Tag: Hedging

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Forex Videos

How To Use A Hedging Strategy To Trade Double Tops and Bottoms

https://youtu.be/jwAY5ZSUwB0

https://youtu.be/jwAY5ZSUwB0

How To Use A Hedging Strategy To Trade Double Tops and Bottoms

In this video, we are going to show you how to set up a hedging strategy to trade double tops and bottoms. The idea is to set up two trades simultaneously where one trade will act as an immediate execution trade, and where all the technicals are telling us that price action will go in a certain direction. And the second trade will act as an insurance policy should price action ignore our technical analysis setup, and in which case, we will then capture price action as it moves in the opposite direction.
In the following examples, we are looking for price action reversals, which will form the basis of our technical analysis; and therefore our belief is that we will be looking for price action to have peaked, or bottomed out, and then reverse. Our secondary trade, which will act as an insurance policy, will be set up on the basis that price action has simply pulled back and then continues in the direction of the original trend.
Before we move ahead with our setups, let’s quickly remind her selves of the kind of setup we are looking for a double top scenario.

Example A


Example A, shows us that for a double top formation we need a peak, followed by a pullback to what is referred to as a neckline which acts as a line of support, followed by a second peak which must be at the same exchange rate as the previous peak, and then confirmation of the double top pattern occurs once price action breaches the neckline for a second time.

Example B

Example B, The reverse is true for the double bottom scenario. We have a bottoming out of a pear followed by a reversal to a neckline, which acts as an area of resistance and where price action forms a second bottom at or around the same exchange rate as the previous bottom and then a reversal back to the neckline, which previously acted as an area of resistance and where price action punches through and this line which then acts as an area of support before we see a continuation in the reversal of price action, which confirms the double bottom pattern.

Example C


Example C, the following is how we set up the double top hedge. First of foremost, we need to wait for price action to pull away slightly from our second peak and go short at this point with a stop loss a couple of pips above whichever peak was the highest of the move. Should price action continue lower than our neckline, the double top formation will be confirmed, and we can ride the downward move. If price action reverses from the support line, this will confirm an area of consolidation in which case we can bring into play a protective stop out in front of our entry, and at least we will not have lost any money on this trade.

Example D


Example D, The hedging strategy set up is where we place a buy limit order a couple of pics above the stop loss from the first trade, with a slightly larger stop loss which must be a couple of pics below show the previous support or neckline, and in this case, we expect that price action will continue with the original upwards trend. For this trade, we must have a minimum target equal to the amount of pips that were lost in trade one in order to keep our profit and loss in check. However, naturally, we want to let the trade run on as much as possible.

Example E


Example E, In the double bottom hedging strategy, we will simply need to reverse the trade setup for the double top. In which case, we would go long as soon as price action reverses from our second bottom line. With a tight stop loss a few pips below the lowest point of both bottoms. If price action then goes on to reverse back from the neckline to form a third bottom, we can close the trade out with a small profit. But the double bottom confirmation pattern will be confirmed once the neckline is preached, and price action continues in an upward trend.

The hedging strategy consists of a sell limit order just below the stop loss of the first trade and where the stop loss for hedging strategy must be a couple of pics below the neckline.
This hedging strategy should be reserved for timeframes or 15-minutes, and above this is where we will find the most amount of pips to be made. This is not to be considered as a scalping strategy.

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Forex Videos

Master The Forex Hedging Strategy With Head and Shoulders Formations!

https://youtu.be/DliViegCR5c

https://youtu.be/DliViegCR5c

Hedging Strategy With the Head and Shoulders Formation

In this video, we are going to show you how to use money using a hedging strategy, which is a continuation in the series. On this occasion, we are going to be looking at the head and shoulders formation and try to take advantage of a price action reversal with this shape.
The trade is constructed in two parts with the idea of hedging, which is to maximize the potential for trading opportunities in either direction of price action. However, initially, we want to set the trade up with our tried and tested technical analysis methodology, and in the event that for some reason price decides to go against the chart, we will have a second opportunity to catch the move in the opposite direction. And so we will have trade one, which goes with technical analysis and trade two, which acts as an insurance policy in the event things do not go to plan.

Example A


Example A is a very typical chart pattern that traders see on their screens on a daily basis. This is the formation of a head and shoulders, where initially we have price action rising, followed by the head and shoulders formation and then price reversal.

