Example
- Initially, you considered a SHORT position in the scenario because you had a resistance level and a priority for correction on the higher timeframe.
- You entered the trade in SHORT, the position went according to your scenario, but you have a support level in your way.
- At the level, you make your first take-profit for the SHORT position.
- Also, from this level, you open a LONG position.
- There is a reaction at the level, your LONG position is also in profit.
RESULT: You have a SHORT and LONG position open, both positions are in profit, and stop-losses are set at breakeven.
When using hedging, you risk only a part of the profit from the main position. If the price does not react and your counter-trend position quickly closes at a stop-loss, your profit from the main trade will decrease by the size of that stop. However, there is an opportunity to take a local price pullback without risk, i.e., additional profit.
Important!
- For effective hedging, you must already have a profitable trade – then you 'lock' the profit between two trades with the hedge and will take profit in any case;
- We never open a hedge against a losing trade because in this case, we 'lock' the loss and risk increasing it further.
