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Hedging a Substitute of Stop Loss


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9 replies to this topic

#1
ellliottt

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Hedging a Substitute of Stop Loss

In previous post, we have discussed about the importance of Stop Loss and considerations to determine how many points Stop Loss should be determined. However, many traders who are also less comfortable with a Stop Loss that is "rigid". Most still consider such a conventional stop-loss is still too stiff to anticipate the turbulence in the market.

Well, for my friends trader who still considers the conventional stop-loss is too stiff, I suggest to try other alternatives to limit losses, using hedging. Hedging here means we open Buy and Sell positions simultaneously or without one of his close position.

Use hedging as a Stop Loss can be done in two ways:

The first way: with instant execution

It means we open a new position opposite the position we got minus floating in the same currency and without her former position minus close earlier. This method is used to lock the position that was floating minus.

Example:
We open orders Buy EUR / USD at 1.3000 and then position it turns out that we suffer loss by 50 points (down to 1.2950) and then at 1.2950 is our key positions (hedging) by way of a new open Sell order at 1.2950 on the EUR / USD again. So in this way then we will still floating loss -50 point on, until later one or both of these hedging positions us close. So even if the price drops continue in the direction 1.2500pun our loss position remain -50 points.

The second way: with a pending order

That is, we set pending orders at certain prices as a protector of a position we take, so even if prices move outside of our prediction on when we're not monitor charts, pending order will be automatically activated to protect the loss on the position we have taken earlier.

Example:
We open orders Buy EUR / USD at 1.3000 and then we put the position pending order (Sell Stop) at position 1.2950 on EUR / USD as well. In this way if the price was moving down, then the pending order will be automatically activated and limit losses from the first position earlier.
The problem is, how do we determine how we put in the position pending order?
If my advice does, because hedging is we mean as a substitute for Stop Loss, the discretion to determine how much we put in the position of pending orders so more or less the same with our considerations in determining the Stop Loss conventional. Please refer to the previous post about Stop Loss

How to Stop Loss of hedging as a substitute for it does have a weakness of the psychological side, especially for traders who have not so experienced. Normally we would not hesitate to close one of the positive position, fearing that our hedging positions close, it turns out the trend continues so that the position is still open growing without any protective the minus again. Whereas if we are to hold a positive position, worried -if the trend suddenly turned around so that instead we would have a negative floating collection ...

There is a suggestion from one of his trader friend who used to use way of hedging in place of Stop Loss on when we close the position hedging: hedging position should not have installed the TP. Consequently, we must be patient scalping for the position. That is, we continue to monitor price movements, so we think the trend started to reverse direction, immediately close a good position. Even if it turns out the trend continues, the open position again ... and so forth ... Indeed we would lose a spread, but still better if we can take advantage of price movements, rather than just anxious to see loss of the position that "already" we take

The way Sop Loss hedging as a substitute for this is not recommended for beginner traders, however, could be an alternative for traders who do not want a Stop Loss that are rigid. Whichever alternative we choose, should be adjusted to "the circumstances" we. That is, we should feel comfortable with whatever decisions we take when trading

The main advice I still ... Enjoy ... Enjoy your trades every trading process in the air ... Do not be trading only produce a "disease" spent time, effort, cost, plus still suffer a heart attack too ... hehehe ...
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#2
yogesh

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Great topic highlight the alternatives for stop loss though any of these alternatives are stop loss in a sense yet we have to pay little extra as spread.
Still when a pair is trading in a range making both short and long positions may give chances to close both the positions in profit.
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#3
boniez

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hedging is better than the stop loss, but somehow we also need expertise when using hedging, because if we are not smart, then it will make us experience loss account as well
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#4
yogesh

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Yeah instead of triggering stop loss i do enter into another reverse trade and which can compensate further losses - and many time it help me earn on both the trades especially when a pair is moving in a range.
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#5
Pamm Manager

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I still prefer to using stop loss. But I am sure each trader have his own reason to using stop loss or doing hedging.
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#6
RASTA

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I still prefer to using stop loss. But I am sure each trader have his own reason to using stop loss or doing hedging.

 

hyga same feeling that I'm used to using a stop loss in trading and rarely using hedging as a stop loss because I feel the stop loss is more automated in this trade


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#7
standart

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well, in my opinion, hedging different with stop loss. hedging not substitute and have different form function. in hedging, traders should open 2 different positions at the same time. the goal is riding both ups and down. and if a positions not closed yet, no profit or loss will appear in our trading record. our order will keep breakeven.


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#8
Decub

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I have the same opinion with you. There are still some very bad side of the hedging even though it's meant to take advantage of one position's loss. What if the trader had closed the first position with loss and opened another one opposite it and at some point, the second begins to tilt in the losing end as well. I still think Stop Loss is the best approach to trade.
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#9
standart

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stop loss is the best still. traders cut the loss and open new position on the correct direction. such way enabling traders to gain maximum profit. the goal of hedging is avoid loss perhaps. but this technique require traders to measuring the correct close position. and that can be disadvantage when traders close position not at the good level.


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#10
myregister

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This is not a substitute but the different form of stopping loss. Traders without any knowledge may use it as much as they want but this is not healthy, this is different from SL even also has same reason for stopping loss. I can say hedging like locking your position.


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