Well that is fear rearing its ugly head again. If I had stuck to my target rules of 50, 100, 150 -- meaning if I had stayed in my hedge just a few hours more I would presently be at about 120 pips profit. As GBP/USD is now at 1.9829 = neg 161 pips and EUR/USD is at 1.5109 = 279 pips. =difference = +118 pips. Lesson -- stay on course, calm the fear, stick to profit targets -- or at least have an exit stratedgy where a every 50 pips, a portion of pips are sold to realize profit, while the remainder are held on to reach the the target. Fear and Greed - the two enemies of traders.
So is ignorance and failure to have an open mind that others who have traded a lot longer than you have a lot of useful knowledge that could make you a better trader. You are not hedging anything but trading the EUR/GBP. You are making directional bets on the EUR/GBP long or short and the sooner you understand this relationship the better trader you can become. In other words you are not trading HEDGED positions but DIRECTIONAL positions. I guarantee you that you profit and loss would be almost identical if you traded the EUR/GBP directly with some differences due to position sizes being different on EUR and GBP viz a viz the US$ and the fact you would have one spread alone.
pbw, I apologise. I thought when you were talking about a 100pip stop, you meant a real stop. It seems you are talking about a mental stop on your net position. That doesn't sound like something your broker is going to execute for you in your absence. Another unnecessary risk you are taking? Think about this. What if you had cut the losing position short and let the winning one ride. With an appropriate stop in place you would have been at less risk and would have made loads more profit.
Thanks for the good feed back. First perhaps hedging is not the right word, it may be better to use directional trades for what I am doing. The problem with trying to find direction on one currency is you have a 50% of being right. Buy using EUR/GBP only, you are trying to pick one direction. That can be done on any currency. By picking two currencies that move similar to each other as GBP/USD and EUR/USD, your chance of being correct are dependent on how far the currencies move apart or come closer. Eventually the currencies seem to allign like an elastic band, despite how far apart they go -- they eventually come back in allignment with each other. If they go too far apart, then you need to take your loss and get out. However, usually they seem to come back together where as one currency pair depreciates, the other currency pair appreciates and vice versa. I see the point of elliminating the USD and not paying two different pip spreads, however you are still forced into either going long or short --picking one direction on the EUR/GBP. Would it not be better to pay the two spreads so you have more flexibility in choosing direction? As far as stops, using mental stops are really all one can do. Also by getting out of the loosing currency pair and hoping to continue riding the winning pair -- the problem is the ride can end and reverse taking away your profit fairly quickly at times. When you are on one currency, you still have the problem of being 50% right. I appreciate others constructive inputs. Trying to keep an open mind. Can anyone define what hedging in the forex market is --and why did one person say one cannot hedge in forex?
I think the point you are missing is that by doing the two combined you are picking a direction. It does not make sense to say you prefer the two currencies to avoid having to go long or short when in effect you become long or short EUR/GBP. So you can see how your statement results in an inconsistency. It is not better to pay the two spreads to simply end up synthetically long or short a currency pair that is already traded as a cross pair.
I've decided to demo trade for a bit to experiment. I appreciate everyone's input. Directional trades: Sun March 2, 2008 -- 8:30pm Eastern sell --GBP/USD -- 1.9850 buy-- EUR/USD-- 1.5215 rational --more expensive currency usually takes the lead. GBP/USD is at a strong resistance level. Macd, stoc, and rsi slowly pointing down --perhaps double top forming on a daily. Eur/Usd is at all time high -- however it could still go higher --no indicators pointing down yet... and buy --EUR/GBP -- .7659 this is based on the GBP/USD going down as per above rational...on daily chart EUR/GBP --is at all time high, and mac'd, stochastics and rsi still pointing up Lets see how these trades work out..
Tues March 4 -10:30am GBP/USD -- 1.9875 = neg 25 pips EUR/USD -- 1.5236 =+22 pip total = neg 3 pips EUR/GBP --.7666 = +7 pips
sell --GBP/USD = Short GBP Long USD buy-- EUR/USD = Long EUR Short USD buy --EUR/GBP = Long EUR Short GBP I.e. you went Long EUR Short GBP "twice".
Don't forget that the val on EUR/GBP pip is 2/1 on gbp/usd possy... Once you see how your EUR/USD, GBP/USD hedgings move with EUR/GBP you will be open to a whole new group of ccy pairs.