Is the 65 Hedging Strategy Really Safe? —The Reality of No-Stop-Loss Strategies and Improvement Plans

The “No Stop-Loss Hedging Strategy,” known as the “Hedging 65 Method,” is one of the strategies discussed in the cryptocurrency and FX markets. However, few investors truly understand its actual mechanics and risks. In this article, we thoroughly explore the core mechanism of this strategy, practical risks, and safer alternatives.

The Basic Mechanism of the Hedging 65 Method—What is a Lock Position?

The main feature of hedging trades is holding both buy and sell positions of the same asset simultaneously. For example, if you’re uncertain about Bitcoin’s future price movement, you can bet on both directions—buy and sell—to cover any market movement, regardless of which way it goes.

At the heart of this system is the concept of a “lock position.” It aims to freeze temporary losses caused by short-term price fluctuations, wait for the market to move favorably, and then settle at an optimal timing to realize overall profit. The term “Hedging 65 Method” refers to a set of operational rules systematizing this strategy, but interpretations of what “65” means vary among different schools.

Traditional trading involves setting a stop-loss point in advance, automatically closing positions when unrealized losses reach a certain level. However, the no-stop-loss strategy relies on dispersing positions and dynamic adjustments instead of stop-loss orders. Theoretically, this approach aims to avoid frequent losses triggered by stop-loss executions.

Capital Efficiency and Hidden Costs

The first issue with implementing the Hedging 65 Method is its high capital consumption. Holding both buy and sell positions simultaneously requires twice the margin compared to a single position. This imposes a serious constraint on retail investors with limited funds.

Additionally, there are hidden costs often overlooked. Holding positions over a long period incurs overnight funding fees, which accumulate daily. Some exchanges charge 0.01–0.05% per day, and over several months, these costs can erode profits significantly. Moreover, each position adjustment incurs trading fees, further increasing the actual costs.

For the strategy to be profitable, market conditions must generate gains exceeding these costs. While range-bound markets (box trading) where prices fluctuate within a certain range can be profitable, such environments are not always present.

When a Black Swan Strikes—Extreme Risk Scenarios

The greatest vulnerability of the Hedging 65 Method is its lack of resilience during sharp, unidirectional market movements. Cryptocurrency markets have experienced multiple black swan events—unexpected major shocks.

Examples include sudden regulatory announcements, major corporate bankruptcies, or geopolitical crises that cause markets to move in unforeseen directions. During such times, hedged positions lose their protective effect. Instead, both buy and sell positions can suffer large losses simultaneously, leading to a double blow.

Another critical issue is the rapid decline in account margin levels. Although positions are theoretically hedged, exchanges calculate profits and losses independently for each position. Sudden price swings can cause both sides to incur losses at the same time, drastically lowering the margin level and risking forced liquidation. If multiple investors face this simultaneously, it can trigger broader market chaos.

Why Experienced Traders Find the Hedging 65 Method Unsuitable for Beginners

In theory, the hedging strategy is marketed as not requiring market direction predictions. In practice, it demands highly advanced judgment—knowing when to adjust positions, how to respond to growing losses, and managing complex decisions.

This strategy is only feasible for experienced traders well-versed in market psychology, technical analysis, and capital management, with sufficient capital and real-time market monitoring. For retail investors lacking these skills, especially during emotional downturns, maintaining discipline and making cold, rational decisions is extremely difficult.

Safer Alternatives—Stop-Loss + Trend Following

For more secure operations, the following alternative strategies are strongly recommended:

Strategy 1: Set Reasonable Stop-Loss Rules
Instead of eliminating stop-losses entirely, predefine rational stop-loss points to prevent extreme losses. For example, if total account loss reaches 2–3%, automatically close some positions to avoid catastrophic damage.

Strategy 2: Diversify Across Multiple Assets
Avoid concentrating all funds in a single cryptocurrency or market. Distribute investments across assets with low correlation to reduce overall risk. This mitigates the impact of sudden market shifts on the entire portfolio.

Strategy 3: Trend Following with Dynamic Position Adjustment
In clear upward trends, prioritize holding long positions and close opposing positions flexibly. Adjust your positions dynamically according to market momentum to balance profitability and safety.

Strategy 4: Strict Leverage Management
Avoid excessive leverage, which can be destructive. Set clear limits, such as not exceeding 10% of your account balance in total position size. This provides a cushion against unexpected market volatility and prevents forced liquidations.

Practical Lessons—What We Can Learn from Hedging

The Hedging 65 Method teaches us the importance of diligent risk management. However, its implementation requires substantial capital, advanced skills, and cold judgment. For most individual investors, it’s wiser to avoid this approach and instead combine stop-loss mechanisms, trend-following, and strict position management.

While hedging trades are not inherently wrong, they should be limited to short-term price corrections and not regarded as long-term strategies. During periods of high volatility, avoiding concentration in risky assets, diversifying across multiple assets, and reducing position sizes are the most effective ways to ensure steady growth and protect assets.