Hedging trading positions (from the English. Hedge - limit, hold) common and good practice in the financial markets and in all types of investment. This strategy involves the use of various tools to protect already open trades from potential losses. The main purpose of hedging - reduced risk of loss, and not extract more profit.
In the forex market strategy to protect open positions quickly became not only his followers, but also evolved into several varieties, due to the peculiarities of the currency market. One of the new concepts in a defensive strategy, known only from the Forex market - or locking out the "lock" (from the English lock position). This method is fundamentally different from the hedge that to protect the open position using the same tool, just the opposite of the Order. That is, when you buy the currency pair EUR / USD, the castle serves as an order to sell the same pair. Such defensive tactics is only acceptable for the currency market, as the ability to open two different directions of trade orders in one financial instrument is present only in the Forex market.
By the method of operation, "locks" can be divided into several groups:
- Locking out the same volume - reverse trading position opens exactly the same volume (lot), as well as initial.
- Locking out smaller or larger volume - the amount of locking position from the original lot.
- Zero Castle - placing two divergent trading positions at the same price. Used in situations where the future dynamics of the Forex market is not clear trader. You can close a losing position at precisely identify trends and profitable position will continue to increase profits.
- Positive lock - opening second lokiruyuschey, the position after the first order has been a profit. Can be applied in cases where the expected corrective movement, but the dynamics of the trend is the same. Allows you to capture all the movements of the Forex market.
- Negative lock - opening locking position after the first order "goes in the negative." This kind of "lock" limits the increase of losses. Set at the level of stop-loss in the analysis of market quotations alleged return to the previous level.
Use of tactics «lock position» is very dangerous, and without certain skills and methods of trading worked, you should not use. Therefore, before going on the forex market with this strategy, should, first theoretically prepare psychologically and practice on a demo account.
Tactics for closing locked positions.
- The method of negative lock. After operation of the locking position do not take action and conduct ongoing analysis of the situation. On the expected level of turn put a stop order on the lucrative order, after its operating profit has one position and look forward to returning to the first opening of the order. As a result, you can not only break even, but also to make a profit on the two trading positions.
- Reduce the size of "localization." After operation of the lock putting a stop order to close the locking position to zero. After closing to put another order in the same direction, but reducing the size of the castle. Used mainly on flat market when not determined the prevailing trend.
- The combination of the negative and increase the lock. Exhibited at the opening of the lock at a losing position can open another order the same amount in the same direction. Loss on the size of the castle can block an additional position and break even or small profit. Example: buy EUR / USD 1.3100, triggered sell-stop 1.3050, that is the size of our castle minus 50pp. At a price of 1.3040 opens up another position in the market. At a price of 1.2990 a grand total of three orders will be zero.
- The combination of the negative and the fragmentation of the castle. This tactic involves working with multiple locking position of different volume. Can be arbitrarily varied: some items of different sizes, but the total equal to the first order; few orders in the amount exceeding the amount of the first position, and several orders smaller volume. Tactics out of these locks are different depending on the situation in the Forex market, the size of the deposit and the option selected.
Advantages and disadvantages of the method.
Like any trading strategy forex, «lock position» has its advantages and disadvantages.
Benefits:
- Uses a single trading deposit, which greatly facilitates the use of this type of hedging positions.
- The right approach losing position is always "pull" to zero or profitable.
- Of locking positions allows mentally stable work in the Forex market, since, in principle, each position can eventually be profitable.
Disadvantages:
- Part of the funds from your deposit will be "frozen" open orders, which greatly complicate further work to close the lock.
- With long-term retention will have to "work" and the negative swaps on all orders.
- Losing positions can exert psychological pressure on the trader.
- The use of the tactics of locking requires a larger deposit to be able to open additional trading positions.
Features of the application of tactics «lock position».
- Do not be much "stretch" the lock. Remember: the greater the distance between the positions of the more difficult to bring them to zero or profit.
- After triggering negative localization should not take hasty action, need to calm down and keep working. Loss is fixed and does not increase.
- We continue to analyze the situation you may encounter in the Forex market, we expect significant price levels and the possibility of their use. When you close and disclosure of the hedge should use the strongest levels, rebound and penetration which is strong enough to pass the required distance to us.
- Personal appearance in front of the terminal lock cancellation will increase the chances of a positive outcome. The use of stops on all locking position can increase the size of the castle.
- Close the lock as quickly as possible, since the delay in this process makes it difficult to further work, and reduces the chances of positive performance in all positions hedge.
