freeus,
"hedging" is just what you thought: protecting against "losses" (stock moves that are against your positions). Many people use options for this, but I rarely do. Today, instead of selling AMZN low, I "hedged" by buying LCOS, which was further off the day's high than YHOO. Then if the internet/AMZN stocks rose (and they did) I wouldn't (and didn't) lose much $$. Fortunately, I then sold LCOS near its high & used the proceeds to short more AMZN, also near its high. I could have accomplished the same by just covering AMZN and shorting more later, but I didn't want to lose out in case all these stocks went lower without any blips (In that case I could have covered AMZN and kept the LCOS long). The best way of "hedging" overall, is to have a diversified portfolio: different sectors, different market caps, and some short positions in addition to long.
It worked out great for me today, too bad it's really not this easy!--many lessons along the way.
Good luck, Monty |
