Most Forex traders have a strategy or two that helps them win trades.
Many traders use Expert Advisors, software or robots to assist them in making trading decisions. Others watch the markets regularly and make trades based on a fundamental knowledge of candlesticks, line graphs, and other indicators. One extremely simple strategy that any trader can use is the Hedge and Hold Strategy.
The Hedge and Hold Strategy is very simple. Wherever the chart is currently sitting, the trader places a simultaneous buy and sell trade. A take profit is placed at an interval that the trader is comfortable with, but no stop loss is placed. On an average day, the market will fluctuate up and down and make the trader a few successful trades…but not always.
As a trader progresses using the Hedge and Hold Strategy, some trades will not execute. The trades which are left open may execute in the next few days, weeks or months. One of the key aspects to using the Hedge and Hold successfully is patience. Eventually the market will reverse and trades will close “in the money.”
The risky side of using this strategy is, ensuring the trades are small enough that the trader’s account isn’t wiped out with a sudden upswing or downturn in the market. Martin Gila, from GilaForex recommends trading microlots with this strategy. Conservatively, trading .01 of a lot for every $500 in your trading account, will minimize the risk of market volatility.
If traders adopt an investment mindset, reaching their monthly goals becomes very attainable. This strategy was first tested using a $400 account with a goal of 25% Return on Investment (ROI) per month. The 25% ROI, or $100 per month goal was tested over a four month period and showed the following results:
Month 1: $122.71 (30% ROI)
Month 2: $117.54 (29% ROI)
Month 3: $94.76 (23% ROI)
Month 4: $224.33 (56% ROI)
The original $400 account has grown to $959 in four months. This certainly is not a massive amount of money, but the test looks positive. The important point to remember is, the account is very small. If a trader used this strategy on an account that started at $4,000 or $40,000, the results are proportionately larger.
This strategy is excellent for part-time traders as you can set trades in the morning and evening and allow them to execute during the day. As some trades don’t execute immediately, it leaves you in a position to take advantage of volatile markets. For example, if you have five open buy trades and the market suddenly surges upward, it can trigger the buys and you have a good trading day.
The downside of this strategy is, there are always open trades. If traders place too large a trade, market movements can wipe out their account.
If you’re trading the EUR/USD pair with a .02 lot size, setting your take profit at approximately 100 pips, you’ll average approximately $2 per trade. In a typical month, you may average 100 trades for a profit of $200. But it depends on your perspective of what your monthly profit is. Because you also have open trades, your account increase will be less than your profit. For example, your account balance could be $1,000, but you have $150 in open trades, so the actual equity in your account will be $850 ($1000 – $150 = $850).
The advantage of the Hedge and Hold Strategy is you don’t lose money with stop losses. The disadvantage is, you’ll be holding open trades all the time. You may have an open trade with a current loss of $50, that won’t execute for several months. It’s expected that the trade will eventually be profitable, but the trader has to make the personal decision whether their risk tolerance allows a $2 trade to hold out at -$50.
Overall, the Hedge and Hold strategy is profitable, if traders use an investment mindset and are satisfied with conservative results. Aggressive traders may find this strategy is too long-term. The important question that traders have to ask themselves is, does this strategy make sense for them.