scalping using hedging

Hi,
It seems a contradiction. To be risk averse and to scalp the 1 min and 5 min. But I am. I hate to lose money. I have been using a strategy that is working marvelously. I have benefited greatly from the struggles and achievements of the posters on this forum and felt I wanted to share what I have found useful. Although it is by far not a perfected system. The basic idea may be useful to some.
Purely mechanical systems have not worked out well for me. No matter how refined the indicators complete with adjustable parameters and bells and whistles alerts (which tend to give me a headache).
I watch the charts and the trading action very intently - trading the minute doesn't allow for long walks in the park between entries and exits.
I particularly look for reversal action. Breakouts are welcome and the strategy can be applied there also, but for reversals it is ideal.
MACD and OSMA, 2 sets at different settings, 21,100,9 and the default 12,26,9. Divergences and confirmations between the two help to identify the trend and spot the reversal.
Look for a cross of the signal line at a significant distance from the 0 line on both MACD's.
This is usually a reversal rather than a correction or consolidation. Usually but not always... But more often than not. Checking higher time frames like the 15m or 30m or 60m etc can help to clarify a reversal and the strength of the change of direction.
There are moving averages on my chart also, 200ema, 20 sma and 3,6,9 sma. Just eyeballing the actions of the ma's can give a nice picture of the general trend. A cross of the 200 ema is significant in confirming a reversal or at a very least a full retracement to 61.
For this strategy a broker who allows hedging is required. Since the US regulators are now quite paranoid and under strong criticism for "not regulating the markets properly" NFA has over compensated by banning hedging (totally unnecessary and for someone like me catastrophic). A simple notice attached to application forms stating that "Hedging may not work to the investors advantage, use with caution" would have been more than sufficient. Anyway I moved my account to a London based company.
The stategy: look for the cross on MACD both settings, try to confirm with higher time frames. Price action should be a good distance from the 200ema. For a short position (my favorite since tops tend to form more quickly than bottoms) place a sell order (use a limit if that would get a better entry).
Then place a buy limit instead of a stop just above the high that occurred in concurrence with the MACD crosses.
The idea is that if indeed this wasn't the actual turning point and there is still a little more upside to go before the price action turns down for real, the upside can be turned into a small profit using a hedge, instead of a loss using a stop. The important thing is to get out of the buy position right away if it does trigger. As soon as there is any sign of the buying slowing. Could be 5 pips, 10 pips, whatever. Don't want to get caught in the buy position when it does turn down. Very often this little last spurt of buying will take place, a new high is created and there is very obvious divergence in the MACD, especially the default setting. A new short position can be taken at this point with 2 buy limits just above the high that was just created. This can be repeated a few times. But eventually the turn down comes. Checking higher time frames for confirmation of a down turn before even entering this trade is important. After practicing a few times it gets easier to identify this set up.
Benefits are, losses are turned into gains. And several positions are profitable on one set up. Losses are minimized if the unforeseen twist of fate derails the whole thing. The losses are limited to simply the differences between the long and short positions and the cost of spreads.
The more the trade goes against the original short and runs wild high temporarily the more of a profit from the hedged long, and when it turns the shorts are all good. Even if it is a retracement and not a reversal and doesn't retrace all the way to original short position, it can still be profitable overall.
The extra added benefit and for me a very significant benefit is the noticeable lack of fear and stress by having the hedges in place. No run away losses. In fact those so called losses are actually now profits.
The best thing of course is to hit it on the head, get it perfect, and enter short at the very top. Happens every now and then. But when it doesn't, hedging is great.
The following charts show 1st the original set up and then how it played out with the brief spurt of additional buying just before the final turn down and how the hedged buy limit acted to turn a potential loss into a profit.
Attached Thumbnails http://static.forexfactory.com/forex...1&d=1246689312 http://static.forexfactory.com/forex...1&d=1246689312

__________________
That's the plan, but anything can happen and usually does..

http://www.forexfactory.com/images/misc/progress.gif

problem is how can you ensure you exit the additional buy order at the top?
don't tell me you can foresee where is top...

if not top then the loss of remaining short position will further enlarge with price rising.

so basically the stop/loss of a theoretically -2% loss of acc rule is not observed.

