scalping using hedging

The stategy:
look for the cross on MACD both settings, try to confirm with higher time frames. Price action should be a good distance from the 200ema. For a short position (my favorite since tops tend to form more quickly than bottoms) place a sell order (use a limit if that would get a better entry).

Then place a buy limit instead of a stop just above the high that occurred in concurrence with the MACD crosses.

The idea is that if indeed this wasn't the actual turning point and there is still a little more upside to go before the price action turns down for real, the upside can be turned into a small profit using a hedge, instead of a loss using a stop. The important thing is to get out of the buy position right away if it does trigger. As soon as there is any sign of the buying slowing. Could be 5 pips, 10 pips, whatever. Don't want to get caught in the buy position when it does turn down. Very often this little last spurt of buying will take place, a new high is created and there is very obvious divergence in the MACD, especially the default setting. A new short position can be taken at this point with 2 buy limits just above the high that was just created. This can be repeated a few times. But eventually the turn down comes. Checking higher time frames for confirmation of a down turn before even entering this trade is important. After practicing a few times it gets easier to identify this set up.

Benefits are, losses are turned into gains. And several positions are profitable on one set up. Losses are minimized if the unforeseen twist of fate derails the whole thing. The losses are limited to simply the differences between the long and short positions and the cost of spreads.

The more the trade goes against the original short and runs wild high temporarily the more of a profit from the hedged long, and when it turns the shorts are all good. Even if it is a retracement and not a reversal and doesn't retrace all the way to original short position, it can still be profitable overall.

The extra added benefit and for me a very significant benefit is the noticeable lack of fear and stress by having the hedges in place. No run away losses. In fact those so called losses are actually now profits.

The best thing of course is to hit it on the head, get it perfect, and enter short at the very top. Happens every now and then. But when it doesn't, hedging is great.

The following charts show 1st the original set up and then how it played out with the brief spurt of additional buying just before the final turn down and how the hedged buy limit acted to turn a potential loss into a profit.