"You mention in your commentary that you opened a DAX short position as a hedge. This is very interesting to me because I recently opened an EFAE short position as a hedge.

"I would be greatly interested in understanding your decision making process regarding hedges. When do you decide to open a hedge short? Is it when things have gone too far to the upside or do you do it after the first downward dynamic? Do you tend to neutralize your entire long position or just a portion of it. I am sure that you do not follow some exact formula however I would be very interested in learning your technique about when hedge index shorts should be opened to offset equity long positions."

David Fuller's view Well done for anticipating the market correction and I am certain that your questions are of general interest.

All of my trades and investments are reported in the Subscriber's Area, as they occur, and can be reviewed with a Search (see link upper-left) under 'My personal'. I opened hedge shorts in German DAX and US S&P500 futures on 22nd April. Leading uptrends were overstretched relative to their 200-day MAs; momentum was waning and downward dynamics were beginning to appear. The main concern was sovereign debt contagion, which I also mentioned again on 26th April, in my last update before my short holiday last week.


I do open hedge shorts from time to time when I feel that stock markets are overstretched and due for a reaction or perhaps a somewhat bigger correction. I prefer this tactic to selling core positions in my personal long-term investment portfolio. For a timing signal, I usually wait for a loss of upside momentum and/or a downward dynamic. I will not hedge my entire portfolio in what I think is a cyclical bull trend, characterised by most indices trading to the left of rising 200-day MAs. My temporary short hedges in index futures, via spread-bets, are attempts to make some short-term trading profits during a likely period of profit erosion in my long-term investment positions.