Hedging / Locking Strategy

Forex Hedging Strategy

Hedging by its meaning is to protect value. In forex trading, hedging action means we open two opposite positions so even though the price rises or falls the floating value remains the same.

Hedging is usually done when the position we open has a loss. So the losses do not get bigger, we key with this hedging technique.

So next Hedging is also known as Locking (lock) because when we use this hedging technique we locked the position that makes the value of profit and loss always move hand in hand.

For example:

Currently GBP / USD is 1.5600.
I predict GBP / USD will rise towards 1.5700, so I open a buy position.
A few minutes later it turns out GBP / USD moves against my prediction, which is down to 1.5580. This means my buy position loss of 20 points.

In order for this loss does not increase, I open a new position opposite to the first position, ie open a position of sell at the level of 1.5580.

If the next market down again to the level of 1.5550 then my losses remain 20 points, because the first position loss 50 points (1.5600 - 1.5580) and second position profit 30 points (1.5580-1.5550).

Likewise if the market rose to the level of 1.5620, I still lose 20 points because the first position of profit 20 points and the second position loss 40 points (1.5620-1.5580).

Thus wherever the next market moves, because using the hedging strategy losses I remain locked by 20 points.

Then what can with conditions locked loss of 20 points above turn into profit?

Of course . As long as we can unlock it under the right conditions.

And the best condition to close a position that uses the hedging strategy is when we are sure that the next market will move strongly in one direction, for example when it happens convergent or diverging.

Example:

I opened the buy position at 1.5550 then opened the sell at 1.5500.

Then when the market is at the level 1.5450 occurs convergent.

All I have to do is close my sell position that is 50 points profit. So I get a 50 point profit.

Because convergent, then a few moments later the market bounced up above the level of 1.5500, for example to the level of 1.5525.

At that time I closed my buy position which is losing 25 points.Sehingga 25 points loss.

After both positions are closed, the accumulation is = profit 50 point (sell position) + loss 25 point (buy position)
Totalnya = profit 25 points.

That is the strategy of forex hedging, the strategy most often used by traders to minimize the risk of loss.

This hedging strategy we can use in our day-to-day trading. But the suggestion is:

- If the market is moving erratically, and we are not sure of the direction of the next trend, then it should cover both positions that are being done hedging.


- But if we believe the next market moves into one direction with a strong, then we close one position that is opposite to the direction of our prediction. With the hope of open positions can achieve greater benefits from losses that have been closed positions.

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— Monday, July 10, 2017 — Add Comment — Forex Strategy