What I’m about to share might surprise you.
It’s not what you’d usually hear about when it comes to Forex Trading.
But hold aside any reservations….
Cast aside any doubts…
Because this creative technique could really work wonders for you!
Especially if you want more flexibility in your trading while still maintaining proper risk management.
Doing this one thing could help you:
- Gain better and more control over your risk/reward ratio
- Improve the diversification of your positions
- Against volatile price movements/swings
One caveat is that this technique will require such things market familiarity and some expertise to execute but once you gain this understanding it can be a very powerful tool to have in your trading armoury
Okay, so here goes…
A Way to Limit Your Risk On Any Trade Without Using a Stop
According to Hugh Kimara and independent trader and educator, there is a really smart way to trade that still limits risk and allows you to make money on both sides of the market.
And you do it by HEDGING.
Here’s how…
In basic terms Hedging in Forex is when a trader opens both a buy position and a sell position on a same currency pair as a way of preserving any profits they have made or preventing further losses.
The process of opening a Forex hedge relatively simple, once you know how.
It begins with an existing open position; -typically a long position- and you’re anticipating a move in a certain direction on your initial trade.
You create a hedge by simply opening another position that’s counter to your initial position i.e. short position.
This allows you to keep an open position on your initial trade without incurring losses in the possible event of price moving against your trade expectations.
When Does Hedging Come Into Play?
As I alluded to earlier, replacing stop losses for an hedging approach is somewhat of a complex and advance approach not suitable for the beginner trader.
However through demo trading and experience this technique can definitely add another string to your trading bow.
So when could I use Hedging, I hear you ask?
Rollovers!!
Before moving on, let me quickly explain what Rollover is in Forex trading.
In its simplest terms rollover is the interest earned or charged to traders for keeping an open position overnight/to the next value date.
So when the New York session closes at 10pm BST and lasts approximately, 30mins spreads increase significantly.
If you’re using a stop loss, price is already close to it and rollover kicks in, there’s a higher potential of getting stopped out.
Also, on the flip side, if you have a pending order open, rollover could also result in the order getting executed
Provide More Trading Flexibility
If you’ve used Forex hedging in your trading, If you’re not a big fan of losing money through getting stopped out, then hedging is very good approach, to flow with the markets.
You can avoid using hard stop losses, through scaling out of your positions, on the proviso however that you manage your positions correctly.
To understand Forex hedging a little more, I’ve included a short 10 min video from Hugh Kimara where he explains in a little more detail…
Managing risk through the use of stop losses is one of the golden rules that all the trading experts promote.
It really goes without saying- risk management is vital and without it you won’t last long as a trader, but hopefully this effective technique has provided you with another way to trade where you can still limit risk without the pitfalls and restrictions of a stop loss.
I would love to know how you’ve found it and what kind of results you’ve had.
If you’ve never tried it before, then why not learn the technique, demo trade it and again let me know how you get on.
