Thursday, July 5, 2012

Do you need to hedge your trades?

Nivas asks: "You have always advocated to go with the trend does this mean one can take unhedged positions. I always tend to buy some puts to hedge my longs even on a uptrend. Willing to change my strategy. Your thoughts."

My Notes:

A layman reading the above comments will feel that an 'unhedged' position is a terrible place to be in. In reality, all positions should be straight forward, in the direction of the signal, without any hedge. When the trader gets a signal, he should just take it. 

We should manage our risk by position sizing. If we want to take less risk, decrease your quantity. If the signal is to buy, what is the purpose of taking a short position through puts, for example?


Prashant said...

adding to ur view, hedging right at the point of taking a position shows lack of conviction, courage and confidence. it will only decrease ur profits. hedging is only a profit protection tool and can't be a routine act. if not sure stay out.

Dinesh said...

Dear Sir,
If I understood correctly, you are saying if we have a clear signal, we do not need to hedge our positions. If there is a need to hedge, that means we are not sure. If we are not sure, we should desist from making positions.

Neeraj Malhotra said...

My hedging strategy (portfolio balancing is my preferred term) will be to take mix of long and short positions in different stocks when market is flat/sideways.

Though I cannot define a market as flat upfront, its based on number of stocks matching the long and short criteria. If most of the stocks are falling in long criteria then I will only take long positions and vice - versa for shorts.

However, if the number of stocks in long and short category are nearly equal then I would take mixed positions e.g. 2 longs and 1 short.

Thanks & Regards,

Shivpratap Singh said...

Dear Sir,

Have been following your Blog since long time, but this is the first time that i am posting my comment, thought it might help

I am an intraday trader mostly Nifty Futures and have been sincerely following the market since my college days but it has been just a year that i understood technical Analysis as now i read lots of books (I think i have read all 3 Jesse Levermore's books and many books on Technical Analysis).When i started trading i made 12 consecutive profits worth 1000 each on average following momentum oscillators. I once made a mistake that i carried my position next day and lost 5000 in one trading session. I then tried trading with two lots and again carried my position next day to loose 9000. I know your rule to not carry loosing position but i was of the opinion that market was in the uptrend and hence i would make up but could not stand seeing Nifty futures giving loss of 100 points, I was laughing at myself when i saw market reverse the same day i booked loss. My problem is that now it has been two weeks and i dont feel confident enough to take the positions... Feels like every trade will be a loss.

Dinesh Rishi said...


In some of your posts you have mentioned that you trade only one side of market.

Plz explain something

"about one side trading"