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How do you get out of your Hedge trade?

  • #21
  • Jul 13, 2008 8:48am Jul 13, 2008 8:48am
Remember, im not saying the hedge itself causes any damage, its impossible.
Its when you de-neutralise that is the problem. If you can pinpoint the area to let loose 1 side of the hedge and then make a profit, then why not just trade it normaly?

I meen no harm, I just dont understand why anyone who had thought this through propperly would bother.

Good trading

Leon
Living the adventure in my head.
  • #22
  • Jul 13, 2008 9:35am Jul 13, 2008 9:35am
My hedging is used more like a stop loss than just for the sake of hedging.
First, I can't emphasize enuf about money management and having a solid system for entering a trade (S/R, Fibo, MA,etc...).
I do not open a trade when the price is in no-man's-land. But when a trade has been opened based on solid fundamentals and technicals and still move against the grain, more often than not it's based on hot air, rumors,smoke-'n-mirrors... and is due for a retrace. That's when my stoploss hedging is used to counter the head fakes. As a recent exemple, just think about what happened when the ECB raised its rate last week.EUR/USD dropped like a stone because the "market" was "caught off-guard" by the "no bias" comment of J-C Trichet! But the guy has always said the ECB is "not pre-committed" to a bias (be it true or not) so it can't be that big a surprise. Just a classic case of buy-the-hype and sell-the-fact. After dropping ~300 pips, the Euro has more than made up for the loss.
Secondly, there is no one-size-fit-all formula in the way of applying and exiting a hedge. Again it all depends on the size of your account, size of the lots you trade, money management,etc... Personally, I do it based on S/R and ATR. One caveat however is if a real trend has developed against your trade, you have to be quick to hedge again after consolidation until a more substantial retrace is identified.That's why always keeping an eye on the bigger time frame is a must. If done right, your paper-loss is kept at a reasonable level and when the price moves back in the original direction, I would add another position to compound the gains or whittle down the loss.

To sum it up, I do not consider FX trading as an exact science but more like a bully game where more often than not you have to face the bluff from the big sharks. Hedging if used properly could be one way to have your cake and eat it too.
  • #23
  • Jul 13, 2008 10:19am Jul 13, 2008 10:19am
Quoting Leonlorenzo
Remember, im not saying the hedge itself causes any damage, its impossible.
Its when you de-neutralise that is the problem. If you can pinpoint the area to let loose 1 side of the hedge and then make a profit, then why not just trade it normaly?

I meen no harm, I just dont understand why anyone who had thought this through propperly would bother.

Good trading

Leon
You have a perfectly valid point there.
But for many pple, the benefit of Hedging is Psychological. Some pple simply do not like the idea of getting a hard loss on their account. I've nothing against it if the paper loss keeps them in a "better mood" and hence a more positive attitude about their trading. Personally, I have exposed my view in my other post.

Cheers.
  • #24
  • Jul 13, 2008 11:13am Jul 13, 2008 11:13am
Hedging is not the evil demon that most will describe. Most of the time this comes from a misunderstanding of how to properly use hedging.

On the attached chart you will see a GBPUSD image timeframe doesn't matter.

NEVER open a hedged position upon initial position entry. Let's say I am not in a position for gbpusd and I get my entry signal at the green 2 on the chart below. I do not enter a hedged position but instead just go long.

The day progresses and I get the red 1 on my chart which is a signal to go short. Instead of closing my position and then going short, I hedge.

Later in the day, based on some other indicators I have I can see that the hedged position is showing weakness but is still profitable. When I get an indication that the trend is reversing and should begin to go up again, I close the hedged position keeping my long position.

In fact what the hedging has done is allow me to capture the small retracement without closing my other position.

What would have given me a signal to close my long and keep the short hedged? Long term price trend change to short instead of long (blue line would have turned red).
Attached Image (click to enlarge)
Click to Enlarge Name: hedgingsmall.jpg Size: 57 KB
  • #25
  • Jul 13, 2008 11:18am Jul 13, 2008 11:18am
Quoting magnumfreak
Hedging is not the evil demon that most will describe. Most of the time this comes from a misunderstanding of how to properly use hedging.

