How to Hedge Effectively (With an Example)

Explaining Why This Strategy Works

The strategy that I just outlined is actually designed to ensure victory no matter what the outcome of this trade is (like I said before, hedging is the key to victory).

So, let’s imagine a scenario in where I have $20k to invest in $TRX. I’m not entirely sure which direction it may go, so I have $10k going long and $10k going short.

Let’s Say the Long Trade (Outcome) is What Happens

My short ($100) gets stopped out at 565 sats, which is a loss of -$291 (let’s round it to $300 for slippage + fees from Mex).

I’d take the remaining $9.7k and place it into the long trade at 565 sats.

I stick with my long strategy and then I pull out everything at 600 sats.

Here’s how the profit breakdown would work:

My original entry on the long ($10k) would have appreciated by 9.28%, so that’s +$928 profit there.

I’m -$300 on my original short trade that I have.

I took the remaining $9.7k and threw that in on $TRX at 565 sats. It appreciated +6.19% from that point.

That left me with a total of +$600 from the remaining funds from my short that I was S/L’d, which I then used for a long trade on $TRX on Binance or something. This amounts to a net profit of $300 on the money that was originally apportioned to that short trade (so, I’m left with $10.3k).

If you tally up the spoils here, you get $10.3k+$10.9k, which = $21.2k.

That’s a 6%+ ($1,200) profit that’s all but guaranteed with an appropriate hedging strategy.

That’s why my rule = Always Hedge

That’s what smart traders do.

Source cryptomedication