Jacko's Anti-Hedging Strategy

This strategy was invented by me as an alternative to "hedging" which was often discussed on Forums as a panacea to a losing trade.

"Hedging " to me is simply hiding a loss under another opposite trade...and sooner or later, when the hedge comes off, there is an ugly loss exposed...I don't like that concept !!! (However, to those who use them, I say, different strokes for different folks...that is, its a personal choice).

Currently, this is what seems to happen to some Traders...

1. you put a trade on and you put a stop loss of around 40- 50 pips
2. the market goes against you (horrors....I was wwwwwrong !! )
3. let the market continue...it will probably go say another 30 - 100 pips past your stop...who knows ???
4. FINALLY, the market comes back around and starts to head in the opposite direction
5. by now you are totally hacked off with the market and you let it go

The solution that that I found is a pretty simple one but one that has to be executed without fail...

Scenario 2

That strategy is:

1. you put a trade on and you put a stop loss of around 40- 50 pips
2. the market goes against you (horrors....I was wwwwwrong !! )
3. let the market continue...it will probably go say another 30 - 100 pips past your stop...who knows ???

4. PUT AN ORDER IN AT THE EXACT SAME FIGURE AS YOUR STOP LOSS (if you were originally "short" then place a "short" order) This ensures that when the market comes back, as it invariably does, you have a DEFINATE order in place to put you back in the market where you were originally...and you are now in the same direction as the market is moving..

5. FINALLY, the market comes back around and starts to head in the opposite direction
6. The market picks you back up on its new direction

7. THE ADVANTAGES OF THIS (THEORETICAL) STRATEGY IS THAT
a. IT HAS AN EFFECTIVE AND DISCIPLINED COURSE OF ACTION
b. IT GIVES YOU A SPECIFIC "ENTRY" POINT
c. IT REDUCES LARGE DRAWDOWNS
d. IT PUTS YOU BACK IN THE MARKET EXACTLY WHERE YOU GOT OUT

I know that there are DISADVANTAGES with this strategy, buy I think that the overall effect of the advantages outweigh the disadvantages.

I also think that this strategy is more appealing to my business sense of minimising risk than the original concept of "hedging" that initially set me off to discover an alternative strategy to hedging.

I have now been using this strategy for a couple of months and it is working brilliantly.

PLEASE NOTE: I am a medium to long term trend trader. The above method works best on those time frames. It works less well on short term time frames because of the volatile "noise" in the market.

When a stop loss has been triggered, I allow it to go past my SL by a minimum of 50 pips before I set the new order.

When the market has turned and is coming down in the "trend" direction, my order is then opened.

Try it...you will be surprised how good it is.

The key advantage is that you are not tempted to "hang on" to a losing trade....and therefore your drawdowns are minimised.

However this is a "default" trade. It is NOT the prime strategy to use.
DO NOT LOSE SIGHT THAT the prime strategy is to trade medium/ long term and trade with the trend, with a trailing stop.