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Hedge a losing position?

The form of hedging where you simply open the opposite of your open position has no foundation in common sense.
If you have an open long position that is losing, what reason do you have to open the opposite position?
If you believe that your losing long position will incur further loss, the the sensible thing to do is to close your long and open a new short position.
If you believe that if your losing position moves further into loss then it will be too painful, close the position. All you achieve by hedging is keeping your loss constant. If your long position starts to move in the direction that you want, your new "hedge" position will be losing by exactly the same amount plus additional loss due to spread.
You need to be brutally honest with yourself.
There is only one reason that makes you hedge and that is because you believe that a trade is not a loser until it is closed. By hedging you think that you are reducing the risk, but you are more likely to increase your loss. You do this because you refuse to accept a loss.
If you open a "hedge" position at 200 pips loss and your original trade moves to BE, you then have your hedge with a 200 pips loss plus spread, commission swap etc.
If your analysis tells you that you should be a bull or a bear, then go with it, don't mess about with hedges that achieve nothing.
Of course you will tell yourself that by jumping in and out of the market, your clever strategy will allow you to get back the loss. Be honest with yourself, if you were that clever you wouldn't have allowed a trade to go so far into loss in the first place.
If a trade doesn't work out, accept the loss and move on. Don't try to be clever and get the loss back with a ridiculous hedging strategy.
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Quoting madmax85
yes it was 6 levels with different lot sizes on same direction , on GBPUSD it was rally against my direction.
General new starters' mistake.

Anyway to OP, unless you are a professional trader up to the level where you can forecast price in long term e.g 1week+ if you hedge H1, don't do hedge because you wont be able to focus on new opportunities and hedging also requires higher MM level.
back... and more dangerous.
Quoting 60minuteman
I'm gonna guess i'm not the only one here who has no idea at all what you're talking about
I suspect he means to close the hedger partially until completely closed. So he can vary the net lot sizing in the direction of the current move.

madmax85 I wish you post an example. For now my optimal solution to the problem of riding the pullback is to fully close the position, wait the pullback ends and re-enter fully in the original direction with the SL on the original entry price. So better than BE if stopped out. No loss at the top picking if it wasn't a top at all. I may miss the rest of the move. That's the price to pay for greedily trying to catch a PB
No greed. No fear. Just maths.
These posts about hedging crop up quite often.
The people that advocate trading this way don't seem to understand that they are increasing their costs with no possible gain.

Let's say that we have a long position and it is losing 100 pips and we are not happy about that.
We have a choice, we can exit the position and accept the 100 pips loss or we can hedge by opening the opposite position
If we exit the position, then we have lost 100 pips. That's it, loss accepted at 100 pips.
If we hedge and the spread is 2 pips, then as soon as we open the trade,we have a net loss of 102 pips, so we have increased our loss by 2%. Wherever price goes, up or down, the net position will always be 102 pips, slightly higher loss than simply closing the position. Absolutely pointless!

To try to make it clearer.
If you are long in the market, then close the position, you are no longer in the market
If you are long in the market and then open a short position of the same size, they cancel each other out and so you are no longer in the market.
Exactly the same as closing the original position.
The difference with hedging is that you have incurred additional costs because of spread, commission and swaps.
Hedging does not give you a position in the market, it just costs more than closing the original position.

Why can't people see that?
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Quoting Gumrai
If you have an open long position that is losing, what reason do you have to open the opposite position? If you believe that your losing long position will incur further loss, the the sensible thing to do is to close your long and open a new short position.
The reason would be the same then using a SL.... to stop the loss at that point.
Like I said in my previous post... makes no difference to use and SL or a hedge to cut the loss at the pre-determinat
point according to the specific strategy we are using.

The key point to have in mind when you use a hedge instead of a SL, is to look and wait for a next
"entry" according to "your strategy"... not trying to unwind the hedge... That makes no sense.

Once you have or see our set up, you can choose to cut lose one of the open trades.
Example.. My strategy call for a euro going up and I go long eur/usd... 30 pips later I see that is not happening
and I stop the loss buying dollars (hedge shorting the eur/usd) .... in about 5 hours price works his way down some
150 pips, then hit some support and "my strategy" I get a long signal... At that time I close my short and now I am long.

It made no difference that I used a hedge instead of a SL in my first long.. no extra spread either.

