Great thread W - I am really looking forward to learning more about hedging in your style and from the others here.

I am very cautious about hedging as the biggest single loss I’ve ever had (over 5k) was due to a hedge that got out of control.

Since then I’ve had some success with hedging but far from an expert. Even so I think it is better than the ‘death by a thousand cuts’ approach many people adopt by using tight stop losses.

My own approach is simple and was inspired by a book called Profit First by Mike Michalowicz. If every trade has 3 potential outcomes (win, lose or breakeven) of which 2 are negative, stacking the odds against us as traders, this is about trying to bake a positive outcome into every trade so that taking profit becomes a continuous habit.

Take profit first then manage the loss.

I.e take long and short simultaneously, let price move 100 pips or so either way and wait for a reversal to begin, take profit first, then let price retrace and take the loss. For example take profit first +100 pips then take a loss -90 pips = 10 pip profit. If price can retrace more, to 50% or so then even better. If the reversal fails open another position continuing on until the next reversal opportunity, try again, take profit first then deal with the loss. This isn’t as easy as it sounds as you have to judge the reversal, when to take profit, and if you decide to take a countertrend position in anticipation of reversal that can seriously backfire if the reversal fails. My preference is not to take profit until after the reversal and not to take a counter position ‘fade’. In the end, I still believe that the easiest and safest way to trade is by identifying a strong and even trend and then trying to hitch a ride with it.