The market moves fast. News drops, sectors heat up, momentum shifts, and the best traders always seem one step ahead.
It’s not luck…
They’re using a simple approach that gives them more control, more confidence, and the ability to ride out volatility while others get shaken out.
One of those strategies is the Monday Setup. If you’re not already using it, listen up!
Every Monday, the market kicks back into gear after a weekend of rest… And that reset creates a unique opportunity!
As the first session of the week gets started, there’s a specific pattern we look for, one that appears again and again with uncanny consistency.
And it has delivered some incredible wins!
Just look at last Monday…
Biopharma Soligenix (NASDAQ) gained an incredible 144%* after announcing a promising FDA designation for one of its treatments.
These are the kinds of morning spikes we hunt for every Monday!
Want to learn how to spot them for yourself?
Watch the video below for the full trade breakdown and strategy tutorial for my Monday Setup.
Besides the Monday Setup and the other high-quality, high-probability patterns I teach, I’ve got another tool in my arsenal…
It helps me stay in the game when volatility spikes and while everyone else is scrambling.
I’ve said it before, and I’ll say it again: Day trading is my hedge against bad days in the overall market.
Those quick trades protect the longer-term investments in my portfolio. And that’s the beauty of hedging… It’s not just about making money, it’s about keeping it.
Hedging is one of the most powerful risk-management tools out there, and it’s something every serious trader should understand.
If you’re holding positions in volatile markets without some form of hedge, you’re leaving your capital wide open. And in this game, capital preservation is king.
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What Is Hedging in Trading?
At its core, hedging is a risk management strategy. Think of it as buying insurance for your trades or portfolio.
Of course, you don’t expect your car insurance to make you money, but you’re sure glad you have it when things go wrong. The same goes for hedging.
It’s not about turning a hedge into a profit machine. It’s about limiting your downside so you can stay in the battle long enough to catch the next big move.
Why Traders Hedge
Markets move fast, sometimes off a single headline, an earnings surprise, or geopolitical flare-up.
A well-placed hedge gives you breathing room. It buys you time to react without being forced out of a good position.
Hedges can be especially useful when:
- You’re holding a stock overnight into an uncertain market.
- A big earnings report or macro event is coming.
- The overall market looks shaky, but you don’t want to sell.
- You’re managing a larger portfolio and want to reduce systematic risk.
Common Hedging Strategies
There’s no one-size-fits-all hedge. The right tool depends on your position, time frame, and risk tolerance. But here are some of the most widely used strategies:
Protective Puts:
This is one of the most straightforward hedges out there…
If you own a stock, you can buy a put option that gives you the right to sell at a certain price even if the stock collapses.
For example, let’s say you’re long 100 shares of Stock XYZ at $100 and you buy a $95 put. If the stock falls to $85, you still have the right to sell the stock at $95, which acts as insurance and limits your losses.
Protective puts are especially useful for long-term investors or when you’re holding through earnings.
The only drawback is that options premiums can get expensive, and they eat into your profits.
Inverse ETFs:
Inverse ETFs are designed to rise when the market, or a stock or sector it’s affiliated with, falls. Some are even leveraged two or three times over.
Imagine you’re holding a basket of tech stocks and you’re worried about the short-term downside. Buying shares of SQQQ, the triple-leveraged inverse Nasdaq ETF, could provide quick protection.
Just remember, these are short-term tools only. Hold them too long, and the time decay will work against you.
Check out my blog post to learn more about Inverse ETFs.
Covered Calls:
These can soften the impact of minor pullbacks.
This involves selling a call option against stock you already own. Doing so generates a premium that cushions small losses if the stock stalls or dips.
For instance, if you’re long 100 shares of Stock XYZ at $50 and sell a $55 call for a $1 premium, you keep that $1 no matter which direction the stock moves.
Covered calls are a great way to generate income in sideways markets, but remember that you’re capping your upside. If XYZ surges to $60, you’ll have to sell your shares at $55 (the strike price of the call), and you’ll miss out on the full move.
Sector / Correlated Hedges:
Sector or correlated hedges let you offset your exposure with a related asset.
Imagine you own airline stocks, but oil prices are surging. Since rising oil costs can hurt airlines, you might short oil stocks or buy puts on them to balance your risk.
This is an effective way to manage sector-specific exposure, though keep in mind correlations aren’t always perfect… Your hedge may not completely cover the downside of the stock you own.
Hedging Mistakes to Avoid
Just because you hedge doesn’t mean you’re safe. Bad hedges can be worse than none at all.
Over-hedging: This eliminates your risk and your reward. Now your capital’s tied up with no real protection.
No plan: Randomly buying puts or inverse ETFs without clear reasoning.
Holding leveraged ETFs too long: These are short-term tools, not investments.
Chasing hedges after a big move: If the market’s already dropped 5%, you’re too late.
Always know why you’re hedging, how long you need it, and what exactly you’re protecting.
My Final Thoughts…
Hedging is a tool, not a crutch…
It isn’t about fear, it’s about control.
It’s how you stay in the game when volatility heats up, how you keep holding strong positions through shaky markets, and how you protect your capital while still looking for opportunities to attack.
But, but, but… Hedging only works if you know why you’re doing it.
Use hedges as part of a disciplined plan, not as a panic button.
Because trading isn’t just about stacking wins…
It’s about staying alive long enough to gradually grow your account and keep coming back to trade again.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S.
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