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Thursday, March 23, 2017

HEDGING TO OPTIMIZE PROFIT


Hedging means opening a buy and sell orders on the same pair from an Exact point or from many deferent points. Usually It is recommended only for FOREX professionals. 

In this Article I will explain one of the hedging methods, if the trader applies it correctly , Then the trader can abandon all other FOREX ways.

How the method Works:1- Suppose, the pair is in Up trend, then we have three probabilities:
a. Complete the uptrend directly.
b. Make some reflections for correction, then return to complete the uptrend.
c. Switch the direction from up to down.
2- Here the benefit of Hedging appears. Because when we trade on this pair using this hedge method then we will make a profit if any probabilities happened.
3- The main idea of this method is entering first trade ( suppose Buy ) with a minimum lot possible on the account, at the same time we make a bending sell order with triple lot, as soon the pending order acts, we make another bending order, as we will explain later. 

Work Needs: 1- You must choose a non-oscillated pair, it means that the pair is in a clear trend or it is close to switch the current trend.
2- You must activate a notification in your terminal, so you can receive a notification immediately if any order been activated or closed, and you must be near your computer or mobile to be ready for entering the next pending order.
3- Your account must have a big balance with a high leverage, and you must start your first trade with a minimum lot possible in your account.
4- You must choose a suitable time for trading, which have a high volume in the market, in order to be sure that the price will move up or down with many points.

Workflow:First I will explain the method bookishly, after that I will select a pair and execute my method with a real prices, to make sure that it applies perfectly.



1- Suppose you select a pair which are in an uptrend, in this case your first trade will be "Long" with a minimum lot "X" from the price "B", where B is the entry point for all long trades, then you have to specify your "Short" entry point which is "S" and ( S = B – 20 ).

2- The Target for all trades is 30 pips and stop lose for all trades is 50 pips.
  • Take profit for buy = Stop lose for sell = B + 30 
  • Stop lose for buy = Take profit for sell = B – 50 
3- After you opened your first trade ( buy X lot from the price B ), you will put a pending order ( sell 3X lot from the price S ) with the mentioned take profit and stop lose. 

4- Now you have to wait for tow possible probabilities:
  • Hit take profit for buy: In this case you will get 30 pips profit, then you delete the pending sell order (3X) and wait for another entry.
  • Activate the pending sell order: you have to put another pending order ( buy 8X lot from the price B ) with the same take profit and stop lose, at this time you have ( 1X buy + 3X sell ), so the result is you have 2X sell. 
Now you have to wait tow probabilities happened:
  • Hit take profit for sell: in this case you will get 60 pips profit, then you delete the pending buy order (8X) and wait for another entry.
  • Activate the pending buy order: you have to put another pending order ( sell 24X lot from the price S ) with the same take profit and stop lose, at this time you have (9X buy + 3X sell), so the result is you have 6X buy.
Now you have to wait for tow probabilities happened:
  • Hit take profit for buy: in this case you will get 180 pips profit, then you delete the pending sell order (24X) and wait for another entry.
  • Activate the pending sell order: you have to put another pending order ( buy 72X lot from the price B ) with the same take profit and stop lose, at this time you have ( 9X buy + 27X sell ), so the result is you have 18X sell. 
If the price hits your take profit you will have 540 pips profit, but if the pending order activated,then you will have (81X buy + 27X sell), with result of 54X buy. And so on till the price hits your profit.

Now we will take EUR-USD practicably as an example:If you look at the 4H chart you will find that the pair in the uptrend, so you enter with a first position:



(1) buy 0.01 lot from 1.0680, tp 1.0710, sl 1.0630
After that you have to put the pending order:
(2) sell stop 0.03 lot from 1.0660, tp 1.0630, sl 1.0710
The price didn't hit the take profit for buy and the pending order active now, so you put the next pending order:
(3) buy stop 0.08 lot from 1.0680, tp 1.0710, sl 1.0630
The price didn't hit the take profit for sell and the pending order active now, so you put the next pending order:
(4) sell stop 0.24 lot from 1.0660, tp 1.0630, sl 1.0710
The price didn't hit the take profit for buy and the pending order active now, so you put the next pending order:
(5) buy stop 0.72 lot from 1.0680, tp 1.0710, sl 1.0630
The price didn't hit the take profit for sell and the pending order active now, so you put the next pending order:
(6) sell stop 2.16 lot from 1.0660, tp 1.0630, sl 1.0710
The price hit the take profit by reached 1.0710, and all trades were closed, you have to delete the last pending order, and the result is:
(0.81 – 0.27) * 30 Pips * 0.10$ = 162$

The Method's Flaw: 
After you enter the market with the first position, the pair may become oscillated, and that's the main flaw of this method.
But this can be avoided if you choose the right time and point to enter the market, so you will get your take profit for buy or sell before the pending order (24X) activated.
How can you avoid this flaw?
1. After activating the pending order (24X), you can close all opened position when you get any profit on your account, then wait for another entry, instead of waiting to activate the (72X) order.
2. What if the pending order (72X) was activated:
As I said in the beginning of my Article this method requires a big balance, so if you start with 0.01 lot, the (72X) will be 0.72 lot (less than 1 standard lot), so if your account bears more lots, you can continue (0.72, 2.16, 6.48, … ) till you get any of buy or sell profit, where it is impossible for the pair to be oscillated in the 20 pips range all this time, and when you hit the profit, it will be a very big profit compared with hitting it in the beginning.
3. For small accounts there is a solution which to stop losing after activating order (8X), by putting a next order with a volume (6X), so if it activated, your losing will stop in 120 pips, then you leave this pair and look for another entry, and you can close all when you get a profit equal to your lose.

Conclusion :As we have seen, the method is one of the smartest hedging methods, but it needs a good selection time of entry, velocity in putting pending orders and flexibility in dealing with the trade. 

In conclusion, I would like to ask the reader to experience and practice the method on demo accounts before applying it on real account in order to acquire the skills to deal with the hedging.

Ask me if anything doesn't clear.

I wish you all the best , plenty of profits.
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