On the attached chart you will see a GBPUSD image timeframe doesn't matter.

NEVER open a hedged position upon initial position entry. Let's say I am not in a position for gbpusd and I get my entry signal at the green 2 on the chart below. I do not enter a hedged position but instead just go long.

The day progresses and I get the red 1 on my chart which is a signal to go short. Instead of closing my position and then going short, I hedge.

Later in the day, based on some other indicators I have I can see that the hedged position is showing weakness but is still profitable. When I get an indication that the trend is reversing and should begin to go up again, I close the hedged position keeping my long position.

In fact what the hedging has done is allow me to capture the small retracement without closing my other position.

What would have given me a signal to close my long and keep the short hedged? Long term price trend change to short instead of long (blue line would have turned red).
  • #26
  • Jul 13, 2008 11:40am Jul 13, 2008 11:40am
hedge this is Bad Idea...
  • #27
  • Jul 13, 2008 11:50am Jul 13, 2008 11:50am
Quoting magnumfreak
Hedging is not the evil demon that most will describe. Most of the time this comes from a misunderstanding of how to properly use hedging.

On the attached chart you will see a GBPUSD image timeframe doesn't matter.

NEVER open a hedged position upon initial position entry. Let's say I am not in a position for gbpusd and I get my entry signal at the green 2 on the chart below. I do not enter a hedged position but instead just go long.

The day progresses and I get the red 1 on my chart which is a signal to go short. Instead of closing my position and then going short, I hedge.

Later in the day, based on some other indicators I have I can see that the hedged position is showing weakness but is still profitable. When I get an indication that the trend is reversing and should begin to go up again, I close the hedged position keeping my long position.

In fact what the hedging has done is allow me to capture the small retracement without closing my other position.

What would have given me a signal to close my long and keep the short hedged? Long term price trend change to short instead of long (blue line would have turned red).
OK, now think about this. You had say 1 lot open for long position from position 2. Then you open 1 lot short at position 2 as your hedge. After some time you close your short position and let the long undisturbed.
Instead of doing this you could have simply closed the long position at position 2 instead of opening a new short one and reopened it (long) again when you think short term retracement was over. Calculate and tell me if it would make any difference to the final outcome in terms of profit and transaction cost.

It would not because when you open your hedge position you are basically neither short nor long because your short cancels long. Basically it is the same thing as having no position at all.
  • #28
  • Jul 13, 2008 12:33pm Jul 13, 2008 12:33pm
Quoting good
OK, now think about this. You had say 1 lot open for long position from position 2. Then you open 1 lot short at position 2 as your hedge. After some time you close your short position and let the long undisturbed.
Instead of doing this you could have simply closed the long position at position 2 instead of opening a new short one and reopened it (long) again when you think short term retracement was over. Calculate and tell me if it would make any difference to the final outcome in terms of profit and transaction cost.

It would not because when you open your hedge position you are basically neither short nor long because your short cancels long. Basically it is the same thing as having no position at all.
If I may answer your question:

Let's say the main trend is Up----->Open Long position
At some point there is a pullback-------->Open Short position
Pullback done and main trend resumes----> Close Short position
Hedging here is basically done as a counter-trend trade to book some extra pips while staying in a longer term trend. Much less stress than opening and closing positions all the time.
But of course, to each his own
  • #29
  • Jul 13, 2008 12:52pm Jul 13, 2008 12:52pm
Quoting pqt
I don't agree with pple who keep slamming hedging just for the sake of slamming it.
Hedging works great (for me anyway) in ranging market, but even in trending market, it could still work out since any move would have to retrace at some point. Of course you'll have to pay the extra spreads and swaps, but if done right, it will leave you with a profit at the end of the day (or week...) which is really what matters, isn't it?
And it also works for me and for others. It is just so pointless in discussing it here as very few traders will ever discover the the true value of it.
Never Ever Give Up!
  • #30
  • Jul 13, 2008 1:46pm Jul 13, 2008 1:46pm
solid...

