Martingale vs. Hedge vs. Scaling in vs. Nothing

I'm far from becoming a good trader. My entries are rarely perfect and so are my exits. What I'm still unsure of is how to manage my open positions. I've experimented with Martingale, hedge, scaling in, and leaving my original entry as it is until it is stopped or its TP is hit. I personally choose Martingale over the rest. I know Martingale is a gambling concept and to me Forex is not gambling. So I'd love to heard you opinion and experience in how to best manage your open position, regardless of your system/indi/method:

Is it possible to say one out of these 4 is the best way to manage your trade?

When I'm -10/20/30 pips I usually open another position in line with my original position. I notice, and it is a simple logic, I break even, even before my original position is profitable. Trouble is, price can also go the other way around and I'll be losing both positions.

On the other hand, I once heard a great forex trader (or any kind of trader) is a master hedger. You open an opposite position after say 10 pips loss and you manage both legs profitable at the end. I guess this can be considered a scalping technique. The most interesting benefit of hedging is the promise of risk free trade where regardless where price goes, you'll profit, albeit small. (Assuming you have your first position right)

Scaling in is dangerous in my opinion. When my original position has been say +10 pips and I put another trade in line with my original trade, wouldn't that be considered as a bad entry? I never liked this option, but I found some people are great at it.

Most of the time, I leave my position as is. If I'm wrong, I'm wrong, and I'm right, I'm right. But still, it's a nagging question of whether there is anything better in managing your open positions rather than leaving it as is.

Thanks guys.

hi

i have tried all the methods you list, and martingale is not a long term sustainable system, because it's risky .
scaling also , works many times , but if you are caught in a long trend you can have long and huge dd.

hedging for me it's perfect , don't care a lot about where the market goes , you have to look at the difference between the negative and positive trades , and close them when they are in profit .
also you can stack more positions as the market goes against you .

altough the secret is to be well capitalized , act with small positions and be able to sustain dd .
Quite often all the positions return in profit, due to the nature of the market .

I agree hedging is a useful technique. But it is only useful when you've mastered it. I really am having a hard time opening and closing which leg to make sure I ended with profit.

Besides, what happens if you hedge and price never comes back? Say you open both position at the highest or lowest point on the weekly or monthly chart. I won't have any idea how to fix up the mess. It all goes back to the main dilemma of: You just don't know where price is going.

Don't solely depend on Hedging. Trust me I have tried this but didn't work perfectly for me.

If you guys know anything, really interesting to hear it.

No single method will be helpful because market is dynamic and methods tend to be static. This is why we all try to apply healthy money management/risk management. Try looking at what the picture is larger timeframes while trading on smaller timeframes (if u're daytrading). If smaller TF's are in synch with the big picture, aim at larger targets, otherwise be quick to exit. Marrying to a losing trade is the worst thing you can do to your account. So I would go with knowing your target before entering the deal.

I think the Martingale system theoretically requires an infinite amount of capital, and you also need to define the odds of winning or losing. Forex trading is obviously a subjective matter so defining the odds of a winning or losing trade isn't an exact science. I definitely wouldn't advocate any martingale betting system (The word 'betting' alone should probably drive you away ) The risk you take in a martingale system doubles every time you lose, thats horrible risk management haha.

Hedging can definitely be a effective strategy. I personally don't utilize it in my trading but I do invest in equities and have been looking into options as a way to hedge and minimize my risk.

I don't scale into my trades but I'm sure there are traders out there who are very successful using this method.

Personally I think that people can succeed using all sorts of strategies, but Martingale systems simply break all the rules of risk management. It shows a lack of discipline and understanding of the psychological toll that trading puts you through.

Hedging (on same pair) is pure garbage. There is no advantage that can be gained from hedging. For example: 5 lots long minus 2 lots short = 3 lots long. So just have one trade of 3 lots long. That way it costs less since swap differential is never in traders favor (assuming you leave trades open at rollover time).

Martingale is another pile of garbage. I'm not saying you cannot be profitable with martingale, you can, but you have to start with such a small position size to survive long term that you will never have a good ROI% for any period of time. I have learned it is better to find an advantage (however slight it might be) and exploit it. I find that to be safer and also more profitable since you are able to compound larger gains in a shorter period of time. Also, my mindset is geared to risk pennies for dollars rather than dollars for pennies. So it suits my psychi better.

Good Luck!

hedging means two-three - four different pairs together , it makes no sense hedging the same pair , but also for more pairs you should learn to add positions to make the hedge profitable , why don't you read pittbull trader or t101 method ?

I have read them. Nothing special.

Why don't you read the opening post to the thread and the responses after. You will see people are talking about hedging the same pair.

An honest and good question. I liked this one. Here are my thoughts, but please do read very carefully what I mention below.

All four of the techniques you mentioned (that is, Martingale, Hedge, Scaling In and leaving postion open until it hits sl or tp) have one thing in common. All these four techniques are good to avoid noise or temporary price fluctuations. To effectively apply these techniques, you have to have a high degree of certaintly about the ultimate point pa is supposed to hit. These techinques will only help you in avoiding market noise.

1. Martingale - One cannot martingale without defining the price boundaries. You can only place margingale trades based on a plan calculating in advance your capital requirement. Blind martingaling without having an idea about how many pips pa will move before showing a retrace is nothing but plain suicide. If you know your target with a high degree of certaintly, you can gradually build your position at better prices, that is, you are martingaling the market noise (temporary pa movement against your direction)

2. Hedging - This again is a good technique to avoid market noise. If market goes against you, you can either fully or partly hedge your postion. Hedge may not necessarily be 100% of your position. This way, you preserve your capital if move against you is bigger than you expected.

3. Scaling in - It is again a technique one can use to gradually build a full position at better price or with more assurance. For example, you enter everytime pa passes a hurdle. When you build your postion after pa breaks a support or resistance, you try to make yourself immune from market noise because you know that it will be difficult for the pa to come back after breaking a support or resistance.

4. Letting pa hit your sl or tp - This is again a technique that allows you not to worry about temporary pa movements and patiently wait until it hits either tp or sl.

KINDLY DO REMEMBER THAT THE WAY I HAVE DESCRIBED USE OF ALL THESE TECHNIQUES REQUIRES HAVING A GREAT DEGREE OF ASSURANCE WHERE AND TO WHAT EXTENT THE PA WILL ULTIMATELY MOVE. One can use fundamentals and trade longer term to have more assurance about the pa's future direction and distance it could travel.

Personally I scale in and scale out,
My initial position size is insignificant and when Market moves in "science" guessed direction I add in sequence 1,2,2,3 or even faster.
When market moves against me I scale out to 1 small position.

Scaling in is not dangerous. If you think that then you're doing it wrong. It is a valid way to milk a trend for more that what it is offering as a point-to-point trade, and is immensely profitable. Any loss is limited to the size of the SL on a single entry.

if your entries arent perfect...then use a stop outside market noise 3* ATR.I believe its that simple.

Please check my thread "Trading game system discussion" for GAME and TRADE management technique. Hope this help.

http://www.forexfactory.com/showthread.php?t=384691