Hedging is a technique that only a few traders know (in my view), actually most of the people doesn't know how to hedge and what actually hedge strategy is?
I tell you that what is hedging, mostly people think that locking position is called hedging, it is true, but how much kind of hedging are? is only locking position enough to define hedging? Do you know that how big traders hedge and make money? let me explain it in simple words.
If someone has a big capital, for example 10k, (10,000$) and he is trading with 1$ then he will open two trades with any kind of pair he choose, let suppose he is trading with Eur/usd and the price is 1.27000, then he will open two trades, one is buy and other is sell, now market moves on 1.28000, then he will close the trade of buy at 1.28000 and see the possibilities of market whether it will rise more or not, then he will again open two trades of buy and sell, if the market moves 1.29000 then he will close the buy trade again and see whether the market is moving back or not. He will keep doing this until the market reach to 1.34000 to 1.37000, he will book the profits and keep the sell trades open, it may take one month or two, but if we see in longer spectrum then we will analyze that how much market may move, and if the market is bullish then we can use double lot. like if the market is on 1.30000 and there is a chance that market may move up again then we will open one sell trade with 1$ sell and a trade with 3$ buy. It will make the trades equal.
We need to know that if the market is going up then it will fall down definitely once, and that fall will give us good profits, that most of the hedge traders do, they have a lot of patience, they don't do short term trades to book some profits. they do longer term, as I have mentioned above. If we see the Eur/usd pair from the last six months then this pair has been depreciate from 1.37000 to 1.29000 right now, so we can understand that how much profits a long term trader would make if he open two trades of falling market? but remember this strategy need a big capital, not a small capital.
