Hedging can seem very easy in the beginning because it's easy to enter a lot of trades and take small profits. But eventually, you'll hit a point where you have a few trades that are losing, and you might not know what to do with them.
I teach 8 different ways that you can get out of a hedged trade. But that's in my paid course.
In this tutorial, I want to show you 1 of the 8 ways that I get out of a hedged trade that didn't work out as I expected…for free.
This won't work for all hedged trades, but it works well for trades that have certain characteristics…which I'll get into later in this tutorial.
One way that traders can profit from a hedging trade that has gone against them is to be patient and wait for the next major support or resistance level. They can take a trade in the same direction as their original trade at the next support or resistance level, then wait for price to move past the breakeven point between the two trades, and close them both out at a net profit.
This entry may seem a little counterintuitive at first. But it works if price action gives you clear support or resistance levels.
Alright, that's the main idea, now let's get into the details.
The Split Exit in Action
This video will show you what I call the Split Exit.
The text version is provided below the video if you don't want to watch the video.
The Split Exit Explained
This exit depends on there being 2 well-defined support or resistance levels.
For example, the 2 lines above current price action would be 2 resistance areas that I would target.
Now I would take a short trade once price hits the first resistance zone.
But if this trade idea fails, I'm going to be ready to take another short trade at the resistance zone above.
This is not going to be a hedge yet, but based on current price action, I'm fairly certain that price will bounce down at one of these 2 levels.
Price then taps the next resistance level, so I take another short that's the same size as my first trade.
There's a nice Pin Bar at this level, so it looks like this trade has a good chance of working out.
At this point, I'm going to set a take profit on both trades that is slightly below the center line between these 2 trades.
If I'm right about the bounce, then the second trade will make more money than the first trade loses, and I can Roll-Off both positions at a net profit.
Now I'm going to have to keep an eye on this trade because it is not hedged.
But price hits the profit target quickly and I could have even exited the first trade at a profit, if I held on for a little longer.
If you didn't know, you can set your take profit on the first trade at a price that's going to lose money. That will get you out at a net profit, if the take profit on the second trade is set to the same price.
That's a complete trade example. Obviously, it would be the opposite on the long side.
So that's one way that you can get out of a Forex hedging trade that didn't go as you expected.
Many people think that they have to hedge if they are wrong about a trade.
You can also take another trade in the same direction, if you feel that price will bounce at 1 of the 2 support or resistance levels.
It helps to take a smaller position on these trades, effectively treating both trades like 1 position. So you might want to take half your normal lot size on the first trade, and the other half on the second trade.
If you want to learn more about hedging, download my free hedging beginner's guide.
To get all of my advanced hedging methods, including the full version of this tutorial, sign up for my course here.