One of our customers recently finished 9th in the ForexTime Game of Pips Championship using our Grid Trading EAs on a live account. In less than a month, he took his account from 500$ to almost 3,000$, trading currency pairs, indices and gold.
Grid trading has become very popular amongst traders because it does not use stops, is highly mechanical, has no reliance on direction, uses the intrinsic wavy nature of the market, does not require indicators or charts to trade and can be easily automated. Grid trading refers to the trading approach which uses fixed price levels to enter and exit trades.
On the bright side, a grid trading strategy can profit from the same absolute market movement several times and can even make money if the market is moving against your grid. On the downside it can appear complex and illogical initially, it can incur large drawdowns if poorly managed, requires more patience than normal and may require forex traders to make a huge paradigm shift it their thinking.
Once a grid has been allocated, the system will cash-in profits every time the market moves the desired spacing and replace the trade as soon as possible to repeat the process. Hence, the expert advisor can cash-in the same price movement several times, capturing up to four or five times more profits than a single trade with the same exposure.
A grid is nothing more than a single deal or position segmented into several trades, which are cashed out independently from each other at regular intervals. This allows us to profit several times from the same absolute price movement.
All grids have a set of basic variables which define their structure and behavior:
The grid size is the amount of trades the grid can allocate. A grid has normally between 10 and 25 orders. Open-ended grids should not be used, as the total market exposure cannot be controlled.
The spacing is the gap in pips between trades of the grid. Such trades are generally spaced at 20-200 pip intervals. Big intervals are stable, can cover wide price ranges and are the best choice for live trading. On the other hand, small intervals are aggressive and more suited for trading championships.
The lotsize for each of the trades of the grid.
The grid range is the price distance covered in total by the grid. For example, a grid of 20 trades with a spacing of 100 pips covers a range of 2,000 pips.
The grid exposure is the theoretical market exposure acquired if the grid is fully allocated. For example, 20 trades of 0,01 lots represent a total exposure of 0,20 lots, or 20,000 U.S Dollars.
Grid trading is much more profitable and safe if grids are allocated and configured manually by a responsible trader. To set up a grid, just follow the next steps.
1. Load the EA to the chart
You will notice that, by default, the EA does not trade. You have to configure it.
2. Choose a trading direction
If you think the market is going up or is close to a support level, you can start a Long grid. Likewise, if you think the market is going down or is close to a resistance level, you can start a Short grid. If no trend is present, you might want to start a bidirectional grid.
3. Choose the grid size, spacing and lot size
Enter the desired grid size, spacing and lotsize into the expert advisor. For live trading, a spacing somewhere between 80 and 200 pips is recommended. These parameters directly affect the equity risk of the grid, which is displayed on the top-right corner of the chart. You should change these values, decreasing trades, spacing and/or lotsize until the risk of the grid is less than 50% of your account. If not, the EA will not trade.
Once the EA is loaded with your settings, if the risk is not dangerous, it will start trading and cash-in trades at regular intervals until the the profit target, the market goes off range or you decide to close the grid. The EA offers many other options such as profit targets, cash-in multipliers, price limits and different grid behaviors. These are covered in the user guide in more detail.
When loading the expert to any chart, you will be presented with a set of options as input parameters. Don't despair if you think they are too many, because parameters are grouped into self-explanatory blocks. The only functional parameters are relative to the grid settings and all others are display settings.
The trading direction sets the behavior of the grid. The grid can be long, short or bidirectional. Each grid can have different settings, which values are examined below.
Bidirectional Profit Target
When you are running a long and a short grid simultaneously, you can define a combined profit target. For example, one spacing unit. When the combined profits of both grids reaches your target, both grids are closed securing the profit, to later start trading again fresh.
This parameter controls how the grid operates and what it does when all the trades of the grid are allocated. In live trading, you would be changing the behavior of the grid according to what the market is doing and what you want to do with the grid -expand it or liquidate it-.
- Averaging: All trades are closed when the market price reaches the average price of all trades. This option can be used to liquidate a grid you no longer want to have opened.
