When I first started trading and heard about hedging I thought it was a great idea. Since then it has been a nightmare on a few occasions until I stopped using that trading method. The only way I have been able to trade out of a hedge was when it was small, less than 20 pips, and it was in the middle of a trend. The larger the hedge the harder it is to get out of.
Most people put on a hedge when they cannot emotionally or financially take the loss any longer. Most of the hedges are placed at the top or bottom of a movement in the market, so it becomes almost imposable to get out of. A hedge is usually at a point where you cannot take the loss any more so you lock it in the loss and then live with it. When you have a hedge in place it is a constant emotional drain of energy and seems to cloud your trading vision and your trading decision making ability.
There is a statement I believe is true it is “The first loss is usually the smallest lossâ€. By using good money management techniques taking a small loss once in a while is part of trading. Like they say make your losses small and let your winners run.
When a stop loss is placed properly and the market hits the stop loss that is a signal that it might be best to look for a trade going in the other direction. Or watch out for a channel to be forming. Either way it is best to be out of the market until a good trend can be found or trade the channel and take some good small trades.
As you can gather we are not a fans of hedging. We see a lot of people lose money because they hedge their trades thinking they will get out of the trade some day then realize that the swap they pay has eaten them up and they are still losing money but at a slower rate.
In summary trade with stop losses, use good money management techniques, and trade in the direction of the trend on the 4-hour charts.