Quoting Leonlorenzo
Keep hedging as you are and you will end up cutting hedges for a living.
  • #31
  • Jul 13, 2008 3:48pm Jul 13, 2008 3:48pm
Quoting Cobra
And it also works for me and for others. It is just so pointless in discussing it here as very few traders will ever discover the the true value of it.
Please explain what you mean and try be clear instead of bashing.. Say you are -50 pips on a long position and you say ok i will hedge opening a short of equal value, paying the spread again, then say it goes down another 50 pips, and then reverse and you get a new buy signal, you close your short position for a profit. But your long position is now -100 pips. What was the point of doing it? Wasn`t it better to close your loosing position and wait for a better entry? If the idea of taking a loss was too painfull, then probably your position was to big so your money management is not good at all. If you don't understand this is because you are new to this business and about to loose your account.. Believe me, i was there.

By the way, if MERLIN the magic man dare to comment against hedging, i would be VERY cautious not to argue. Obiously you don`t know what you are talking about and if hedging have work for you then you have just been lucky. At least explain HOW it did work for you?
Harmonics and Pitchfork using korHarmonics from TradingArsenal
  • #32
  • Edited 5:19pm Jul 13, 2008 5:06pm | Edited 5:19pm
Yah, many traders do not see any sense in hedging. Even i myself did not see any sense in it until i did some study myself and saw that there is a good sense in it especially in this silly kind of market where fundamentals come up to disrupt teknical conclusions one might have made. i however have been applying it in my tradings frequently and with my teknical know how, i have used it many times to make net profits. As i am writing this, i have a hedged trade on, on gbpusd, the last one i closed gave me a net profit of 200 pips. My own type of hedging is placing both buy and sell using pending orders at a “CAREFULLY SELECTED” market price and waiting until the market reaches that area, not necessarily at the same price, but at a price when the bid and ask are both attained at the same time e.g i can place a pending order to sell gbpusd at 1.9750 and buy at 1.9753 if my brokers spread is 3 pips for it. I don’t hedge all d times, my trading activities are such that swing carries 55%, day trades carry 30%, hedging carries 10% and scalping carries 5%, and well , all dis are making me succesfull cos i see my account always growing fatter. Though, scalping is a form of day trading and hedging could also be depending on whether the trade is opened and closed dat same day.


Firstly, I have my personal rules when hedging.

1. I ensure the price I am opening both is always “AROUND” a passage way. Market either goes up or down , it must pass dat area. OR that the market is ranging between an extreme high and low as seen from higher time frames like 4hr, daily E.g check ur 4hr and daily chart on usdcad 1.000-1.0050 is a passage way, gbpusd has been betwn 1.9400 and 2.0000 for the past few months , so I could choose 1.9700 area for it.besides for the past 1 year gbpusd has always passed thru 2.0000 area.

2. I don’t hedge volatile pairs like the yen pairs etc that can face north for 4 months and not turn back. In other words I hedge pairs not exttremely volatile and can range between an extreme high and low. However, u shuld know that there could be a problem when it breaks away from the ranging area.