J.
Quoting 60minuteman
funny nobody ever talks about hedging a winning position.. I would focus on why you are losing before looking at ways of holding on to them
My trading started with buying and selling shares. Back in those days, I didn't even know about shorting. I would buy shares at the bottom of a range and sell them at the top. Then wait for price to drop before buying again. I bought the shares with no leverage. If I bought 10,000 Pounds worth of shares, I paid 10,000 Pound plus commision and stamp duty.
Being in and out of the market incurred costs, commissions and UK stamp duty of 0.5 %.
Then I found out about CFDs.
Instead of selling the shares that I physically owned, I was able to hedge and open a short position with a CFD instead of selling my shares.
I would then close my CFD position at the time that I would have re-entered if I had sold the shares.
This way I avoided commissions and stamp duty costs and actually received a better interest rate on the short CFD than I would have by selling the shares and banking the money from the sale.
This type of hedging made sense to me as it was a win-win situation.
Not so much nowadays because of the lower interest rates and as far as I know most CFD brokers do not pay positive swap rates.

So there you have it - a reason for hedging a winning position
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Quoting Gumrai
These posts about hedging crop up quite often. The people that advocate trading this way don't seem to understand that they are increasing their costs with no possible gain. Let's say that we have a long position and it is losing 100 pips and we are not happy about that. We have a choice, we can exit the position and accept the 100 pips loss or we can hedge by opening the opposite position If we exit the position, then we have lost 100 pips. That's it, loss accepted at 100 pips. If we hedge and the spread is 2 pips, then as soon as we open the trade,we...
Because the brokers need you to see the market just like that.
Quoting jeuro
The reason would be the same then using a SL.... to stop the loss at that point. Like I said in my previous post... makes no difference to use and SL or a hedge to cut the loss at the pre-determinat point according to the specific strategy we are using. The key point to have in mind when you use a hedge instead of a SL, is to look and wait for a next "entry" according to "your strategy"... not trying to unwind the hedge... That makes no sense. Once you have or see our set up, you can choose to cut lose one of the open trades. Example.. My strategy...
If you know exactly to work with hedge this is not the same.
Quoting Gumrai
The difference with hedging is that you have incurred additional costs because of spread, commission and swaps. Hedging does not give you a position in the market, it just costs more than closing the original position. Why can't people see that?
There is no extra cost on spreads and commission. ... and swaps maybe. But swaps is a cost of doing business. No one
cut loss a trade (losing or winning) just because the roll over time is happening.

J.
I am not gonna talk about hedging a losing or winning trade
but, gonna post some facts about the posts i read here on FF and online forums in general, about HEDGING:

1) ~70% of those know nothing about hedging except the textbook definition they looked up (probably over some PPC internet website)
2) ~80% of those most likely have never ever personally taken a simple hedged position, in any sphere of life, in whole life (still they can spawn lecture after lecture @ MIT(oops, i mean forums) about the same)
3) ~95% of above never even heard of unequal hedging, hedging with different instruments, hedging in different markets, hedging in different accounts, and other unique, tricky and complex hedging practices/strategies (its a pandora box), to make money/control risk/manage margin/take advantage of brokers/loopholes/ etc/etc/etc

Most would rant around here with naive-ego-inflated-intellectual, dragging your head to the textbook case and crap....as if that's all about hedging.

I still remember i posted once in a hedging related thread started by one of the poster above (just for the sake of posting something related as i went to that thread for some other purpose) and tried explaining a thing or two (in a hurry; my bad). And there came the same buggers who have never ever placed a hedged trade/strategy in whole life, ranting same old crap of "better close the trade and re-enter in opp. direction"
After a few days when i read those posts, i wrote some 1500+ word post writing how i have used/using hedging (of some 3 types/strategies in fx market itself) in my trading esp. with high leveraged accounts & how it helps. But decided against posting it as i felt thats not the right thread to share all that info and further those nuts never gonna understand/use it anyway.

Personally, various hedging practices (with losing/BE/winning positions/etc) has made/saved me good amount of money and
had my program skills been better(still learning), i would have replaced that word "Good" with "tons".

Over N Out


P.S. Of course this post would also be quoted/questioned by same people, but i dont give a ****.
To those who are interested about hedging (in fx and other markets), Read/Search, Learn & Evolve. Good luck
100 Fold Challenge->Interested? ->https://www.forexfactory.com/thread/32152
Quoting forexsaint
I am not gonna talk about hedging a losing or winning trade but, gonna post some facts about the posts i read here on FF and online forums in general, about HEDGING: 1) ~70% of those know nothing about hedging except the textbook definition they looked up (probably over some PPC internet website) 2) ~80% of those most likely have never ever personally taken a simple hedged position, in any sphere of life, in whole life (still they can spawn lecture after lecture @ MIT(oops, i mean forums) about the same) 3) ~95% of above never even heard of...
Thank you
You talked about all things i need to talk with this traditional people. The market makers and biggest financial companies using complex hedge, Not **cking SL
Okay, you hedging lovers.
A challenge...

