I've spent close to a decade trading the markets and have dabbled in hedging. What I found was that all hedging implies is that you aren't confident in your strategy and are essentially assuring you don't gain as much when the strategy is winning and possibly won't lose as much when it is losing, but note the word possibly, meaning some hedging strategies will lose even when your strategy is losing.
No wonder most hedge funds have been crushed by the market.
So, I gave up on hedging and found other ways that make more sense and achieve the same "dream" of smoothing out returns. Namely, I started allocating less money and using more leverage. The "hedge" was merely having more cash lying around than before, and at times, tactically deploying it strategically, but rarely in the opposite direction of my book.
I also used a portfolio management style I call "plateauing" which means after my portfolio achieves a certain value, I sock the bulk of it away in cash and only trade with a small amount, which I can then grow in the market or add to from my income. This change alone was one of the biggest improvements I've ever had because it dealt with the idea of streaks, that hot streaks tend to break, and so you need to sock away profits and reduce position sizes after having success.
I find these methods better at achieving the goal of a hedge than actual hedges. It's unfortunate Quantopian has bought into the idea such that their contest entries require a hedge, when it seems the data about hedge fund performance show that it is simply not a correct way to approach markets.
