Hedge trading strategy

hi
I here put my strategy for discussion please all senior give your views...
Strategy..
This is for positional traders..
all have some their individual trading strategy and as per strategy i got buy indication of xyz stock or nifty (As a example) ..
i buy 1 lot at 100 rs .. then i wait for sell signal then if it comes at 110 then i sold 2 lot so i book in buy position and initiate sell position .. now price going up and i got buy signal at 120 then i buy 2 lot means book loss in sell position and initiate new buy position ... this is first scenario ..
mean i book loss in sell position because price up have no limit...
now for second scenario ...
i buy at 100 and price down got sell signal at 90 then i not book loss in my buy position .. i hedge it with far month means sell next month lot.. then if price still going down and got buy signal at 80 ..then i book profit in next month lot and buy 2 lot at 80 so my buy average price at 86.66 so if price come above up to 87 then i book in last 2 lot...and if price going more up and sell signal generate at 90 then i book in 1st buy lot because my average buy price is 86.66 ...now another scenario if price when i bought at 2 lot at 80 and price going down and sell signal generate at 70 then i sell 3 lot of next month for hedging ...
so conclusion of my strategy i book only profit in buy i not book loos in my buy position ,because price reduction is possible up to zero .. i book loss in my sell position because price increment have no limit..
Please all senior pl give your valuable view...

Regards,

Dear Suktam,

I feel it is a sensible strategy. I caution you paper trade this strategy at least for 25 trades to assess its any hidden flaws. Since you are hedging it with next month series only in futures there seems to be no problem with greeks like in option hedging.

Cost averaging is the gem of the strategy because the strategy does not increase the burden of more capital utilization.

I will think over it....asap.:clap:

hi
suri112000
thanks Sir ji.. for Replying
i think one main thing in my strategy u must trade in A group company or in nifty or bank nifty only.. because below A group company some time going very down like HDIL and many other...

Regards...

Suppose you are long at 1000 of one lot current month futures. Think now price drops to 950 and a sell signal is generated. So, sell one lot of next month futures at 950. By now you are already down by 50 points in one lot which was long at 1000. That means your cost remains at 1000. Now price moves up a buy signal is generated at 1000. So, you exit short position for a loss of 50 points. So, the cost basis of initial lot is 1050. No fresh long position is taken since you are long one lot of present month that costing you 1050. Likewise if market is locked in 50 points range, you will be accumulating infinite number of lots which needs enormous capital which a normal trader does not have.

Instead of playing with doubling your lots, you will do better if you hedge the longs with a covered call whenever a sell signal is generated.

Think over it.:thumb:

Search the net for hedged scale trading. Stocks are too dangerous to try it on but it can be done on commodities.
There are a few Singapore traders who specialize in trading like this.

Hi
suri112000
Thanks for discussion
Sir..Ji..
u are true ..we needed more capital in this strategy but i think we give very big amount as a named stop loss because majorly market move both direction ..so i firstly think both side means in sell and buy both side doubling and exit only i am in profit but in this i needed big capital so i think to go with only doubling in buy and take stop loss in sell.. as per your example if i take stop loss then my loss will be 1000-950=50 in buy ans 950-1000=50 in sell so it is 100 when in my strategy it is 50 only..

Sir..ji i have not much knowledge regarding option and in option some premium issue we phase and it not move 1 rs to 1 rs ...may be my knowledge is limited so please give more sense on it .. and all other seniors please also give guidance ...

Regards....