Hedging Breakout Trading Idea. Thanks

[monkey180]

Hi Folks,

Itrade channel breakout retests. I like to see crystal clear line of multiple tested resistance, a good break out and then the retest if it comes back.

I just have a question about hedging, a good trade can hold if the market drifts lower, but unlike the sharp drops of late, even very strong support gets dragged though and stopping out.

Would a simple purchase puts on the SPX every time OB on daily? Short the SPX in a spread bet account?

Reverse trades of the same style? So short channal break downs?

The problem I see with a normal trade short, is that the market could drift higher, stopping out the short, then sods law the markets tank. So then I have a loosing hedge and loosing trades.


Above all I would like a break even scenario if the market tank, whereby if all the longs loose, then the hedge will make up for it.

THanks

 

[tomorton]

I understand the mechanics of hedge trades, I know they're used in the professionals' arena, and I know that minimising losses is a good principle.

But you seem to propose a counter trader for every primary trade. This will be really expensive and is surely just substituting one type of risk for another - so you're taking at least as large a risk but its just been re-named. By the same logic, as soon as the primary is closed and you're naked on the hedge, don't you need another long to hedge the hedge?

If you take a naked long and the market tanks, you've always got the possibility of doing a stop and reverse and opening a short. There's a delay, but this delay buys you confirmation of the bearish move - if you wouldn't take the short you would certainly have been wrong to open the hedge.

On the other hand, if you're trading a market in which the distance between going long and going short equals your stop, I would wonder if its the right market conditions for a high probability trade.