# (Idea/Theory #2) How to profit from hedging.

1003

Parameters Required:
UseLossHedge = true; (bool) //This will open opposite trade when open trade is losing.
HedgeTrigger = 2; (int) //This will be our pip value hedge trigger.
HedgeProfit = 10; (int) //This is our hedge trade takeprofit.

Both our "HedgeTrigger" pip value, swap(or 'rollover fee' as it is sometimes called) and commission will be converted to pips and added to the takeprofit of our original trade (this will be a takeprofit modification order).

davefx.
839

You would have to have an imbalanced hedge in order to profit once both trades are closed.  Equal position sizes will lock in your loss at the amount when your hedge is opened.  Then you run into the problem of price reversing again...even worse if it ranges and you keep hedging both ways.  Eventually you'd hit margin call.

If you have a solid strategy to minimize your hedges then it can work...and well too...but it needs to be imbalanced.
1003

Christopher Fernandez Ledon:
You would have to have an imbalanced hedge in order to profit once both trades are closed.  Equal position sizes will lock in your loss at the amount when your hedge is opened.  Then you run into the problem of price reversing again...even worse if it ranges and you keep hedging both ways.  Eventually you'd hit margin call.

If you have a solid strategy to minimize your hedges then it can work...and well too...but it needs to be imbalanced.
So one side of the trade would have to be larger lot size for this system to work?
839

Yes...otherwise you lock in your loss....the difference between your buy and sell orders.  But if it reverses on your hedged order then you start to run losses again instead of profits.
839

So in this case...your loss would be your hedge trigger pip value...if you used the same position size for both orders.
Moderator
2302

As Christopher has said, if you have a balanced hedge you only freeze your position and then swap slowly kills you until you do something about it.

If you have an imbalanced hedge, it will only work if price moves in the weighted direction. Using your example, you would only be able to profit if price continues to move south (0.08 SELL trumps 0.05 BUY).

If price moves north, your losses are accruing faster than you can offset with the buy order. So now what do you do? Hedge the hedge?

Edit - this was a reply to a reply that is no more!
1003

Christopher Fernandez Ledon:
So in this case...your loss would be your hedge trigger pip value...if you used the same position size for both orders.

Okay I think I got this, so: We add our hedge-trigger pip value AND commission of our hedged trade and re-calculate our TP for our original trade using an EA.

Is this correct?

4401

davefx: Okay I think I got this, so: We add our hedge-trigger pip value AND commission of our hedged trade and re-calculate our TP for our original trade using an EA.

Best solution! Don't Hedge! Just use a stop-loss and accept that the market was not in your favour and start looking for the next possible setup based on your trading plan!

1003

honest_knave:

As Christopher has said, if you have a balanced hedge you only freeze your position and then swap slowly kills you until you do something about it.

If you have an imbalanced hedge, it will only work if price moves in the weighted direction. Using your example, you would only be able to profit if price continues to move south (0.08 SELL trumps 0.05 BUY).

If price moves north, your losses are accruing faster than you can offset with the buy order. So now what do you do? Hedge the hedge?

Edit - this was a reply to a reply that is no more!

Both our "HedgeTrigger" pip value, Swap((when the swap is added - usually at 10pm) or 'rollover fee' as it is sometimes called) and comission will be converted to pips and added to the takeprofit of our original trade (this will be a takeprofit modification order).

Moderator
2302

davefx:

Both our "HedgeTrigger" pip value, Swap((when the swap is added - usually at 10pm) or 'rollover fee' as it is sometimes called) and comission will be converted to pips and added to the takeprofit of our original trade (this will be a takeprofit modification order).

I'm sorry, it doesn't work that way. Really.

You have a gap between your first order and your hedge. That gap needs to be covered. It can't be covered if the hedge is balanced. If the hedge is imbalanced, it will only work in one direction.

Think about it. If you could never lose by simply hedging, do you not think that people far smarter than us would have implemented it a long time ago?

4401

davefx:

Both our "HedgeTrigger" pip value, Swap((when the swap is added - usually at 10pm) or 'rollover fee' as it is sometimes called) and comission will be converted to pips and added to the takeprofit of our original trade (this will be a takeprofit modification order).