Secondly, I have two approaches when hedging ,

1. Placing both trades and waitng after a major move had been made and completed. This move must give me nothing less than 150-250pips profit and loss. Then I close d profitabu one and later place another trade in the direction of the one reading hell of losses so that when the new one gains some pips e.g 50 – 100, then I close both and not waiting necessarily that the other neutralises. You need to be teknically sound to be effective with this e.g last 2 weeks or so I hedged gbpusd at 1.9700 area, when it got to dat great resistanse area of 1.9840’s-50’s I was still sure the move up had not been completed because of the way I saw it powerfully still moving up i.e the upward momentum then was still much hence , d move had not been completed.Fortunately I followed it until I closed d buy at 1.9960, placed another sell there, of course I was almost accurate with the dat new entry though it rose to 2.0005 or so but I was very good at it cos I closed and entered another towards the end of the major move which lasted for days really. And when it came down I closed both left at 1.9860 using take profit and giving me 200 pips net profit on the three gbpusd. U chek ur chart, u’ll see it even came down further to 1.9640’s. So the summarry here is dat u need to be teknicaaly sound to discern the end area of that major move or else the hedging effort becomes worthless and may even result into net loss.

2. Placing both and after which studying the direction towards where they will make a major move. Studying how reluctant they are to move up or down can help u discern where dey will actually want to go and make a major move to . then u close the wrong one and leave the right trade on until it gives u as much pips as u are satsfied with

WELL I DO HOPE I MADE A LITTLE SENSE HERE.
know thy edge and abide by it ! 4 in it shall thou be successful !
  • #33
  • Jul 13, 2008 5:44pm Jul 13, 2008 5:44pm
Quoting pqt
I don't agree with pple who keep slamming hedging just for the sake of slamming it.
Hedging works great (for me anyway) in ranging market, but even in trending market, it could still work out since any move would have to retrace at some point. Of course you'll have to pay the extra spreads and swaps, but if done right, it will leave you with a profit at the end of the day (or week...) which is really what matters, isn't it?

u are right , dont mind the cynics. let them see a sense in my post. chek d charts ans see if there are no uptrends and downtrends on pairs like gbpusd, usdcad.
know thy edge and abide by it ! 4 in it shall thou be successful !
  • #34
  • Jul 13, 2008 6:06pm Jul 13, 2008 6:06pm
Quoting robertsonakp
1. Placing both trades and waitng after a major move had been made and completed. This move must give me nothing less than 150-250pips profit and loss. Then I close d profitabu one and later place another trade in the direction of the one reading hell of losses so that when the new one gains some pips e.g 50 – 100, then I close both and not waiting necessarily that the other neutralises.

2. Placing both and after which studying the direction towards where they will make a major move. Studying how reluctant they are to move up or down can help u discern where dey will actually want to go and make a major move to . then u close the wrong one and leave the right trade on until it gives u as much pips as u are satsfied with