Example B

Let’s drill down a little further in example B. Here we can see that price extended higher from the left- hand side of the chart where we subsequently have a peak formation, or the left shoulder, followed by a slight pullback in price and then a continuation higher, which forms the head, before we see another pullback and then another move higher where the price action completes the formation of the head and shoulders shape.
We can also see the neckline, which acts as an area of support that is qualified by price action bouncing off it on at least two occasions. Traders will keep a close eye else for the neckline to be breached, which will offer a high probability of price action reversal to the downside.

Example C


In example c, we are going to set up our first trade. We are going to go short when price action moves under the neckline, and place a stop loss a couple of pips above the highest point of the head. Technical analysis offers a high probability that the price action will continue lower from this point with this particular formation. We should be looking for price action to come down to at least the previous low of the initial move higher on the left-hand side of the chart.

Example D

Example D is our secondary trade setup. The insurance policy if you will. Should our first trade fail, and we get stopped out, we will have already set in place a limit order to buy the pair at or slightly above the stop loss of trade one, in order to capture what will be a continuation in price action to the upside. We must place a stop loss a couple of pips below the neckline, and we should be looking for price action to continue upwards and, at the very least, cover the loss of our first trade. This can be done by carefully managing the position. This type of setup is better suited to time frames of 15 minutes or above because we are looking for trends, and this is where the larger amount of pips will be found.

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Forex Videos

Forex Hedging Strategy – The Ascending Pennant Chart Pattern

https://youtu.be/4-soNFQeXkc

https://youtu.be/4-soNFQeXkc

Hedging Strategy Via The Ascending Pennant Chart Pattern

Today’s video is a follow on from our: Hedging – Making money no matter which way the market moves. So be sure and check that out if you missed it. The theory in this series is that we are looking to maximize successful trading opportunities from areas in price action that are likely to accelerate in either direction. And by covering both eventualities, we create a situation where we can capture the breakout in either direction, even if our initial trade goes against us.

There are various types of hedging, such as selling equities in favor of buying gold or buying one currency pair while simultaneously hedging the position by selling another pair, which might be seen as acting in confluence, in order to spread the risk.
But this is a different style of hedging, where we essentially set up two trades in the opposite direction, while incorporating tight stop losses and where trade one is based on a high probability of a correct move based on our technical analysis and where trade 2 acts as a backup trade, or insurance policy if the market reverses against our technical setup, which, unfortunately, can happen.

Example A


Let’s look at example A. This is the basic pattern you would expect to see on an ascending pennant pattern.

Example B


Now let’s take a look at this setup in a little more detail in example B. Initially we can see that there has been a period of consolidation, where price action is conforming to an area of support and resistance at positions A and B, and where price action remains above a key moving average, which is gradually moving higher, in line with price action, which eventually breaches the area of resistance at position A and a short while after finds support at that level, before continuing higher.
At the top of our charts, at position D, we have a wedge shape formation, which confirms our bullish Pennant chart pattern. Price action has consolidated within the wedge and is beginning to break out from it in an upward direction. From this setup, we would have very good technical grounds to believe that the buyers have got hold of this pair at the current time and that break from price consolidation within the D shaped wedge is likely to be higher, in continuation of the overall trend.
Had you not already been buying into the trend, this is the point at which you might want to seriously consider buying the potential continuation.

Example C


In Example C, we are going to implement our hedging strategy with an immediate buy order at position 1, and a stop loss at position 2.

Example D


In example D, we are going to set up our backup trade in the event that our first trade reverses.
First of all, we are going to put a sell limit order just below the stop loss of our first trade at position 3, and we will place a stop loss for this second backup trade just above our entry of the first trade at position 4. We need to place a take profit at around the area or position 5, which would be equal to at least the amount that we lost in our first trade in order to rebalance our profit and loss. In this a hedging strategy, we have covered all the bases regarding strict observation of technical analysis, and we have carefully placed our orders in order to capture the breakout from this ascending

pennant set up. We have also carefully mitigated against the risk of a price reversal by incorporating a backup trade.

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Forex Videos

Forex Hacking – Hedging Trades To Make Money No Matter Which Way The Market Moves

https://youtu.be/OgLMupNEwu4

https://youtu.be/OgLMupNEwu4

Hedging – Making money no matter which way the market moves

 

In this video, we are going to show you how to make money by using a hedging strategy that will take advantage of a breakout move in the market, no matter what direction. There are many different styles of hedging, and while some are implemented to protect profit and loss, The following strategy has been developed to maximize opportunities increase the chance of profitability know matter which way the market moves, and hence to create more money-making opportunities with your trading.
If used correctly you will be able to regularly make money using this strategy. Hedging sounds like a strategy that is too good to be true, however, we back up this strategy with a clear and precise methodology, while looking for breakout strategies that professional traders use every day in the Forex market.

