Why Hedging your positions ?

[Dan Ace]

Hedging can be good and very useful and there's a few reasons for that.. In the case of the Viper Draw Down in which he originally went long at 1.0973, lets say there was a hedged "short" position opened after the Usd/Cad pair broke the 1.09 level, the worst the draw down would have reached is about 1.5 % or -80 pips.. when the short hedged position reaches a few pips profit, you can then place your stop at +1 pip and no matter how far the Usd/Cad drops, the Draw Down will not get worse than 1.5 %... yes I understand that you can just close the original position for an -80pip loss, but if you feel that strongly about the currency pair reaching a much higher level than the original long position, then you can wait it out and trade other pairs while the Usd/Cad does its thing.. in my rules for hedging, I always open a larger lot size trade for my hedge position, so that if it really goes against me, then I will cover the loss of the original position as it drops, and if it turns up again and goes through the 1.09 level, then ill be stopped out for 1 pip profit and look forward to a push up to my original long trade.. it can work and it can be very useful, if that strategy was used in the current Viper Draw Down, there would have been no stress and no high draw downs involved and normal trading could have resumed for 2 months.. if the hedge position was bigger than the original long position in the Viper Draw Down, then with the Usd/Cad pair dropping down to 1.0620, we could have broken even a long time ago with no one stressing and sweating..
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Another good use for that strategy is, if you wanna take profit from the hedged trade, you can, and you can use the profits from that hedge trade to buy again much lower and aim for a 40 pip profit target, lets say from 1.0630 to 1.0670, and if you achieve that 40 pip target, you can then close both trades for a break even on the Usd/Cad transactions.. if you wait it out longer, then you will start making profits at any price over 1.0670. This is my opinion, my thoughts and my strategy.. I am not a full time trader, and ive only been doing forex for just over a year, but I am looking to doing it fulltime one day. Im not as experienced and not as forex smart as most of you here, but I can see how hedging can work very well.
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P.S. I was getting paid swaps for the Usd/Cad sell positions, so I didn't see a problem there

[spamme]

@Smarttrader. Yes of course This post is only about hedging same pair.

Hedge against other pairs is an other story and not as simple todo then "singel" pair hedging.

[SmartTrader]

I agree with you. Hedging on the same pair is insane. But you can hedge your position against other currencies and that's a strategy.

[spamme]

Hi,

We all had positions going against us. Some traders like to put a hedge on same pair to protect themself.

Example :
Let say I buy EurUsd for 1.3800 and EU drop to 1.3700 then I'm down 100 pips. I read news and think EU will drop more so I open a Sell of EurUsd
So my account is now

Current price : 1.3700
EurUsd buy at 1.3800 ( -100 pips )
EurUsd sell at 1.3700 ( 0 pips)

Total = -100 pips

What I have done is closing my buy on the market in practice. Metatrader will show 2 trades. My broker see no trades on my account and also see a loss on my account.

What will now happens is broker will charge me swap on positions that I do not own.

Now I hear "Oh baby you are so wrong".


Lets play with our example some more.

Example price now is : 1.3650
EurUsd buy at 1.3800 ( -150 pips )
EurUsd sell at 1.3700 ( +50 pips)
Total = -100 pips


Example price now is : 1.3750
EurUsd buy at 1.3800 ( -50 pips )
EurUsd sell at 1.3700 ( -50 pips)
Total = -100 pips

So why do some traders hedge the positions ?
Close your positions and reopen when you feel you would have "open your hedge".
You will earn money because you will not be charged for the swap....

Enjoy your trading !