WELL I DO HOPE I MADE A LITTLE SENSE HERE.
Do you realize that you could achieve the same objective and same profits with same technical analysis without using the "hedge" trade? Placing both buy and sell orders at same time is the same thing as not trading at all. Its a No trade.
Imagine walking to a fruit shop and buying apples for $10. And then after paying the cash, you place the apples back on the counter and tell the fruit seller that you now want to sell those apples back to him at the same price. Better stay at home.
In your above strategy you buy and sell currency pair and after a major rally you close the profitable long trade and let the loser stay open expecting to come back for 50-100 pips. Well you could have just opened a single short position at the level where you closed the long and achieve same target with same analysis. Because the only prediction or analysis you made for that trade was that market will come down for 50-100 pips after a rally. And initially you didn't bet on whether the market will rally or fall. Same goes for your second approach which is essentially the same thing.
  • #35
  • Jul 13, 2008 6:14pm Jul 13, 2008 6:14pm
Quoting good
Do you realize that you could achieve the same objective and same profits with same technical analysis without using the "hedge" trade? Placing both buy and sell orders at same time is the same thing as not trading at all. Its a No trade.
Imagine walking to a fruit shop and buying apples for $10. And then after paying the cash, you place the apples back on the counter and tell the fruit seller that you now want to sell those apples back to him at the same price. Better stay at home.
In your above strategy you buy and sell currency pair and after a major rally you close the profitable long trade and let the loser stay open expecting to come back for 50-100 pips. Well you could have just opened a single short position at the level where you closed the long and achieve same target with same analysis. Because the only prediction or analysis you made for that trade was that market will come down for 50-100 pips after a rally. And initially you didn't bet on whether the market will rally or fall. Same goes for your second approach which is essentially the same thing.
well u should have it clear that as for me hedging comes in when the market direction becomes very uncertain. if i am 80-100% sure of the market direction, i will not hedge, but if i never would fathom where d market will go or how far it will go, THEN I HEDGE.IS IT ALL D TIME THE MARKET GOES IN UR ANTICIPATED DIRECTION ? AND IS THIS NOT A BETTER WAY OF DEALING WITH SUCH SITUATION WHEN UR HANDS FEELS LIKE PLACING A TRADE ?
did u bother to consider ny teknical points at all and even cheking or studying ur chart to see it makes sense ?
know thy edge and abide by it ! 4 in it shall thou be successful !
  • #36
  • Jul 13, 2008 6:23pm Jul 13, 2008 6:23pm
Quoting robertsonakp
well u should have it clear that as for me hedging comes in when the market direction becomes very uncertain. if i am 80-100% sure of the market direction, i will not hedge, but if i never would fathom where d market will go or how far it will go, THEN I HEDGE.IS IT ALL D TIME THE MARKET GOES IN UR ANTICIPATED DIRECTION ? AND IS THIS NOT A BETTER WAY OF DEALING WITH SUCH SITUATION WHEN UR HANDS FEELS LIKE PLACING A TRADE ?
did u bother to consider ny teknical points at all and even cheking or studying ur chart to see it makes sense ?
Lol..I don't need to see the charts to know what cable has been doing in past few weeks.
So I guess in the end it all comes down to some psychological beliefs. From your post it seems you hedge when you don't know which direction market is heading and you trade just because you can't resist trading. then you place both buy and sell orders which is essentially a no trade and you end up paying unnecessary spreads and commissions.

  • #37
  • Jul 13, 2008 6:25pm Jul 13, 2008 6:25pm
We all trade in a way that we feel comfortable with. Successful traders meet their objectives in different ways - no way is right for everyone.

I've managed to post 10 profitable months out of the last 11 by placing long and short positions on GBPJPY, not by placing longs and shorts at the same price but placing the trades in line with my personal plan.

Could I have made a similar profit by trading more conventionally? Probably, however I'm comfortable with the way I trade and no-one will convince me otherwise.

I could argue until I'm blue in the face but I'll just get on with doing what I do best......

Best of trading to all.

Kind Regards
Steve
  • #38
  • Jul 13, 2008 6:53pm Jul 13, 2008 6:53pm
Quoting good
Lol..I don't need to see the charts to know what cable has been doing in past few weeks.
So I guess in the end it all comes down to some psychological beliefs. From your post it seems you hedge when you don't know which direction market is heading and you trade just because you can't resist trading. then you place both buy and sell orders which is essentially a no trade and you end up paying unnecessary spreads and commissions.

exactly, i wrote it here that i hedge when i am not sure of the market direction.Besides i dont just place trade without a teknical and fundamentak basis. u read it up in my post that i wait for d market to get to certain areas before i can hedge so i am not an amateur trader who does not know what he is doing. watever method or approach i employ, all i am telling u is dat dey have all been making my account grow fatter and dats it. i do not care about wateva spread or commision i pay to my broker as far as my objective of making profit at the end is achieved. he who does not want to pay spread or commision will many times pay losses !
know thy edge and abide by it ! 4 in it shall thou be successful !
  • #39
  • Jul 13, 2008 6:59pm Jul 13, 2008 6:59pm
Quoting magnumfreak
Hedging is not the evil demon that most will describe. Most of the time this comes from a misunderstanding of how to properly use hedging.
I agree.


On the attached chart you will see a GBPUSD image timeframe doesn't matter.
I hope its not a daily chart. Id hate to have that neutral position for that many days.

NEVER open a hedged position upon initial position entry.

.......Unless you want to pay double spread to make no money.

