Hedging - A smart way to trade or completely stupid? | Forex Factory

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Hedging - A smart way to trade or completely stupid?

  • #1
  • First Post: Feb 27, 2018 8:16am Feb 27, 2018 8:16am
Hi guys,

So I came across the word "hedging" and read through some threads on different forums. From my understanding, hedging is some sort of martingaling where to outcome is very high to be break even or in profit.

For example, enter a trade (let's say 0.05) and instead of a stop loss, you add a stop (or buy) order that doubles the amount in lot size of your first position. Once the trade goes like 30 pips (or depending on your strategy) against you, it triggers the second position (0.1). If the 2nd position goes in profit and you reach break-even in total profit, you close the first position and let this one run.

Repeat until the trade goes in one way.

My first though was: damn, that is really smart! Worst and rarest case you end up in a loss in case you catch the range and keep entering trades and cannot add anymore positions. Best case a break even or a nice profit.

But everything that sounds amazing and simple, usually has a hook. And I cannot seem to figure out this hook except you have to keep adding positions since your trade jumps between the range of 30 pips and you take a loss.

Since I am new to hedging and recently discovered it, what is your opinion in this way of trading? Is there even a disadvantage to this? I do not know ....

Cheers,
Ray
  • #2
  • Feb 27, 2018 8:38am Feb 27, 2018 8:38am
Quoting RaysJourney
Hi guys, So I came across the word "hedging" and read through some threads on different forums. From my understanding, hedging is some sort of martingaling where to outcome is very high to be break even or in profit. For example, enter a trade (let's say 0.05) and instead of a stop loss, you add a stop (or buy) order that doubles the amount in lot size of your first position. Once the trade goes like 30 pips (or depending on your strategy) against you, it triggers the second position (0.1). If the 2nd position goes in profit and you reach break-even...
It IS really smart. On it's face.

In reality you will get a lot of small wins while the market ranges, but sooner or later, the market will be begin a trend that will drain the account. It is a textbook case of cutting winners short, and letting losers, run. It is doable, but if you make any trading errors at all, it will be the end of you.
If you are good at something, never do it for free--Joker
  • #3
  • Feb 27, 2018 8:42am Feb 27, 2018 8:42am
Quoting jmn5611
{quote} It IS really smart. On it's face. In reality you will get a lot of small wins while the market ranges, but sooner or later, the market will be begin a trend that will drain the account. It is a textbook case of cutting winners short, and letting losers, run. It is doable, but if you make any trading errors at all, it will be the end of you.

Do not forget that hedging is only used if the trade goes against you. But depending on the strategy (let's assume it is a 70% win rate strategy), you don't have to hedge every time you enter a trade. Just 30% of the time, the rest are clear winners. So maybe it makes it good now?

Opinions? I am counter argumenting not because I like hedging (I am neutral on this) but just to tickle out as much opinions as possible to get a clear picture if it is a smart move or not.
  • #4
  • Feb 27, 2018 9:02am Feb 27, 2018 9:02am
Quoting RaysJourney
{quote} Do not forget that hedging is only used if the trade goes against you. But depending on the strategy (let's assume it is a 70% win rate strategy), you don't have to hedge every time you enter a trade. Just 30% of the time, the rest are clear winners. So maybe it makes it good now? Opinions? I am counter argumenting not because I like hedging (I am neutral on this) but just to tickle out as much opinions as possible to get a clear picture if it is a smart move or not.
This argument is as old as the hills. Search for Hanover, and his posts on hedging.
If you are good at something, never do it for free--Joker
  • #5
  • Feb 27, 2018 10:22am Feb 27, 2018 10:22am
Quoting RaysJourney
Hi guys, So I came across the word "hedging" and read through some threads on different forums. From my understanding, hedging is some sort of martingaling where to outcome is very high to be break even or in profit. For example, enter a trade (let's say 0.05) and instead of a stop loss, you add a stop (or buy) order that doubles the amount in lot size of your first position. Once the trade goes like 30 pips (or depending on your strategy) against you, it triggers the second position (0.1). If the 2nd position goes in profit and you reach break-even...

Hedging is not my style.

But I know a trader, she have a youtube page (she´s a commercial).
She trades in real time hedging.
I do not know any trader/educator that trade in real time except her and show us the trades for free.

But as I said hedging it is not my style.
But sometimes I like watching her making some trades while I wait for my setups.
POW!
  • #6
  • Mar 1, 2018 9:04pm Mar 1, 2018 9:04pm
Quoting RaysJourney
Hi guys, So I came across the word "hedging" and read through some threads on different forums. From my understanding, hedging is some sort of martingaling where to outcome is very high to be break even or in profit. For example, enter a trade (let's say 0.05) and instead of a stop loss, you add a stop (or buy) order that doubles the amount in lot size of your first position. Once the trade goes like 30 pips (or depending on your strategy) against you, it triggers the second position (0.1). If the 2nd position goes in profit and you reach break-even...
Hedging is hedging trading is trading. They are different entity
I hedge becos I am a manufacturer and I hedge against those country currency I exported to and those raw materials I got from a different country to ensure my profit margins will not be adversely affected by the Forex fluctuations. I trade spot Forex if I see short term upward and downward PA. I invest in strong currencies against weaker currencies in a longer time horizon when the country economical conditions of the stronger currency started to pick up. Martingale is when I go to a casino for some quick fun and I double down my bets when I have a strong runs in my Baccarat games.
All are different asset classes on its own. You cannot really said which one is a better.
When you hedge against any of the aboves means you surrender at least a certain percentage of the loss to prevent a much bigger loss.
Anybody have any different or more innovative ideas where I can learn from?

Cheers
GS
  • #7
  • Mar 1, 2018 10:01pm Mar 1, 2018 10:01pm
Quoting fxprimate
{quote} Hedging is not my style. But I know a trader, she have a youtube page (she´s a commercial). She trades in real time hedging. I do not know any trader/educator that trade in real time except her and show us the trades for free. But as I said hedging it is not my style. But sometimes I like watching her making some trades while I wait for my setups.
Could you share the YouTube channel ? Thx
  • #8
  • Mar 2, 2018 4:32am Mar 2, 2018 4:32am
Quoting Telac
{quote} Could you share the YouTube channel ? Thx
Telac, sorry but it seems that she´s no longer offers the free access, now she charges.
I dont have free acess now.

So, I will not promote her giving the link.
But she´s in the commercial section.
POW!
  • #9
  • Apr 12, 2018 6:27am Apr 12, 2018 6:27am
Quoting fxprimate
{quote} Telac, sorry but it seems that she´s no longer offers the free access, now she charges. I dont have free acess now. So, I will not promote her giving the link. But she´s in the commercial section.
I see, can you please inbox me with the details? I’m interested.
  • #10
  • Last Post: Apr 12, 2018 9:34am Apr 12, 2018 9:34am
The term "hedging" has become ambiguous in the world of forex.

The traditional sense of the word is lost through time.

Your thread would get answers from people of 2 camps, with rather opposing views.

Just like there are many ways to skin a cat, there are multiple ways to earn in the forex market.

Just because something works for you doesn't mean it will for others, vice versa.

My personal opinion on this (backed with live proof of concepts) is that both ways would allow you to generate profits, it really just depends on your view of the markets.
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