1st of March, 2020

Remember the date when I answered the question you did not know you had.

How I did it was trading the question:

(What’s the answer to) “The Life, The Universe and Everything” and simplified to “Trading”.

It took Deep Mind a decade to come up with the answer.

Would had gone faster if only I had more rest.

So, the answer to trading is that it does not start with levels or percentages.

It starts with hedging. Once you have hedging figured out, you have everything figured out (this one took me 3 years).

There are 3 kinds of hedges

  1. Roll out hedge
  2. Proactive hedge
  3. Reactive hedge

#1

Refer back to my “A Working Market Model” article to understand the basis of the roll out hedge, which I called the Level Of Interest. The idea is to have a field of moratorium beyond the level, which is either the LOI or its shift by n times Fluctuation Maximum, where the hedge would get initiated. To make up for lost ground, the hedge’s size would be rather large – I would suggest 2x the holding size. The Exit level is a hit or getting very close to the next extension-limit level. Rinse and repeat: place the pending roll out before closing down the current hedge. This kind of hedging requires knowing the instrument’s fluctuation size.

#2

Proactive hedging happens with the consideration of the Hourly music (refer to the market model again) and a print of an RSI extreme in the wrong direction. Proactive hedging calls should be held back based upon failing the LOI. Hourly RSI2 hook-back could be utilized for the purpose. Size suggestion: 150% of the net holdings in the wrong direction and exits are the ones mentioned under #1 as well as the trending exits (thin red lines).

I would suggest using a trail stop at Mr. Maroon after a 5+ pip hourly print separation from it.

#3

Reactive hedge is a reaction to margin percent dropping to low. Refer to my Ratio-hedging related articles on the subject.

Over leveraging / miscalculation should bring on this Equal size hedge.

Once the apples are balanced out with the anti apples, after a deep breath you can start trading in the right direction with the right entries and exits like the whole burden did not even exist, just don’t forget to remove those positions’ targets and stops and make them exempt from auto cropping / trailing etc.

You must leave this entanglement on until you encounter an LOI, where you can take off one side – just don’t forget to put out the pending roll out hedge first (with its suggested size).

No pictures for this one.

Roll out hedge & levels