It seems to me the greatest benefit of this trading strategy is the emotional aspect.
Since emotions tend to be the trader's greatest obstacle to becoming profitable.
How many trades have you let go by because you just experienced a few nasty stops?
It allows you to be in the market but in a neutral position where you can make clear decisions.
You can use it to protect profits or stay in a trade longer for a better setup.
Say there was a 80 pip run on a long position, you could then box in the position by adding a short position so none of the profits would go away on the anticipated pullback.
Or, say the market goes against you but you still believe you are right but don't want to go through the pain of seeing such a large drawdown. You can box in the position and wait patiently for a nice setup. It's just easier on the emotions than taking the loss and trying to get back in. Usually after a few stops people get disgusted and remove whatever they were trading off their screen and miss a great setup later in the day. This would keep you in and monitoring with a cool head.
The only "techical" benefit I can see to trading this way is with stocks and the downtick rule. When everyone is trying to short it's usually difficult to get the price you want. Basically you eliminate the downtick rule problems.
You could argue higher commisions but it may actually result in less trades since you would most likely be more emotinally stable. The big problem with this method is making mistakes, keeping track of what postions need to be boxed and what need to be unboxed.
Hedging with options is more suited for swing/position trading since you have the added cost of spreads and premiums and of course time decay.
For anyone that doubts using this method, I say just try it. See how much more relaxed you are when taking your trades, taking your losses, and re-entering setups.
Since emotions tend to be the trader's greatest obstacle to becoming profitable.
How many trades have you let go by because you just experienced a few nasty stops?
It allows you to be in the market but in a neutral position where you can make clear decisions.
You can use it to protect profits or stay in a trade longer for a better setup.
Say there was a 80 pip run on a long position, you could then box in the position by adding a short position so none of the profits would go away on the anticipated pullback.
Or, say the market goes against you but you still believe you are right but don't want to go through the pain of seeing such a large drawdown. You can box in the position and wait patiently for a nice setup. It's just easier on the emotions than taking the loss and trying to get back in. Usually after a few stops people get disgusted and remove whatever they were trading off their screen and miss a great setup later in the day. This would keep you in and monitoring with a cool head.
The only "techical" benefit I can see to trading this way is with stocks and the downtick rule. When everyone is trying to short it's usually difficult to get the price you want. Basically you eliminate the downtick rule problems.
You could argue higher commisions but it may actually result in less trades since you would most likely be more emotinally stable. The big problem with this method is making mistakes, keeping track of what postions need to be boxed and what need to be unboxed.
Hedging with options is more suited for swing/position trading since you have the added cost of spreads and premiums and of course time decay.
For anyone that doubts using this method, I say just try it. See how much more relaxed you are when taking your trades, taking your losses, and re-entering setups.
