Recently I started using more hedging in my Forex trading.
As NFA bans hedging for forex firms based in US, i am currently trading with a Forex broker which allows hedging.
Many forex firms in Singapore (approved by MAS) allows hedging, except for Oanda.
Instead of using stops, i use a hedge.
I will usually short the right shoulder of a Head and shoulder or long the right shoulder of an inverse H&S.
My position will be protected by a entry hedge order.
E.g. if i short USDJPY at 95.00, i will have an hedge order for long maybe 95.50.
If the price goes down, then all fine, i will put a stop to protect the short position, and add more positions if i catch the trend. Otherwise, if the price goes long, then my hedge order will be activated.
The price goes higher, meanwhile my loss is hedged (fixed).
When the price come down again, i will remove my long hedge and allow the price to go in my direction.
This method is totally unconventional as it is normally postulated by most traders and Forex courses and books to always use stop loss and cut loss.
But i feel that it is wasteful to cut loss if I can hedge the loss temporarily (at a small amount) and unhedge when the price is near again.
The cost of rollover is not significant, contrary to what others say.
I noticed in forums that there are many FX traders who use Elliot Wave analysis method when it comes to analyzing the markets and trading with a trend and I use it too.
Elliot Wave method is rather subjective, many people don’t like it, but i use it to follow the trend by following impulsive movements. So far great; last knite GBPJPY did an impulse down with the main down trend, i feel it is impulse wave 1.
You could read the basic through a 10-lesson course from website www.elliottwave.com.
There a number of books on Elliott wave exclusively but most of them relate particularly to the stock market.
There is only one book relating Elliott Wave to Forex, that is the book by Robert Balan “Elliott Wave Forex Principle”. However, the trading technique that the author proposes requires hedging; but i guess it should be stop-loss for brokers that do not allow hedging.
But the best way, is to read the basic and then to “feel” the market for a while so that you can get the confidence.