Hedging Stop Loss

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Hedging Stop Loss

Stop-loss orders are essential for a wining strategy. You simply cannot trade successfully if you don’t use stop-losses. If you open position without stop-loss, your entire deposit becomes your stop-loss. Obviously, it’s just stupid to risk the entire deposit for the sake of only one trade.

On the other hand, stop-losses make you nervous, and may cause large drawdowns, if you catch several stop-losses in a single row. When you are stuck in the middle of a large drawdown, your become depressed, and stop thinking in a rational way. Then you start to “adjust” your strategy “on fly” and worsen the situation even more. That’s the downside of stop-loss orders.

Fortunately, there is another way of limiting losses in FOREX. You do not have to use stop-losses, provided that you employ an alternative mechanism of limiting your losses. You will be good to go with anything as long as you exit loosing positions with a planned loss and not at the point when “you’ve had enough”.

Some people do not set stop-loss orders and close loosing positions by time or on the next correction. But I found out several years ago, this approach does not work well and sometimes I ended up with a much larger loss than I originally planned.

Finally, I discovered hedging, and it changed everything in my trader’s life. Now I close the majority of my loosing positions with a zero loss or with a profit. Wanna ask me how? Well… Simple… Instead of setting a stop-loss order, set a hedging order in the opposite direction at the stop-loss target point.

If market moves against your open position, your hedging order opens a new position in the opposite direction fixing your losses. When market flats out, you can close both positions in such a way that the cumulative loss becomes zero.

For more details on how exactly it is done, watch my video tutorial by clicking on the button below.

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  1. mark
    7 years ago

    ok