1. Dual Positions:
• Hedging involves holding two opposite positions simultaneously:
• Primary Position (Core): Your main trade direction (e.g., long on XRP if bullish or short if bearish).
• Hedge Position: The opposing position (short if your core is long or long if your core is short).
2. Dynamic Adjustments:
• You actively adjust the hedge based on market movements:
• Expand the Hedge: Increase the hedge size if risks grow (e.g., resistance near $2.40 threatens your long position).
• Reduce the Hedge: Decrease or close the hedge if the core position regains strength (e.g., XRP breaks out above $2.40).
Why Hedging Works “All the While”
1. Risk Mitigation:
• While your core position experiences a loss due to adverse price movements, the hedge position generates gains.
• This limits your overall exposure during market volatility.
2. Profit from Both Sides:
• With proper management, you can close the profitable leg (core or hedge) while letting the other ride:
• Example: If XRP breaks out, close the short hedge and hold the long position.
3. Exploiting Market Pressure:
• Hedging allows you to react to market pressure dynamically:
• Close the hedge when buying/selling pressure subsides.
• Re-open the hedge if pressure builds again near key levels.
Operating Hedging Scientifically
To hedge correctly, follow a scientific, systematic approach:
1. Entry Timing for Hedge
• Hedge near resistance or support zones where price movement may reverse.
• Example: XRP long position at $2.35. Hedge with a short near $2.40 resistance.
2. Size of the Hedge
• 50% Hedge: Balances risk while keeping partial exposure to core position.
• 100% Hedge: Fully neutralizes risk and locks in your capital value.
3. Adjust the Hedge Dynamically
• If Price Moves Favorably:
• Reduce or close the hedge to maximize core position profits.
• If Price Moves Adversely:
• Let the hedge run, or increase its size temporarily to offset losses.
4. Focus on Key Market Metrics
• Order Book: Use visible buy/sell walls to time hedges.
• Indicators: RSI, MACD, and volume spikes help identify pressure points.
Real-Life Example
1. Scenario:
• Core Position: Long 1,000 XRP at $2.35.
• Hedge Position: Short 500 XRP at $2.40 (50% hedge).
2. Price Movement 1 (Adverse):
• XRP drops to $2.32.
• Hedge gains offset long position losses.
• Action: Keep the long position or add to it at $2.32 while closing the short hedge.
3. Price Movement 2 (Favorable):
• XRP breaks above $2.40 and rallies to $2.45.
• Close the short hedge at a minor loss and ride the long position for profit.
Key Benefits of Active Hedging
• Risk Neutrality: Protects your portfolio without needing to close your main position.
• Flexibility: Allows you to profit from both sides of the market.
• Strategic Pressure Management: You control exposure by dynamically increasing or reducing the hedge.
When NOT to Hedge
• Strong, Clear Trends: If the market is highly directional (e.g., XRP breaking out above $2.50 with strong volume), hedging may reduce potential gains.
• Low Volatility: When price movement is minimal, hedging may not justify costs.
Takeaway
Hedging is a continuous operation where you manage risks while staying exposed to potential profits. By dynamically adjusting your hedge based on pressure zones (resistance/support), you can maximize gains and minimize losses scientifically.
NB : it is for just an information, don’t try it