Post any situation. Hypothetical or otherwise, where hedging by opening the exact trade in the opposite direction and then closing the hedge position gave any advantage over simply closing the trade and re-entering in the same direction when you would have closed the hedge.
I'm confident that you will not be able to find such a situation
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Quoting jeuro
There is no extra cost on spreads and commission. ... and swaps maybe. But swaps is a cost of doing business. No one cut loss a trade (losing or winning) just because the roll over time is happening. J.
Swaps may be a cost of doing business, but if you are positioned neutrally in the market with no possibility of profit because one positions gain cancels out the other's loss. any cost of doing business HAS to be a loss and an unnecessary loss at that, because if you were out of the market, you would not incur these costs.
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Quoting Gumrai
Okay, you hedging lovers. A challenge... Post any situation. Hypothetical or otherwise, where hedging by opening the exact trade in the opposite direction and then closing the hedge position gave any advantage over simply closing the trade and re-entering in the same direction when you would have closed the hedge. I'm confident that you will not be able to find such a situation
I will attach you vary simple hedge trade:
Attached Image (click to enlarge)
Click to Enlarge Name: eurusdh1.png Size: 53 KB

Step 1: Entry Sell 0.10 EURUSD @ 1.3073
the price going up 60 pips
Step 2: Entry Buy(Hedge) 0.10 EURUSD @ 1.3133
the price still going up
Step 3: Close Buy 0.10 @ 1.3191
profit 58+ pips and still sell position on floating loss
Step 4: Close Sell 0.10 @ 1.3047
profit 26+ pips
the total profits is 26+58= 84pips
* in this case if i use SL i will loss 2 trades
* you can entry and exit your positions depending on your favorite strategy such like Support and Resistance or others.
* this scenario is the simplest thing i show, if you see the complex scenarios you will be crazy , really its need to work hard to control them but it is so profitable.

Anyone have experience with hedge please let this people if it is work.
Quoting Gumrai
Okay, you hedging lovers. A challenge... Post any situation. Hypothetical or otherwise, where hedging by opening the exact trade in the opposite direction and then closing the hedge position gave any advantage over simply closing the trade and re-entering in the same direction when you would have closed the hedge. I'm confident that you will not be able to find such a situation
It is not a thing of being a hedge lover Gumbai. Hedging is a "tool" that have been around forever and well used in all
markets... but like any tool you need to know how and when to use it. You probably not figure out an strategy that would benefit from it yet.
That comes with time, or if you really look at it without a closed mind.

I do use a couple multi-pair strategies that are purely mathematical... They are positional strategies that build equity over time with price action... but major gaps during weekends have the potential to make me to miss a trade and mess up the calculations (Specially if the gap is in only 1 pair) ... so, hedging the whole system does prevent that problems. The extra spread and swaps is not a worry at all for me. Specially that I work with the low interest pairs.

But is all about the title of the thread, and it seems that always seem to take a turn here in FF...
Hedge a losing position? Is the title... why not?? like I said There is no extra cost in spreads, so it is the same to close by an SL or to hedge
to stop the loss. Yes, the swap "could" be that extra mini cost, but that is only "if" the positions roll over... but that we never know right?

You make it sound like stopping a loss with a hedge instead of an SL is dumb or something. It sound like if you will never open another short
or long again in your life... . The most important part of this topic is " stop the loss" with prudence.. does not matter if is via SL or hedge.