I see many people who want to hide their loss by leaving loss order in mt4 open positions
and do hedge long and take profit in closed order... then publish only closed positions to hide their loss in a journal.

I don't really see this way can 'turn' loss into profit, instead,
a supposely 15M T/F trading that should exit during the day has changed into a multi-day position which cause additional effort, roll-over and benefit is undetermined....

it's true challenge to accept a mistake and take loss, but I think we need to face it.

if acc size or leveraged position too big... cause us to be mentally unacceptable for a loss,
we need to scale down until we're comfortable with accepting an amount of loss in a day.

if over the long term we've proven to be profitable for total orders even if accept loss on specific orders, why is it hard to accept loss at all?
a hedge order like this pays the broker 2 times the original spread or commission than a stop/loss order... and roll-over swaps will be paid to broker also.

The hedging gets more complicated and finally get into mess and there is no real capital growth

this is scalping on 1min or maybe 5 min.
so where is the question of rollover fees?
My experience is that using the buy limit instead of the stop is more profitable.
the stop is guaranteed loss. the buy limit offers a second chance to make good on the set up which is usually triggered when the short position is taken a little too early and there is just a final gasp of buying frenzy before the real drop. Maybe this last buying frenzy is stops that are being triggered placed by other traders who thought it was the top. This has proven true so many times. That the buy limit instead of the stop turns a guaranteed loss into a realized profit.
Like any other strategy it takes practice to be able to recognize the situation unfolding. It is not a blind automatic mechanical system. Consulting higher time frames is important to gauge the intensity of the reversal or retracement.
The worst that can happen is it turned out to be not the type of setup hoped for and runs higher and higher. In that case closing all positions would only incurx the amount of loss that would have been a guaranteed loss if stops had been used.
I appreciate learning from losses and the value of taking lumps, but I also appreciate recognizing how a profit can be made instead of a loss..
Thanks for the feedback.

not my experience.
takes a little practice. is not a mechanical system. you have to think...
but since the potential loss is limited the great stress of runaway loss is eliminated.
thinking becomes a lot easier without veins pumped with adrenalin.
analysis can be cool and calculating.
another great benefit...
takes practice
thanks for the feedback

it is on your chart.

typically a M5 trading finishes in the day. but your trading lasts into 2nd day and if market is choppy, could last 1 week worst case.
for some brokers fine for day trading but roll-over(swap) is terrible.

and you're paying 3 times the spread to broker than if you close the loss right away.

is it important to turn a loss into a profit?
most of the cases, people spend a lot of effort ... not accepting loss... to turn loss into b/e, one example is averaging.

some chances into profit, some chances into blow up.

if you strongly believe the 1st order is right and would not close it to admit a mistake.

you can stop loss at -50pip
and place another limit short order at -50pip when price runs up to -100pip vs your 1st short order.

this both limits your draw-down and allows you to stick to your believed direction when the market madness peace down and return back to where you started.

this was mentioned in jacko's anti hedging strategy in his 1st page of 'house' journal... and I am convinced that one will make more sense if trading with a belief or conviction of market direction.

the charts were not actual trades. I put them up to illustrate what a set up might look like. I would not take a trade at end of day so that it rolled over. typically I trade London and early US mkts.
So I apologize if the charts were at all misleading.
It was to simply illustrate what a set up might look like in terms of MACD crosses and the second jump in buying after the initial short position.
so forget about roll overs. they don't happen in my trading.
the chart was misleading in that it went overnight, my oversight. should have found a better example.
But the rough idea is there.
macd crossover and buylimit instead of stop loss. the loss can always be taken at a later date, but the buy limit gives a second chance and I have experienced that it provides additional profit when the reverse or retracement does kick in.
It requires a little hands on practice to get the feel for it. But it is a good stategy and it works. It is not a mechanical system.
sometimes there are a few new highs that can be put in, but each time a buy limit is placed just above the new high being sure to close out the previous buy that has been triggered. This can happen a few times before the reverse or retracement actually takes hold. But the overall is a realized profit even if the original short position is never profitable itself. It depends on the retracing going far enough to make the overall collection of trades net profitable.
Requires practice and getting a good feel for the action.
the whole thing can be finished in 15 or 20 minutes with 5 or 6 trades taking place. Net is profit...
forget about rollovers, the charts were simply to show macd and 2nd level of buying...
I don't worry about how much the broker is making. I just look at what I am taking home... If it is more than I came to market with I am happy.
So far I am averaging about 50 pips. But I am still learning and new facets open up daily. For me this the 1+1=2 that I have been looking for. The foundation I can build on.
The stress level is almost 0. I can always take the loss, but with the buy limit instead of the stop loss I have a new lease on the trade.

