I just updated the hedging chart with explanation at my website: https://enjoytherideworld.odoo.com/hedging and it’s now showing us into a profit on the hedge as stocks move lower. The trade is a month and a half old, and, as usual, I will let the trade run its course until the next buy signal marked with the dotted line on the chart.
Not enough is said in trading about attacking risk. Risk can be positive (the risk of making money) and negative ( the risk of losing money). Hedging to me is nothing more than attacking the negative risk of owning stocks or etfs long by going after the positive risk of a hedge trade. The two roughly offset each other and life is a little more serene in trading land.
Attacking risk can take on other forms as well. If you insist on owning long-term bonds or bond etfs, consider timing out of the long end of the maturities into the very short end instruments like money market funds or T-Bills. If you own an etf you can attack the risk of a down move by timing out of the position on every down signal and buying it back on every up signals. You could attack SOME risk in a stock by selling covered calls over your stock position (although I don’t like that it limits your upside profits). You could also consider buying puts on the stock to protect some catastrophic risk. How about attacking long-term risk by adding additional strategies that may trade in shorter-term time frames, so that one strategy could be drawing down the equity while another strategy is making equity highs?
Analyze your current strategy’s weaknesses and what types of market conditions create the most problems for you and design some strategy to attack that very risk. Your trading ride will be a lot more enjoyable! ETR everyone!
These articles and blog are being so good Tom, thank you!
Regarding the hedge:
* when is a good point to exit for a loss (if it's a false signal): previous swing high, highest indicator, or much tighter stop inside the channels?
* and for a profit (if it runs for a while) to keep some profit? Would this signal be before the buy signal (dotted line) you mentioned?