Therefore the basis of this ageing strategy is that it should be implemented at such points that markets have consolidated, or has reached high or low peaks which are right for a reversal in price action. With the correct implication you will be able to make money even if you have a short position and the market goes against you, or if you have a long position and the market goes short.

This strategy consists of two parts, the initial trade and a backup trade.
First of all let’s look at a potential set up before we implement this strategy.

Example A

Example A is a pretty standard screenshot that you will see on any of the forex pairs. We have two key horizontal lines A&B and where they would typically be a big figure, or whole numbers, such as 1.2800, which you might see in cable currently, or 1.100, which you might see in EURUSD.
In our chart, we can see that price action has been moving between the two key levels in a series of channels. At position 1, price is rejected and moves lower to position 2 in a channel, and is rejected by the lower key level and moves higher in our second channel from position 2 to position 3.
Critically, price fails to reach the key level or line A. Secondly, we have a Fractal reversal signal suggesting price will move lower and we have what appears to be a third lower channel forming to the downside and where the line of support between move 2 to 3 has been breached by our last bearish candlestick on the chart.
We are going to implement our strategy at this point. The first and immediate thing that we need to do do is to enter a short position, as shown in example B.

Example B


We will need to put our stop loss a couple of pics above our key level, as defined by line A, which has proven to be an area of resistance.
So at this stage, we believe that we have done everything humanly possible to analyze the comings and goings of this trade, and we believe we have taken all necessary steps to pick the correct trade and gone short. However, as we know, anything is possible in the forex market. And that is why we intend two support our trade with a secondary back up or insurance policy trade if you will, and we can show you how that is set up now in example C.

Example C

Should price action reverse and trigger our stop loss we will enter a buy limit order, at, or slightly above the same point as our stop loss on the sell trade, in order to try and capture the reversal in price action and possible continuation upwards in the original trend line between position 2 and 3.

We will also enter a stop loss a couple of pips below our entry-level of the original short trade. Because if the price does move higher, our line of support between positions 2 and 3 will have been confirmed as a line of support. We must also place a take profit level with an aim to at the very least break even from our first losing trade.
No strategy is without risk. The forex market, like every other market, can turn direction in an instant, and never more so than in the current climate, where markets are tiptoeing nervously around the Coronavirus epidemic. As such, we suggest you try and adapt the methodology to your own trading style, or practice the above strategies on a demo account until you have honed your skills before trying it on a real money account.

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Forex Videos

Forex Hedging Explained! Another Tool To Your Armoury!

https://youtu.be/80YzvG8-yAQ

https://youtu.be/80YzvG8-yAQ

Hedging

You have no doubt heard the phrase hedging your bets. So what does it mean in financial trading and how can it be applied? The basic principle of hedging your bets In financial trading is to reduce the risk of loss on a trade by counterbalancing the risk of loss by introducing a second or third trade in some way in order to offset risk. There are several ways that traders use hedging strategies to reduce risk.


In the vast majority of cases hedging is used by institutional size traders who have large portfolios and will quickly move in and out of an asset, dependent on risk, and on risk off factors, or they will offset some of the risk by hedging strategies. In current market conditions there has been until very recently Direct correlation between the the USDJPY pair, and the DOW 30, and where the USDJPY has been acting as somewhat of a barometer in the COVID-19 outbreak. So here we would find that when the pair is moving higher this will have been reflected in the DOW 30, and vice versa. In which case to offset risk some institutions might reduce the size of their investment in one of these assets and take a position in the other to reflect their risk appetite. This could be trading in the same direction, ie going long on both, or even going short on one, and long on the other. It is all about their perceived risk.


Another strategy would be where a swing trader had a medium term view of the u.s. dollar index or DXY, where they might be looking for a target of 100.00 and rather than just going short on GBPUSD they would prefer to hedge their bets by going short on two or three pairs, such as GBPUSD, EURUSD and then perhaps a long position such as buying USDCAD. All of these trades would favour a long position on the USD, and where a trader would not necessarily require all three to be in profit in order to make this an overall winning trade.

