I just got to reading this thread, and its quite interesting. However, I think it started out as on thing, and has veered of into another. The original posting sounded like divergence trading while it looks like it has evolved to hedging of trades.
You have to think in terms of portfolio management. This style of trading is positional and swing trading typically. Stops are not used. If you are of the belief that markets are cyclical all you need is for TIME to go by.
1) buys me TIME to be right on my original position. 2) reduces my risk on my original position (this is my stop)
You have to stay small with your position sizing, this is key.
TheCyclist posted: If your position sizing is right those don't really matter.
I trade almost exactly like this (but I have soft stops), and yet I still get people asking me why there are months where I don't trade at all, and when I trade, how I hold positions for weeks.
I think with all the white noise and misinformation online, its hard for anyone trying to get into trading to not over leverage, over trade, or to just simply stay away from the market when its just simply unfavourable. Its sad to say, but I think a lot of it has to do with the brokers, and also IBs posing as mentors out there that encourage hi frequency, hi leverage trading.
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