What exactly is a "hedge" and do I need one?
By
Zac Mannes
đ¶If there's a bustle in your hedgerow, don't be alarmed now
It's just a spring clean for the May queen
Yes, there are two paths you can go by, but in the long run
There's still time to change the road you're onđ¶
What exactly is a "hedge" and do I need one?
Consider the following:
1) What is the most probable move and what is the greatest risk?
2) If we get said probable move what will my portfolio(s) look like?
3) How will 2âïžmake me feel? Will I be emotional and have decisions impaired?
4) What should I do the avoid negative #3s?
Let's go thru those.
The most probable move is that we are setting up for c-waves down in some Fibonacci proportions to the moves down at the end of January. There is room for a few Micro "squiggle" attempts higher in the short term but the risk-skew is down. This is not "the greatest risk" though imo. The greatest RISK is that the c-waves projected extend or turn into more. So this then becomes a question of relying on the probable support region to hold vs making some sort of adjustments in case it might not. We know the ideal and standard regions of support for the probable moves so #2 should be relatively straightforward to calculate... unless one is very heavily laden with complex options and even then if you are using complex options you should also be able to calculate if not you should probably not be using them...
Question 3 is more nuanced and really requires some truthful soul searching. We can all pretend to be stoic observers but in the moment especially if a subwaves extends a bit more than normal that can go out the window. It can be easier to be more objective when you have some dry powder and also start hearing the limit fill chimes of orders placed by your previous calm collected self.
So for some hedging might be specific offsetting trades with other vehicles, but for many especially some of our L/T mining stocks and even GDX itself it can be just tightening a few more stops and setting a few limit orders to add those very shares back. There are many right answers, it is what fits best in your trading.
The important thing is YOUR plan and sticking to it.
