Hedging Strategy help.

stewie

Working on a strategy where I trade high/low BO with early expiration hedged against a spot forex trade.
The strategy plan is as follows:
1. Hedge BO high/low with spot FX, set stop loss at max profit of BO trade.
2. If FX trade goes into profit, close or scale out. Leave BO trade open so if price reverses it could move into profit.
3. If FX trade moves into loss, close FX trade and BO via early expiration.
Other ideas include: Hedging the BO trade at a 2:1 profit margin and placing hedges in both directions.
My issue is trying to work out the lot size of the BO position so can I figure out the lot size and stop loss of the FX trade.
Is there a calculation that would allow to figure out the lot size of the BO position and figure out where the maximum profit level would be?
I would grateful for any help.

The_Geek_MH

that's tricky, how are you going to execute the trades quick enough to get a good buy so spreads and slippage don't kill you?

stewie

I have to see but plan to trade a daily BO and hopefully slippage won't be as significant as if I were trading a 5 minute. My problem is working out the FX lot size and where to place the stop. On Nadex, it's range is between 100 points so I can figure where I need to place my stop loss. Only thing is with Nadex the price does not correlate the the FX price.

Granithris

As far as I know, hedging is one of the most popular and demanded ways to protect negative positions in the market. And in fact, it can really help. I think that the main problem is that not all traders can use this strategy correctly, because it also has its own nuances and you need to be able to correctly determine the level at which to perform additional trades, while intelligently determining the amount for the deal, the level of Take Profit and stop loss. So choose what you really understand and in what you perfectly orientate. It is not for nothing that they say that there are so many traders - so many strategies. And that's why you need to navigate in what you're doing. The market does not like closeness and unreasonableness.