Disliked1 - .5 = .5. There is nothing that says you have to hedge the whole amount or, leave it open indefinitely. I just figure if the price is going in the opposite direction, I may as well make a few bucks while it's doing so.Ignored
For some reason this hedging concept throws everyone for a loop. Let's talk about being long & short in the same pair, for the same amount, at the same time. Different pairs at the same time are actually closer to real hedging (converting the possibility of a large gain to the probability of a smaller gain, in exchange for eliminating the possibility of a loss), but not the subject.
One reason traders hedge is they believe they can save a "losing" position. Another reason is to protect a "winning" position by trading a short interval vs a long interval, e.g., I've got a 300 point profit on H4 and the market turns. If I hedge, so the theory goes, I can now make profit in the opposite direction on H1, while holding my position on H4.
In the first case, let's say I take a long position with an entry stop of 30 points. The market goes against me and my entry stop is hit. I am now long and short with a 30 point deficit and will wait to see what the market does. He continues to move against my original position for another 100 points. I am now 100 points up on the hedge position and 130 down on the original position; still 30 points net loss. Instead, perhaps, he reversed again in the direction of my original position and gained 100 points. I am now 70 points up on my original position and 100 down on the hedge, still 30 points net loss.
You can never retrieve those 30 points. They are lost as soon as the hedge/entry stop kicks in. What the hedge has done for you is to take you out of the market and created an "opportunity cost" of 70 points, that you could have made if you had just closed it out and traded.
The only ways to save a losing position are to let it ride and wait for a reversal in you favor, or to "add" to the position so a reversal begins to pay off more quickly.
Same situation in long vs short interval. For every point you're making on the short interval, you're losing on the long interval. Net gain = zero; zero-sum game. The opportunity to make additional profit was lost because of the hedge.
Final point: If held long-term, forex hedging will eventually reduce your equity to zero (0). You will lose equity each and every day at the roll-over
They call me "Hondo"