent on the market structure factors themselves...Time, Order flow, Volume, and finally price. That being said here is the deal about hedging and I use the trade I posted earlier as an example. Back in November I was not "hedging loss" I simply entered a position that took time (3 months) to develop. That development (as luck would have it) produced the envious position of profit with the possibility of further profits IF I can hold it long enough. All original trades had stops and where at one point "at risk" trades...they are no longer. The only risk in these trades is not whether they will make a lot of money or a little money, but they WILL make money.
While we're on the subject lets talk about "risk" as that is really the base line question here...RISK. Unlike many here, I speak against the dogma of "low risk or high risk"....there is no such thing. The "risk" in any trade is constant and unchanging. The only thing that matters is how much of your account your expose to that risk. And the risk is simply this...that price will move against your entry creating a negative open trade balance. THAT's IT!! That risk never changes. That is why we use (or at least should use) stop losses to prevent exposing that risk to the entire account.
Now on to the matter at hand. Let's say you have a trade going and its a winner...a big winner and you want to hold it for as long as possible because you "theorize" that this trade might continue for 1000 or more pips in your favor. If that is possible why wouldn't you want to take advantage of that? But then there is that old "risk" scenario again, that price might move against your position and may even hit your stop. In fact when price does start to stall and range back and forth, that creates a bit of uncertainty about your trading theory that might make you doubt yourself and your trading idea.
Enter the "hedge". First lets define what I am talking about. By "hedge" I mean an equal position in the opposite direction on the same instrument. So in this instance I have engaged a short position which has been so successful I have closed 1/2 of it in profit the remaining position I entered at what I believe to be a very long term top. But I could be wrong on that, so I have a stop loss protecting the position against all losses. The current price action has stalled and is no longer moving in my favor, and this uncertainty could cut short good profits. And that old "risk" scenario tells me that sooner or later price WILL move against me. But instead of closing my short, I chose to keep it running because, (due to my analysis) I feel there is more down side coming and want to participate. I have already taken good profits out of this first leg and that is booked and off the table...so...
Why not use the counter price movements to my advantage and enter an opposing trade...with a stop (that is already paid for)...and gain even more pips from the counter price movement. It may be a little it may be a lot but the where I entered the long is a good area for longs. The only question is will this long actually produce? No one knows...so I hold both positions.
Now lets say I did the opposite. Instead of holding my shorts I closed them and opened longs...OK...I booked profit on the short and now I have an "at risk" trade that may or may not produce. If it does I pat myself on the back and call myself a "genius"...if it doesn't I've missed out on a tremendous opportunity that I was in from the beginning and let it go because of some idea that it is "impossible" for a hedge to make money.
REALLY?
So here's the bottom line...If you don't like hedging or don't think it will work...don't do it. I won't criticize you that is your choice. But if you (like me) chose to buck the "trading dogma" and use this technique to your advantage...it can be done successfully but requires a little (OK a lot) of patience and planning. But don't come into MY thread and tell me its impossible for me to make money when I have clearly shown you in a live in the market trade that's not true.
The markets (and by markets I mean participants producing the order flow) cannot be "boxed in" by absolutes, ie "never", "always", "impossible". In fact the only absolute about the markets that can be said is, the market is "never" absolute. It is always relative. That relativity is dependent on the market structure factors themselves...Time, Order flow, Volume, and finally price. That being said here is the deal about hedging and I use the trade I posted earlier as an example. Back in November I was not "hedging loss" I simply entered a position that took time (3 months) to develop. That development (as luck would have it) produced the envious position of profit with the possibility of further profits IF I can hold it long enough. All original trades had stops and where at one point "at risk" trades...they are no longer. The only risk in these trades is not whether they will make a lot of money or a little money, but they WILL make money.
While we're on the subject lets talk about "risk" as that is really the base line question here...RISK. Unlike many here, I speak against the dogma of "low risk or high risk"....there is no such thing. The "risk" in any trade is constant and unchanging. The only thing that matters is how much of your account your expose to that risk. And the risk is simply this...that price will move against your entry creating a negative open trade balance. THAT's IT!! That risk never changes. That is why we use (or at least should use) stop losses to prevent exposing that risk to the entire account.
Now on to the matter at hand. Let's say you have a trade going and its a winner...a big winner and you want to hold it for as long as possible because you "theorize" that this trade might continue for 1000 or more pips in your favor. If that is possible why wouldn't you want to take advantage of that? But then there is that old "risk" scenario again, that price might move against your position and may even hit your stop. In fact when price does start to stall and range back and forth, that creates a bit of uncertainty about your trading theory that might make you doubt yourself and your trading idea.
Enter the "hedge". First lets define what I am talking about. By "hedge" I mean an equal position in the opposite direction on the same instrument. So in this instance I have engaged a short position which has been so successful I have closed 1/2 of it in profit the remaining position I entered at what I believe to be a very long term top. But I could be wrong on that, so I have a stop loss protecting the position against all losses. The current price action has stalled and is no longer moving in my favor, and this uncertainty could cut short good profits. And that old "risk" scenario tells me that sooner or later price WILL move against me. But instead of closing my short, I chose to keep it running because, (due to my analysis) I feel there is more down side coming and want to participate. I have already taken good profits out of this first leg and that is booked and off the table...so...
Why not use the counter price movements to my advantage and enter an opposing trade...with a stop (that is already paid for)...and gain even more pips from the counter price movement. It may be a little it may be a lot but the where I entered the long is a good area for longs. The only question is will this long actually produce? No one knows...so I hold both positions.
Now lets say I did the opposite. Instead of holding my shorts I closed them and opened longs...OK...I booked profit on the short and now I have an "at risk" trade that may or may not produce. If it does I pat myself on the back and call myself a "genius"...if it doesn't I've missed out on a tremendous opportunity that I was in from the beginning and let it go because of some idea that it is "impossible" for a hedge to make money.
REALLY?
So here's the bottom line...If you don't like hedging or don't think it will work...don't do it. I won't criticize you that is your choice. But if you (like me) chose to buck the "trading dogma" and use this technique to your advantage...it can be done successfully but requires a little (OK a lot) of patience and planning. But don't come into MY thread and tell me its impossible for me to make money when I have clearly shown you in a live in the market trade that's not true.
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