What is grid trading?
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.
Anatomy of a trading grid
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:
- Grid Size
- 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.
- Grid Spacing
- 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.
- Grid Lotsize
- The lotsize for each of the trades of the grid.
- Grid Range
- 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.
- Grid Exposure
- 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.
How to set up a grid
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
- The EA will start trading with default settings, but you can change them.
- 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.
- 4. Done
- 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 market goes off-range or until you decide to close the grid.
The Grid Trading EA offers many other options such as profit targets, different settings for each trading direction, cash-in multipliers, price limits and different behaviors. Consider buying it for live trading, as the adaptability it offers is almost infinite.
Settings and Input Parameters
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.
- Trading Direction
- 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.
- 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.
- Grid Lotsize
- This is the lot size for each trade of the grid.
- Colors and sizes
- This parameter block sets the color and sizes for labels and lines.
- EA Settings
- 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.