|Introduction (Hedge the Hedge)|
|From JTAWiki, a project by J Talon LLC|
Hedge the Hedge (HH) was originally conceived as an EA which would trade purely based on Price Action. One thing is guaranteed in Forex: no matter when or at what price you place a trade, the price will eventually move either up or down.
If the price moves in the direction of the trade then all we need to do is set a Take Profit point, and close the trade when it is hit.
If the price moves against the direction of the trade then the easiest way out is to set a stop loss, and close the trade at a certain loss. There are many EAs which work on this principle, and in order to make money they rely on the trade direction decision to be correct more often that they get it wrong.
HH uses a different strategy - if the price moves a certain distance from the first trade it will open a second trade in the opposite direction. The distance between the two trades (here called the channel) is set by the user, and the TP distance used for the first trade is set at a similar distance from the second trade. This does mean that the EA will not work with brokers who do not allow hedging.
The lot size of the first trade can be fixed, or automatically calculated using Money Management. The lot size of subsequent trades is calculated to be of a sufficient size to cover the loss incurred on the first trade and also guarantee an overall profit i.e. it ensures that the Break Even point of all trades lies within the TP point.
Should the price reverse again before the TP is hit for the second trade, HH will open a third trade in the same direction as the first if the opposite channel boundary is reached, setting the TP point and lot size in the same manner as trade #2. In this way every time the channel boundary is hit HH will open a bigger trade in the opposite direction - in effect it is hedging the hedge trade - which is where the name came from.
If you have a more hands on approach when running EAs, you also have the option of manually adding trades to the basket. Note: It is not recommended that you close individual trades manually - it can cause problems placing the channel.
The basket of trades will close when the Take Profit point has been hit, but you also have the choice of increasing the profits using Profit Trailing or a Trailing Stop. Take Profit points are normally kept internally, but you may use the Stealth Mode to send the actual or a dummy TP to the broker in case of loss of internet connection.
HH will give you visual feedback information via a display overlay, as well as lines to show BE and TP points and buttons for manual trade execution. You can view the main details of every open chart by using the JTA Dashboard. It will also save statistics in order to allow you to create an equity chart.
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