In classical trading, technical and fundamental analysis is used, the components of which are the construction of patterns and levels (candlestick, graphical analysis). But there are individual strategies that do not use either one or the other. They are based on the mathematical-statistical approach and crazy (in the truest sense of the word) risk. The greater the risk, the greater the profit. And only this fact itself attracts thousands of traders who are not eager to understand the complexities of analysis. The use of these strategies is reminiscent of the “gold rush”: few earn, but they break the whole jackpot. An example of a trading advisor without a single indicator working on the strategies of pyramiding, averaging and locking is Nostradamus.
Pyramiding, hedging, averaging: strategies for those who love excitement
The most popular strategy used in manual tactics and algorithmic trading is the Martingale. Although it is possible to lose a deposit equal to the 60-fold value of the minimum bet within 5-6 transactions, the Martingale is often used (how to use it on the example of binary trading is described here). And now more about other strategies.
- Hedging. Among CIS brokers, this term is positioned as risk insurance, that is, as a strategy to minimize risks. For some reason, in 2008, one of the most authoritative regulators of the USA NFA forbids brokers to allow traders to use these tactics. Regulator’s motivation: a trader cannot assess the risks of potential loss from a strategy, which brokers use when earning from a spread.
Forex hedging is the simultaneous opening of a position in two directions. On the Internet, you can find more general concepts: it is a guarantee to buy out an asset in the future at the current price, opening a long position in one market and a short one in another. There is no clear interpretation of terms in Forex. Not knowing where the price will go, the trader opens two positions at the same time. And closes unprofitable, paying off losses on the spread of the second position. Some nuances:
- in flat hedging in Forex is excluded. Trading is conducted only at the time of high volatility, tactics are optimal at the time of the news release;
- narrow spread is important. The stop loss is set long, because the trader must be prepared for a strong drawdown of the deposit so as not to catch the margin call;
- Hedging is allowed in intraday trading and on short timeframes.
- Lokirovanie. This strategy is similar to hedging (they are even often called so and so), but positions are opened at different levels, whereas in hedging they open at the same time. For example, we open a buy position, wait for the price to go up, open a sell position, forming a lock. In the case of continued growth, profit in one position will cover the loss in another. If the price turns around, already the second position will be profitable, covering the loss first. Locking in Forex is also an insuring tactic, but you can maneuver the lot size by adjusting the ratio of profit and loss.
- Averaging. The method of opening a position in the direction of loss. Suppose a trader takes a long position. The price goes up for a while, but then turns around. As the price falls, the trader continues to open long positions (Forex averaging) in the expectation that the price will still turn up and by the time the first pivot point is reached, they will turn out to be profitable.
- Pyramiding.Martingale with only one difference: during pyramiding, a transaction doubles in the event that the previous transaction brought a profit (in the Martingale doubling after a loss). You can not wait for the closing of the previous transaction if the trend direction is visible. Pyramid is considered a “greedy strategy.” The coefficient of increase in the lot is calculated so that the last transaction in case of a loss does not cover the profit from the past.
All these tactics require quick reaction and preparation of tabular calculation. Without a mathematical approach, they are doomed to failure.