can u post the osama indi

Don't bother arguing with the anti-hedging clique.
I use similar strategy and it works for me. MACD divergence is a guaranteed money maker.

the osma indi:
this one has alerts if you activate them.
You might want to change the settings it comes with.

was kinda getting the feeling I was banging my head against a wall there....
I know the results I'm getting using macd and hedging...
forgot to mention I use pivot points too. The price action tends to gravitate to pivot points. Good reference points for support and resistance.
and fibo as the trade requires.
I'll use almost anything I can get my hands on to clarify the situation, but my main focus is macd. good solid trend indicator.
care to share something about your strategy?
all ears here.... or eyes whatever...

I use very similar strategy to yours (hedging instead of stop loss to squeeze out extra pips when I detect good MACD divergence setup). I also use Heiken Ashi on 1m and 5m to optimize entries while keeping an eye on 1h and 4h MACD for longer term trends and reversals.

can you elaborate a bit on your use of Heiken Ashi. Have used a smoothed version from time to time. Really highlights a trend. Lohad used the smoothed version for a while on his thread and called it a fence. Like which side of the fence the price action is sitting.
Are you using the smoothed version?
Always ready to learn something if you care to share.
Thanks in advance.
there is an interesting macd on this chart. only problem is it has an alert function that cannot be disabled. At least I cannot see how to access the editor for it. Drives me crazy ringing the bells all the time. I need to keep the sound on since I follow CNBC online tv. while I am trading.

Can you explain how you manage your contract size (martingale or ?) for each limit order that is taken before a desired tp is hit?

I am not so sophisticated. And am more or less in testing stage. I like to use a micro account since it has the feel of real money but it is very small amounts. In my mind I multiply everything by 10 and when I am confident I will use larger lots.
Let me say this is not a strategy based on hedging. Hedging is a tool only.
I am looking to capture significant moves on lower times frames at reversals and healthy retracements. Hedging is a way to minimize loss and possibly turn a loss into profits. Ideally I want to enter at the right time for a scalp.
So I am entering 1 mini lot initially. For example sake say short.
Instead of a stop loss I place a buy limit for 1 mini lot.
If it goes against the short position and the buy limit is triggered I only stay in it very briefly. Until it seems to run out of steam, could be 5 pips, could be 10 whatever. I close out for a profit and wait and see. If starts to go up again and takes out the high I enter long again and get out quickly same as before. Meanwhile the original short is still open.
If the set up is true, price action will finally turn into the reversal or retracement and the short will become profitable. That is why I don't stay in the buy positions for very long, I don't want to get stuck in a long when the short is taking hold.
So I have some realized profit, maybe 10 or 20 pips possibly now that the trend is going short. And my original position may become profitable. But even if it doesn't the sum total of the short and the 2 longs comes out for overall profit if I choose to close all positions.
Other things can be done. More orders can be opened closed, etc. But that is the basic. But that is only if I didn't quite catch the top.

[quote=jiva34;2850061]....And my original position may become profitable. But even if it doesn't the sum total of the short and the 2 longs comes out for overall profit if I choose to close all positions.


i can see your trading style could see some benefit but how do you say profit if you are loosing on the other side of your position? it may as well be breakeven not even considering spread, could you pls. explain more on this???

what about the fact that you soon you wont be able to hedge:

http://www.forexfactory.com/showthread.php?t=163467

read the links in the first post.

[quote=danon;2855478] This happens when the trade reverses.
This hedging strategy is just a tool in the kit. Not a strategy to build around. I only use it when I may have entered a trade trying to capture a top or bottom a little too early. I use it in conjunction with MACD.
Adding gain from first hedge, to gain from second hedge, and then substracting any loss from original position (after the pa moves back in that direction) which is after the hedges are closed, very often shows an overall gain even if the original position does not show a profit by itself.