Once I am ready to resume trading. I close the trade that is against the direction of the next trade setup that I see. So the trade that I may close out could be a huge loss, or it could be a huge profit. Either way, the pips do not matter, because the trade was hedged and basically, you did not lose or profit from this trade at all.
Actually you do lose the Spread cost, however, this method works well for me because it allows me to take a break any time I want and gives me extra time to think about the next trade setup. You may say, “what is the point of doing this, Why not just close the 1st trade at a loss and enter into the market once you are ready to trade?”
My answer is: The market Ranges, consolidates, and often retraces to significant levels. Understanding the market behavior will eliminate the hastiness of newbie traders. They often close profitable trades too soon, hold on to losing trades too long and often change their direction as often as a Traffic Signal.
When you are hedged, you can not win or loss, ultimately resulting in an unemotional trading discretion allowing the trader to think clearer and wait for the appropriate moment to close the hedge.
Hedging is basically a ” Time Out “, which all scalpers need occasionally.
