Puru Saxena

Puru Saxena

22-07-2022

10:23

Thread on hedging - I hedge my growth stock portfolio by shorting $ARKK and my approach is trend *following*. I use a medium-term ema as my primary trend filter and only hedge if price is below my filter AND 5ema (dotted line on chart) < 7ema (black line on chart)...

As you can see from the above chart, this trend following approach keeps me hedged during short-term downtrends and when 5ema > 7ema, my portfolio is no longer hedged i.e. I'm able to participate in the uptrends This simple method doesn't require any guess work or analysis...

...it doesn't involve any magic or crystal ball, and when my portfolio is hedged during every downtrend, it isn't me trying to be "cute" or "clever", my portfolio truly is hedged because of my trend following approach. This method is simple and easy to execute as long as...

...an investor/trader stays calm/unemotional and takes every signal to hedge and remove the hedge. For clarification, around 60% of hedging trades are closed with small losses but during bear-markets and crashes, the remaining hedging trades pay off nicely and then some....

My backtesting has revealed that over the long-term (several years), this hedging strategy has been mildly profitable which is what one can hope from hedging i.e. buying insurance, which usually costs money. During uptrends, when price is trading above my primary trend filter..

...I simply ignore the 5ema/7ema cross and do NOT hedge my portfolio. During primary uptrends, this trend following hedging strategy keeps an investor/trader "long" (see attached $ARKK chart from April 2020-Feb 2021) and he or she is able to profit from the advance...

Hopefully, you can now see how I hedge my portfolio and when I just happen to be hedged during downtrends, am truly hedged. Credit goes to @basso_tom who many years ago, taught me how to hedge using the trend following approach, and am now passing on the knowledge. THE END.



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