|Forex Trading Alerts
The Pros and Cons of Grid Trading
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I have seen the hedged grid system been used successfully and very poorly over the last few years.
Unfortunately the failures tend to discourage traders from taking advantage of this great system. I
have found that the failures are mainly due to ignorance, impatience and greed (common reasons for
In a nutshell the grid system uses the following methodology. You start by buying and selling a
currency. When the price moves a predetermined distance (grid leg) you cash in the positive leg, leave
the negative leg and buy and sell again. Sooner or later the system goes positive and then you cash in
when it is positive after it reaches the end of a particular leg.
This is a brief summary of the content of our hedged grid trading course available on expert-4x.com.
Please refer to this course for more details of how money is made. The attraction is that the system is
reasonably mechanical, can be programmed and does not take much supervision as preprogrammed
entry (waiting) orders are used.
Money iis made when the price retraces 100%, 50%, 33% at various levels. This starts looking like a
strategy that supports the Fibonacci concept. The grid system is also based on the nature of the
market to side sideways 80% of the time and to trend 20% of the time.
The dangers are that what if the price does not retrace and continues to trend. The Grid system can
not make money in a trending market – full stop. One has to realize that. So the strategy is to
minimize damage during these periods by using a combination of strategies.
Firstly I have found that the biggest mistake made by traders is that they select a very small grid leg
sizes e.g. 20 to 30 pips. This is a recipe for disaster. The trick is to use big leg sizes between 150 and
300 pips. What this does is that it sometimes turns a trending phase into movement in a sideways
market. I would use 300 pips for the GBPJPY and 150 pips for the EURUSD for instance.
Secondly there is no rule that says that the legs have to be the same size. So I change my leg sizes in
trending markets to be even bigger. If I started with 150 for the 1st leg I would go to 200 for the 2nd leg
and 250 for the 3rd leg etc. This makes sure that I am carrying less loss making transactions in a trend.
Thirdly – sometimes it is wise to increase the number of lots “with the trend” compared to the
numbers against the trend in a good trend. However be aware of having the same number of sell and
buy transaction too soon because all you will have done was lock in your current status in a 100%
Fourthly – This is the biggest change and most important one that I personally have made in my grid
trading strategy. Always cash in all your transactions when your system is positive and when the price
reaches the end of one of your grid legs. By cashing in you are reducing the risk of carrying negative
lots in a trending market. This also gives you an opportunity to re-assess the market conditions.
Cashing in regularly also turns the system into a trend following system.
Some traders find the grid system too slow as the successful settings tend to only generate 2 to 3
preprogrammed transactions a week. The fact that one goes not need charts is too much of a
paradigm shift for some.
People who have traded the grid system will immediately see how the above approaches will reduce
the risks of exponential losses building up in a strongly trending market. Please feel free to contact
Mary McArthur at firstname.lastname@example.org for clarification on any items discussed above. She has
numerous examples of successful applications of grid trading