Tactics «lock position» is quite simple to use, but also quite dangerous for amateurs and beginners. Only need to apply it with great care and with the strict rules and tactics to break the locks. Is required and the test period, so to speak, practical and psychological preparation.
In the forex market strategy to protect open positions quickly became not only his followers, but also evolved into several varieties, due to the peculiarities of the currency market. One of the new concepts in a defensive strategy, known only from the Forex market - or locking out the "lock" (from the English lock position). This method is fundamentally different from the hedge that to protect the open position using the same tool, just the opposite of the Order. That is, when you buy the currency pair EUR / USD, the castle serves as an order to sell the same pair. Such defensive tactics is only acceptable for the currency market, as the ability to open two different directions of trade orders in one financial instrument is present only in the Forex market.
By the method of operation, "locks" can be divided into several groups:
- Locking out the same volume - reverse trading position opens exactly the same volume (lot), as well as initial.
- Locking out smaller or larger volume - the amount of locking position from the original lot.
- Zero Castle - placing two divergent trading positions at the same price. Used in situations where the future dynamics of the Forex market is not clear trader. You can close a losing position at precisely identify trends and profitable position will continue to increase profits.
- Positive lock - opening second lokiruyuschey, the position after the first order has been a profit. Can be applied in cases where the expected corrective movement, but the dynamics of the trend is the same. Allows you to capture all the movements of the Forex market.
- Negative lock - opening locking position after the first order "goes in the negative." This kind of "lock" limits the increase of losses. Set at the level of stop-loss in the analysis of market quotations alleged return to the previous level.
Use of tactics «lock position» is very dangerous, and without certain skills and methods of trading worked, you should not use. Therefore, before going on the forex market with this strategy, should, first theoretically prepare psychologically and practice on a demo account.
Tactics for closing locked positions.
- The method of negative lock. After operation of the locking position do not take action and conduct ongoing analysis of the situation. On the expected level of turn put a stop order on the lucrative order, after its operating profit has one position and look forward to returning to the first opening of the order. As a result, you can not only break even, but also to make a profit on the two trading positions.
- Reduce the size of "localization." After operation of the lock putting a stop order to close the locking position to zero. After closing to put another order in the same direction, but reducing the size of the castle. Used mainly on flat market when not determined the prevailing trend.
- The combination of the negative and increase the lock. Exhibited at the opening of the lock at a losing position can open another order the same amount in the same direction. Loss on the size of the castle can block an additional position and break even or small profit. Example: buy EUR / USD 1.3100, triggered sell-stop 1.3050, that is the size of our castle minus 50pp. At a price of 1.3040 opens up another position in the market. At a price of 1.2990 a grand total of three orders will be zero.
- The combination of the negative and the fragmentation of the castle. This tactic involves working with multiple locking position of different volume. Can be arbitrarily varied: some items of different sizes, but the total equal to the first order; few orders in the amount exceeding the amount of the first position, and several orders smaller volume. Tactics out of these locks are different depending on the situation in the Forex market, the size of the deposit and the option selected.
Advantages and disadvantages of the method.
Like any trading strategy forex, «lock position» has its advantages and disadvantages.
Benefits:
- Uses a single trading deposit, which greatly facilitates the use of this type of hedging positions.
- The right approach losing position is always "pull" to zero or profitable.
- Of locking positions allows mentally stable work in the Forex market, since, in principle, each position can eventually be profitable.
Disadvantages:
- Part of the funds from your deposit will be "frozen" open orders, which greatly complicate further work to close the lock.
- With long-term retention will have to "work" and the negative swaps on all orders.
- Losing positions can exert psychological pressure on the trader.
- The use of the tactics of locking requires a larger deposit to be able to open additional trading positions.
Features of the application of tactics «lock position».
- Do not be much "stretch" the lock. Remember: the greater the distance between the positions of the more difficult to bring them to zero or profit.
- After triggering negative localization should not take hasty action, need to calm down and keep working. Loss is fixed and does not increase.
- We continue to analyze the situation you may encounter in the Forex market, we expect significant price levels and the possibility of their use. When you close and disclosure of the hedge should use the strongest levels, rebound and penetration which is strong enough to pass the required distance to us.
- Personal appearance in front of the terminal lock cancellation will increase the chances of a positive outcome. The use of stops on all locking position can increase the size of the castle.
- Close the lock as quickly as possible, since the delay in this process makes it difficult to further work, and reduces the chances of positive performance in all positions hedge.
Tactics «lock position» is quite simple to use, but also quite dangerous for amateurs and beginners. Only need to apply it with great care and with the strict rules and tactics to break the locks. Is required and the test period, so to speak, practical and psychological preparation.