While this may sound foreign to ears hearing it for the first time, logic and common sense dictate as such. This is where analysis comes in, hopefully offering traders an advantage.
And further, this is where risk management plays an even more important role, just as we saw in our Traits of Successful Traders research in which The Number One Mistake Forex Traders Make was found to be sloppy risk management. What is the USD Hedge? The USD hedge is a strategy that can be utilized in situations in which we know the US Dollar will probably see some volatility. A good example of such an environment is Non-Farm Payrolls.
With The United States reporting the number of new non-farm jobs added, quick and violent moves can transpire in the US Dollar, and as traders this is something we might be able to take advantage of. This number is issued on the 13 th of the month approximately In all of these situations — it is absolutely impossible to predict what is going to happen.
But once again, as a trader — it is not our job to predict. Hedging has a dirty connotation in the Forex market. In the Forex market, hedging is often thought of as going long and short on the same pair at the same time.
Advantageous risk-reward ratios are an absolute necessity in the strategy and without them — the USD hedge will not work properly. The trader looks to buy the dollar in a pair, using a 1-to-2 risk reward ratio; and then the trader looks to sell the dollar in a pair, also using a 1-to-2 risk to reward ratio.
The risk and reward amounts from each setup need to be roughly equal. Then, when the US dollar begins its movement, the objective is for one trade to hit its stop, and the other to move to its profit target. But because the trader is making two times the amount on the winner than they lose on the other position, they can net a profit simply by looking to utilize win-one, lose-one logic.
There are numerous ways to buy or sell US dollars, and theoretically traders could look to utilize the strategy on any of them. But to give ourselves the best chances of success, we can integrate some of the aforementioned analysis to try to make the strategy as optimal as possible. There are quite a few ways to decide how to do this. Personally, I prefer price action.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. The US Dollar Hedge. Price action and Macro. Trading is about risk management, and looking to focus on the factors that we know. This strategy focuses on capitalizing on US Dollar volatility, and using risk management to offer potentially advantageous setups in the market.
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