But a direct hedging strategy on a single pair yeah where is an entirely different strategy and is usually taken on by Traders with larger size portfolios, who prefer their drawdown or how much they are losing on their profit and loss, or who like to be liquid in a trade which means being long and short simultaneously on a trade which usually favours volatile markets.

 

Example A


Let’s look at example A, where such a strategy might be implemented. This setup applies to any currency pair. At position A and B on our charts, we have have a defined area of consolidation which is confirmed by at least two points of price rejection along the line at position A, which can be confirmed as a level of resistance, and at least two point of rejection at position B, which can then be qualified as a support line.

In this example, the pair has broken out of the range at position C, and where traders will have started going short. Now, as we know, price action does not move in a straight line, we see periods of pullbacks and further consolidations in the majority of trades. But in this example, traders will have gone short at position C and where he/she has an exit target at position X.
Knowing that will be pullbacks, some traders who like to adopt a hedging strategy might go long at position 1, 2 and 3 to to make some money on the pull backs, and if they are right they can get out before the price continues lower, and we’re at the very least if price action returns to the previous high they will have a net profit position which they can close out.
If price action does continue in the vein that we have described they will get subsequent profit from other pull backs. As a contingency they can set very tight stop losses on their long trades, even bringing their stop losses in front of their entry, which is allowed on some platforms – such as the Metatrader MT4, thus

making their long trade completely risk-free.
Traders will also go long and short at the same time on a pair during times of news and data releases. And even overnight. Although then swap rates begin to kick in and tend to work in the favour of the broker’s who set the fees for overnight lending.

Therefore, unless your trading is pinpoint accurate and you are extremely confident with your entry and exit points, hedging can complicate your trading, but if you have developed a system of accurate entry and exit points, with tight stop loss implementation, hedging strategies can be a great way of reducing risk of loss and maximizing profits.

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Crypto Videos

Hedging Your Cryptocurrency Portfolio Part 3 – The Best Methods Explained

https://youtu.be/K5uCj5rSQ7M

https://youtu.be/K5uCj5rSQ7M

Hedging your cryptocurrency portfolio – part 3/4

 

Options
Options are a fairly new and limited concept in the cryptocurrency space. The only exchanges that actually offer it are Deribit and Bitmex.
Hedging using options can be pretty complicated. There are multiple ways you can build exactly what you want. We will show one of the most straightforward ways you can hedge out downside risk.


Why You Would Use This Method

One of the main benefits of hedging by using options is the difference in the payout. Hedging by buying put options can turn your existing options into a call option payout (which have limited downside with unlimited upside). The caveat to the method is that options, especially in the cryptocurrency market, are quite expensive.

Another great thing is that the margin does not need to be monitored as we are purchasing options to construct the hedge. These pros make it a fairly good method for investors that:
Are looking to hedge their positions but cannot, or don’t want to monitor their margin requirements Want the downside protection while still maintaining the potential upside gains.

How to Construct it

You will need:
An account with Deribit (they are the only exchange that offers crypto options)
The steps to constructing this method are similar to using futures:
Based on the current price of Bitcoin and your expected hedging time frame, check for the closest in the money (ITM) put option.
As an example, if BTC is at 6432 and you would like to hold it until the end of the quarter, look for the 6500 put option pricing for the end of the current quarter.
Check the current price of your chosen ITM put option and calculate how much funds you would need to deposit so you could make a 1:1 coverage of your BTC holdings.
Deposit the predetermined funds into the exchange.
Purchase the put option and simply hold it until expiration.

Summary

Hedging with options can be quite a complex task. However, this also means that it can be better tailored to your needs. If you want to use options to hedge and you want to hedge frequently, learning all there is about options is certainly a no-brainer.
Options hedging, as any type of hedging, has its Pros and Cons:


Check out our final part of the Hedging your crypto portfolio, where we will talk about hedging by using Perpetual Swaps.