- Classic: This behavior causes the trades to remain open after all the grid trades are allocated, leaving you the responsibility to decide what to do with the opened trades.
- Dynamic: This behavior closes the oldest trade of the grid once all the grid trades are allocated and the market goes out of range. It allows the grid to expand in the direction of the market, even if the market is trending, suffering only partial losses.
- Paused: This behavior halts the trading activity completely. The EA will still cash-in existing trades but it won't add new trades to the grid.
- Strict: This behavior closes all trades after all the grid trades are allocated and the market goes off range, acting as a stop-loss order for the grid and incurring into the predefined balance loss which is calculated on the screen.
Grid Size In Trades
This is the amount of trades in the grid.
Grid Spacing in Pips
The spacing, also known as the gap, is the distance between the trades of the grid, and it is also the profit target for each individual trade. For live trading, a spacing between 80 pips and 200 pips can be considered safe. One of the possible values is Calculate_From_Range which causes the EA to calculate a spacing for you using the Grid Anchor and the Grid Limit values.
This is the lot size for each trade of the grid.
The phase is the cash-in multiplier: a higher phase increases the profit target for each individual trade of the grid. For example, if we have a phase of 3 on a grid of 100 pips spacing, the profit target for each individual trade will be 300 pips.
Take Profit for the Grid
The take profit for the grid is optional. A take-profit will cause the grid to reset, closing all trades and starting fresh, when a certain profit has been realized. This prevents the grid from over expanding. It is expressed in spacing units. For example, if the grid spacing is 100 pips and the Take-Profit is 10 spacing units, the grid will reset and start fresh when it has won 1,000 pips. This option is very useful if the symbol has high swap costs or if we are afraid of a trend going outside of the range of our grid.
This is the price limit for the grid: the grid will not continue trading beyond this price. This parameter enables us to configure grids that are only triggered if the market is inside a certain price range. For example, you can set up a buy grid on GOLD and instruct the grid to buy only if the price is below 1300$/oz. To do that, you would just enter 1300 in the Buy Grid Limit parameter. The same applies for short but on the opposite side.
Similar to the above parameter, the Grid Anchor is a price limit of the grid but on the negative side. This parameter enables us to limit the grid trading activity to a predefined trading range. For example, you might want to create a long grid on EURUSD from 1.0000 to 1.16250 and let the EA calculate the spacing for you. The EA won't trade EURUSD below 1.0000 or above 1.16250.
Max. Trades Per Day
This parameter controls the amount of trades that can be added to a grid in a single day. The default value is 5, meaning that the grid can add only 5 trades to the grid each day. This prevents tail risks and forbids the EA from adding trades in an uncontrolled way should a big price movement happen in a single day.
Colors and sizes
This parameter block sets the color and sizes for labels and lines.
If you know what you are doing, you can change the Magic Number of the EA, the comment for the trades and override the value of one pip, which can be useful if you are trading CFDs.
Should I use this Expert Advisor if I ignore what grids are?
No, you should not. Grid Trading is for amateur traders and beyond.
Is grid trading a martingale?
No, it is not. There is no intrinsic difference between a trade of 0,20 lots and 20 concurrent trades of 0,01 lots. A strategy is a martingale inasmuch it deals with independent events with fixed probability of occurrence and payoff. Grids, however, use a constant lotsize per trade.
I have heard that grid trading is dangerous. Is it?
Yes, it is: just like any other powerful tool. Poorly managed or allocated grids can decimate your trading account. However, if properly used, grid trading is not only safe but very profitable because it provides almost unlimited adaptability to what the market is doing. The key is not using too much leverage.
Is grid trading NFA FIFO compliant?
No, it is not.
Can I set the stop-loss for each trade or for the grid?
No, you can't. Make sure to configure the grid properly: the total grid exposure must never be above three times your account equity and the grid range has to be wide enough to reach a strong support or resistance. You can, however, stop all trading activity manually on certain drawdown levels.