J.
Quoting madmax85
Step 1: Entry Sell 0.10 EURUSD @ 1.3073 --------------------> You are net short 0.10
the price going up 60 pips
Step 2: Entry Buy(Hedge) 0.10 EURUSD @ 1.3133 ----------> You are net out of the market
the price still going up
Step 3: Close Buy 0.10 @ 1.3191 ------------------------------> You are net short 0.10
profit 58+ pips and still sell position on floating loss
Step 4: Close Sell 0.10 @ 1.3047 ------------------------------> You are out of the market with a profit of 84pips
profit 26+ pips
the total profits is 26+58= 84pips
What's the difference with
Step 1: Entry Sell 0.10 EURUSD @ 1.3073 ------------------> You are net short 0.10
the price going up 60 pips
Step 2: Take the loss @ 1.3133 ------------------------------> You are out of the market with a 60 pips loss
the price still going up
Step 3: Wait then open short 0.10 @ 1.3191 --------------> You are net short 0.10
Step 4: Close Sell 0.10 @ 1.3047 -----------------------------> You are out of the market with a profit of -60+144 = 84pips

Gumrai wrote "... the hedge position gave any advantage over simply closing the trade and re-entering in the same direction when you would have closed the hedge"
Your example doesn't perform a single pip better. It doesn't qualify.
No greed. No fear. Just maths.
Quoting madmax85
I will attach you vary simple hedge trade: {image} Step 1: Entry Sell 0.10 EURUSD @ 1.3073 the price going up 60 pips Step 2: Entry Buy(Hedge) 0.10 EURUSD @ 1.3133 the price still going up Step 3: Close Buy 0.10 @ 1.3191 profit 58+ pips and still sell position on floating loss Step 4: Close Sell 0.10 @ 1.3047 profit 26+ pips the total profits is 26+58= 84pips * in this case if i use SL i will loss 2 trades * you can entry and exit your positions depending on your favorite strategy such like Support and Resistance or others. * this scenario is the...
PipMeUp has already pointed out that there was absolutely no advantage in your hedging scenario.

Also in your scenario, why did you decide to hedge at stage 2?
I believe that there can only be 2 possible answers
a. You refuse to accept the loss or
b. You have decided that the market will continue to go up

If you think that the market will continue up then why not close your short and open a long? And then when you think the market is turning close the long and open a new short?

Then your scenario would be

Step 1: Entry Sell 0.10 EURUSD @ 1.3073
the price going up 60 pips
Step 2: Close losing position (-60 pips)
Entry Buy 0.10 EURUSD @ 1.3133
the price still going up
Step 3: Close Buy 0.10 @ 1.3191 (+58 pips)
Entry sell @ 1.3191
Step 4: Close Sell 0.10 @ 1.3047 (+144 pips)

the total profit is -60+58+144= +142pips


The challenge is still open.
Show me one scenario where hedging would increase your profit by a single pip.
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Quoting jeuro
It is not a thing of being a hedge lover Gumbai. Hedging is a "tool" that have been around forever and well used in all markets... but like any tool you need to know how and when to use it. You probably not figure out an strategy that would benefit from it yet. That comes with time, or if you really look at it without a closed mind. I do use a couple multi-pair strategies that are purely mathematical... They are positional strategies that build equity over time with price action... but major gaps during weekends have the potential to make...
Please accept the challenge and show a single hypothetical example where hedging improved return by more than simply closing a trade.
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Quoting Gumrai
PipMeUp has already pointed out that there was absolutely no advantage in your hedging scenario. Also in your scenario, why did you decide to hedge at stage 2? I believe that there can only be 2 possible answers a. You refuse to accept the loss or b. You have decided that the market will continue to go up If you think that the market will continue up then why not close your short and open a long? And then when you think the market is turning close the long and open a new short? Then your scenario would be Step 1: Entry Sell 0.10 EURUSD @ 1.3073...
you can understand as you want and you can trade as you want , i am not here for explain strategies , I said this case is the simplest type of hedge, and it less than 1% of hedge science, if you don't know about it that's another thing.
I start to talk here about hedge to answer who is ask about it and to let people not to loss there money in traditional way, to learn and learn more.
I am not here to challenge anyone, everyone have his trading style.
Quoting madmax85
you can understand as you want and you can trade as you want , i am not here for explain strategies , I said this case is the simplest type of hedge, and it less than 1% of hedge science, if you don't know about it that's another thing. I start to talk here about hedge to answer who is ask about it and to let people not to loss there money in traditional way, to learn and learn more. I am not here to challenge anyone, everyone have his trading style.
I understand quite a lot about hedging, it's about limiting risk/exposure.
Please do not tell me that I do not understand
I know that there can be merits with hedging a spot position with an option etc.
I understand that if I have a position in Gold or oil, priced in $ that I may open a position with GBPUSD to limit my exposure to fluctuations in the GBPUSD as GBP is my account currency.
With the help of your example posted earlier, it has been proven that hedging by opening a new trade opposite to the existing in the same market achieves nothing.
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