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Crypto Videos

Hedging Your Cryptocurrency Portfolio Part 2 – The Best Methods Explained

https://youtu.be/EjzGIQ47IZA

https://youtu.be/EjzGIQ47IZA

Hedging your cryptocurrency portfolio – part 2/4


Futures

Futures represent financial contracts that obligate the buyer to purchase a certain asset (or the seller to sell a certain asset) at a predetermined future date and a predetermined price.
Just like in traditional finance, cryptocurrencies have futures contracts that you can use to hedge out your position. Crypto market comes with two types of futures:
Futures that trade in USD and settle in USD, such as CME Bitcoin Futures and CBOE Bitcoin

Futures
Inverse Futures that trade in USD pricing, but settle in BTC, such as Bitmex Quarterly Contract Futures
The profit and loss calculations work slightly differently for these two methods. However, they can both come to the same result.
An example of the investment is (if you wish to hedge your position fully):

Calculation explained:
As Bitmex offers only BTCUSD and ETHBTC futures, we need to convert ETH to BTC first. As the contracts are denominated in ETH, we will:
Short 10 ETHBTC futures
Factor this into our BTCUSD hedge. The total short of the BTCUSD position = $6,500 x 10 + $200 x 10 = $6,700
By using this method, your portfolio will be fully hedged (as long as you make sure to maintain your hedge).

Why Would You Use This?

Futures contracts are a fairly cost-efficient way of hedging out your risk. This is because:
You have a lower capital requirement due to the leverage you can use.
You can profit from the hedge over time if the market goes in your favor.
You know the full cost of your hedge the moment you place the hedge on, unlike some other methods of hedging.
How You Construct The Hedge
In order to start hedging by utilizing futures, you will need:

An account with a crypto futures exchange.
To construct this hedged portfolio:
Choose which future contract you will use. Your decision should depend on which currency you wish to settle in and fund the exchange.
If you are settling in USD, you can sell some crypto to fund the account. However, keep in mind that withdrawals and deposits could take some time to process.
Based upon your holdings and what is available on the exchange, you need to calculate which combination of futures contracts you need as well as how many contracts.
Monitor your short positions profit and loss so that if you are getting close to your margin call, you will need to deposit more USD or cryptocurrency into the exchange to maintain your short position.

Depositing into the exchanges can take some time, and since crypto markets are very volatile, make sure to do everything in time.
Close out the short position when you think there is no reason to hedge anymore.

Summary


Hedging by using futures is best suited for cryptocurrency investors that carry the standard coins and are not overly diversified into altcoins. Hedging by using futures is very efficient but requires knowledge of the market as well as futures themselves.

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Crypto Videos

Hedging Your Cryptocurrency Portfolio Part 1 – The Best Methods Explained

https://youtu.be/LDJ0E8i3JDQ

https://youtu.be/LDJ0E8i3JDQ

Hedging your cryptocurrency portfolio – part 1/4

If you are looking for ways to hedge out your crypto investment exposure, this guide will cover four different methods that you can use:

Short Selling
Futures
Perpetual Swaps
Options

Selling vs. Hedging

The first question that should be asked is, why is there a need to hedge when you can just sell. This point will be covered in each hedge method section individually to avoid any misunderstandings.

Short Selling

This is the most straightforward method of hedging out your investments. All you need to do is to short sell the cryptocurrencies so that your portfolio will look like shown on the picture (assuming you want to hedge your exposure fully).

Why Would You Use This?

Long-term investors say that you are better off just selling your cryptos as the cost of short selling is higher for the amount of margin funding cost. However, hedging is good for reducing risk in the short-term.
There are several reasons why hedging crypto in the short term is better than selling:
Once you sell your cryptocurrencies on the exchange, the proceeds of the sale remain on the exchange until withdrawal (which isn’t always that easy). This makes your funds subject to default risk. Short selling requires you to have fewer funds on the exchange (which is not the best to store your cryptos on). If your hedge period is short, the process of selling, withdrawing, and then depositing and buying back could be too slow.

How To Construct This

For this method, you are required to have:
An account with any exchange that provides the option to short sell (Optional) USD for maintaining margin in your account
We will be using BTC as an example of constructing a short-sell hedge:

1. Deposit your USD into the exchange that provides the option to short sell. If you do not have any USD available, you can deposit some cryptocurrency and sell a fraction of it
2. The amount of USD that should be on the account will depend on the margin requirements of the exchange
3. Put on a short position on the cryptocurrency that you want to hedge against at a 1:1 ratio. As an example, hedging 10 BTC at a 1:1 ratio will require a short position of 10 BTC
4. Monitor your short positions to avoid reaching the margin call.
6. Close out your short position when you decide to close out your hedge.
Summary
Short selling as a hedge method is best suited for investors that are already diversified, and that want to hedge as selling parts of their portfolio would take too long.
There are quite a few pros as well as cons to using short selling for hedging. This table shows some of them:


Check out the next part of the Hedging your cryptocurrency portfolio, where we will talk about using futures as a hedge.