Option hedging: more profit, less loss
- VFX Blog
Is the market going against the option? No problems. We use hedging strategy and reduce the loss.
Let's start with a definition. HEDGING - opening a reverse trade to reduce the loss on the current binary option before expiration. Works on any technical OTC strategies of the Pocket Option broker. More detailed:
#1. Open option.
We open a deal on technical indicators and confirmation from vfxAlert. Signal from two standard instruments, we do not change the settings:
- Donchian Channel (DC). Options on rollbacks from the channel borders or breakdown of the center line. We trade only on the channel width of 20-30 points.
- MACD. This indicator works both as a trend and as an oscillator instrument, so it will be the final signal to open an option.
- Call option (HIGHER). Rollback of the price from the lower border of Doncian or upward breakdown of the middle line of the channel. Green MACD above the zero level.
- Put option (LOWER). Opposite conditions: a rollback from the upper border or downward breakdown of the middle channel. Red MACD is below zero.
#3. More hedging strategy in options.
At the previous step, the hedging option was opened "on the market". Strong pullback, you need to act quickly. But, there are two options to determine in advance where the hedging price level will be:
1. Opening price of the first option. When a reversal is followed by a breakdown of the option start level: this is often a signal of a trend change and you can begin to return the loss.
2. The hedging level is carried over with a strong trend. Set at the closing price of the last candle. On a rollback, we immediately open a reverse option.
On scalping for 5-10 minutes, most hedge options will open on the market or above/below the opening price. Trending also works. Looking at an example:
Good results on cross pairs and periods of high volatility.
Recommendations about use …
- Hedging Pocket Option binary strategy works on all timeframes. OTC quotes are recommended, they have a higher percentage of profit. We remember about money management. No more than 10% of the current option: 5% on the first and 5% on the hedge option;
- Hedg expiration may be greater than the closing of the first option. Look at the situation: if the reverse trend is confirmed, you can increase the value by 2-3 candles of the timeframe for reliability. See an example in the video;
- When hedging works, we do not open new options!
Binary option profit is always less than 100%. To compensate for the loss, you need the following TWO profits.
On hedging, the loss on pocket option binary options is only 8-10%. Even on periods of 2-3 hedge transactions, you can close the loss with profit with ONE option.