What Is Hedging?
Hedging is essentially placing a bet in both directions of the market. You are placing a buy and a sell order on the same currency. Therefore, you could potentially profit from movement in either direction. If done properly, hedging can be a way to maximize profits and minimize risk from big market moves.
Pending Orders
One very popular way to implement hedging in FOREX trading is to use pending orders. With pending orders, you can place an order that will be filled when the market price reaches a certain level. You can place a pending order at a price above or below the current market price. Pending orders and hedging can be used in several other FOREX trading strategies.
Range Trading
One strategy that implements both hedging and pending orders involves a daily range method. With this method, you need a currency with a relatively small daily range. The currency needs to move in a relatively straight pattern across the chart. You want it to move up and then back down within a certain range consistently.
Figure out the ranges in which it normally reverses direction. Place a pending buy order below the market price on the point where it tends to reverse, going back toward the top of the range. Place a sell order at the top of the range. This way, you can profit from the trends of the currency.
Breakout Method
Another way to utilize hedging and pending orders is to use a breakout method. This type of strategy works better on a currency that tends to trend instead of range. If the market is going rather sideways at the moment, this can be a good time to implement this strategy. Place a pending buy order above the market and a pending sell order below the market. Then, when the market chooses a direction, you can benefit from the move. You will be covered if it jumps up or plummets suddenly.
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