.......balance 1000 dollars equity 1000 dollars

Let's say I am not in a position for gbpusd and I get my entry signal at the green 2 on the chart below. I do not enter a hedged position but instead just go long.

.......A hedged position? Of course not, you need to have a postion already open one way or the other to hedge it.

........balance 1000 dollars equity 980 dollars.......2pip spread 2X10 =20 (yea, I know a full lot on a 1000 dollar account is kinda pushing it but its for simplicity's sake that i use this round number.)
The day progresses and I get the red 1 on my chart which is a signal to go short.
.......Great you have made 50 pips - 2 pips spread on the long =48pips(well if you had taken profits by closing the long) and now you go short to make some pips.
.......50pips up now balance 1000 dollars equity 1480 dollars.
That is to say if you exit all trades at this time your balance will become 1480dollars

.......Exactly what IS your exit strategy for the long position?

Instead of closing my position and then going short, I hedge.

.......This is correct. You hedge. You have now hedged your long position.

.......Balance still 1000 dollars equity now 1460 dollars (2 more pips of spread)
Later in the day, based on some other indicators I have I can see that the hedged position is showing weakness but is still profitable.

.......You mean the short position. Your long is actually the position you "hedged".
.......I think i feel an exit strategy coming for the short position.

When I get an indication that the trend is reversing and should begin to go up again, I close the hedged position keeping my long position.

.......You close the short position. You take off the hedge. Leaving the Long unhedged.

.......Yup, there it is. ChaChing$$$

.......Lets see 15 pips minus 2pips spread =13 pips.
......Balance has gained 13 pips and is 1130. However during this entire hedge, your equity has been frozen at 1460 dollars

.......Your long position has given back 15 of its 50 pips. So now if you were to close it right now you would have made 33 pips on the long and 13 on the short for a total of 46 pips. 1000 plus 46 pips is 1460dollars. that is to say if you close your trades now you will have 1460 dollars. congratulations you did all that work and have 20 dollars less and are now "hoping" it will go up.

In fact what the hedging has done is allow me to capture the small retracement without closing my other position.

.......If in fact this does turn out to be just a "small retracement". I dont have a crystal ball.

.......In fact what the hedging has done is have you glued to your computer trying to time when is the best time to take off the hedge.
Now it has to go up two pips from where you closed the short to get back to the profit you had if you had simply closed the original long with 48pips and gone fishing. If you "knew" the market was going to sell off and then go back up you could have reversed taking the 48 pip profit. Then taken the 13 pips profit on the short. And then gone long again to ride it back up to the original position for anothe 13 pips. But of course this would require that we "know" what the market is going to do......dont we wish we did.......

What would have given me a signal to close my long and keep the short hedged? Long term price trend change to short instead of long (blue line would have turned red).
.......Im pretty sure a "Long Term" price trend change would mean the trend has been going down for a while.....I would imagine your original Long position would suffer from that.......keep hedging....Ive gotta get my pips from someone.............

pipip........Jimdandy
  • #40
  • Jul 13, 2008 7:00pm Jul 13, 2008 7:00pm
I demoed an EA that used hedges to get out of trades that went against it. I liked out how it used no stop loss and would hedge instead. I used this method in my own live trading and was successful at first... no stop loss to worry about getting taken out by a spike, if the trade goes the other way just hedge double the lot size of the original trade and wait til price moves far enough so closing both trades results in BE or close the loser and trail the winning trade for a profit. I did this for a while succesfully, but ran into trouble putting on a 2nd and third hedge doubling the lot size each time in a ranging market led me to a MC... which was very disturbing although I had an idea it could happen and was prepared to take the risk. I have been trading only a year now, I will still consider using a hedge in the right situation... but I am very wary of what can happen if you hedge instead of taking a loss. So my answer is close both orders at BE, or close the loser and trail the winner for profit.... using a hedge that is at least double the lot size of the original position, and be aware of what can happen if the hedge gets in trouble....

Cheers.
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