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In short
In the EA world hedging usually means something simple: when a position goes into loss, the program opens an opposite position of equal size. From then on gains and losses of both sides cancel out and the open loss stays where it is.
That looks like a stop, but it is not one. The loss is only frozen. Whether it gets smaller or larger is decided only when the cover is lifted again.
The strategy as a schematic
A drawn price path, no market data. First the case where the rule works, then the same routine when it fails.
- Closed
- ±0 pips
- Open
- –
- Open volume
- –
Schematic, no market data: a drawn price path, results in pips weighted to 0.10 lots. Not a backtest and no statement about any real EA.
How the strategy trades
- Open a position, usually without a stop.
- If it falls a fixed amount into loss, open an opposite position of the same size (lock).
- While both are open, the open loss hardly changes.
- On a bounce, close the lock (unlock), hoping the first position recovers.
- The first position closes at its target or at a loss limit.
Where the risk sits
A lock caps the open loss only while it is in place. It does not end it. At some point one of the two sides has to be closed, and exactly that decision carries the risk.
If the lock is lifted too early and price keeps going, the first position's loss grows again. Some EAs then lock again, with more positions and more costs.
Both positions pay overnight swap, usually net negative across the two. Locks held for long get more expensive. Not every broker allows opposite positions on the same account (FIFO rule in the US).
When it works, when it fails
Tends to work when …
- A pullback that turns into a recovery after the lock.
- Short lock phases before swap costs add up.
Tends to fail when …
- Unlocking on a short bounce after which price keeps going.
- Long sideways phases under a lock that only cost swap.
- Repeated locking and unlocking in which losses pile up.
How to recognise it in an EA
Traces in the trade log of a live account, whatever the vendor calls the EA.
- Buy and sell positions of the same size open at the same time on the same symbol.
- Positions without a stop that stay open for days or weeks.
- Noticeable swap costs in the trade log.
- Equity stays flat below the balance for a long time without trades being closed.
Typical settings
| Setting | Typical | Effect |
|---|---|---|
| Lock trigger | e.g. 30 pips in loss | When the cover is opened. |
| Lock size | 100 % of the position | Below that only partly covered. |
| Unlock rule | bounce of X pips or a signal | The decisive and hardest rule. |
| Loss limit | for the first position or the account | Without a limit the loss is open. |
Common ranges from EA manuals and set files, not a recommendation.
EAs in our tests built this way
No EA in our tests is explicitly tagged with this design yet. Many EAs combine it with other mechanics; the trade log usually shows it sooner than the product description. All EA reviews →
Related strategies
- Zone recoveryOpens alternating, larger opposite positions at the edges of a zone until price leaves it.
- Pairs tradingTrades the gap between two instruments that usually move alike and bets that it returns to normal.
- MartingaleDoubles the lot after every loss so that one win recovers all earlier losses.
All strategies →All designs compared: EA strategies explained →
Frequently asked questions
Does hedging protect against losses?
What is the difference between hedging and zone recovery?
Does every broker allow hedging?
Video: the strategy in under a minute
The same animation as a video with subtitles, for those who prefer to watch.