Forex Grid Introduction

Forex Grid Trading is s trading strategy, which can be applied at the Forex market. This kind of strategy is based on determining the natural back and forth motion of the market. After determining this motion you can place orders below and above the current market. As a result, you will gain profit so far as market moves. The best advantage of such kind of forex strategy is that you almost don’t need to predict the direction of market movement.

From the other hand, instead of predicting the price you will have to lay special emphasis on money management, psychology of trading and grids visualization problems, which will arise when you try to use  forex grid trading strategy.  

In addition, you should realize that it is impossible to completely forget about market analysis even in case of using grid trading.

Basic Forex Grid Design

There are many different grid configurations, which are available for use, but, curiously enough, all these different versions are based on one common idea. Here is an example of the very basic forex grid for the EUR/USD currency pair.

It is the simplest example of forex grid trading, so the numbers in this example will be as simple as possible. Let’s take a snapshot of a hypothetical market and imagine that our currency pair (EUR/USD by default) is trading at 1.4500. Let’s use ten pip intervals.

As it was mentioned before, forex grid trading is based on placing orders below and above the current market, so we need to place our buy and sell orders above and below the price respectively, using specified preset intervals. Each order must have a uniform Take Profit target. There won’t be any Stop Loss orders at all. In order to further simplify management of the grid traders often use two trading accounts.

Don’t forget that our EUR/USD currency pair is trading at 1.4500; therefore, let’s place buy and sell orders above and below this value. For instance, our buy stop orders would be at 1.4510, 1.4520, 1.4530, etc, and our sell stop orders would be at 1.4490, 1.4480, 1.4470, etc.

Take profit and stop loss will be attached to each order. After that we can place our grid into motion.

Examples of Forex Grid Trading

The simplest probability here is if the price is moving up or down. In case of upward motion the buy orders will be opened; these orders won’t be closed until the price reaches their take profit level. In case of reverse of the price and downward motion the sell orders will be opened; these orders will be closed in profit as the price moves down. When some position is closed, a new order will be opened. In our example with ten pip intervals selling occurs every ten pips below the market price, and buying occurs every ten pips above.

As you see, it is much better that the necessity to predict the behavior of Federal Reserve for every week. Of course, our example is the simplest one, and everything is a bit more complicated in a real world. Let’s suppose that the market price fluctuates up and down, because such situation is much more probable.

As it was said before, a buy order will be opened if the price goes up, but what happens if the price starts moving down before the take profit level of the opened buy position is hit? Such position becomes loss-making, and the lower the price is, the more money such position loses. Even in case the price reaches your profit level of the sell orders, you still have this opened buy order which increasingly yields a loss.

Now we should add a bit more complexity in the situation. Imagine that the price starts moving up before the take profit level of the opened sell position is hit. As you see, it is the same situation, but it is reversed: your order, which is placed below the market price, yields a loss while the price is rising. The one positive moment here is that the abovementioned “dangling” buy position will begin to recover.

As you can see, one of the shortcomings of forex grid trading is a possibility to lose money because one position (or several positions) can be caught far away from the market price. In this case, loss is possible even in case other positions bring you profit. Actually, this is the point: your grid trading strategy would be successful if you were able to carry losing positions for some time, and this period can be quite long. Your psychological and financial condition should allow you to do it, otherwise you will fail.
 
First of all, let’s speak about your financial condition. It is obvious, that you should have enough money for carrying losing positions, because balance/equity of your account are lowered by this position and your margin is eaten away. There are even some cases when the market does not move back, and you have to pay swap. The only salvation of this problem is availability of funds in your account. Actually, it happens quite often that traders accumulate losing positions and deplete margin, so they have no possibility to wait until the market moves back.

Secondly, let’s speak about your psychological condition. In some way this matter is even more difficult in comparison to finances, and here is the reason. Many traders, who have decided to use grid trading, expect the market to move only back and forth (so their positions will be profitable all the time). They want to make money without learning the basics and worrying about fundamentals. So when they see that positions not only bring profit, but also can be loss-making, they become a bit confused. And only then such trades start understanding that grid trading do requires some basic knowledge about position of a given market at a given time.

One of the main challenges of Forex grid trading is the ability to manage a losing position or several positions, which can appear either at the top or at the bottom. And this matter puts a great strain on the grid trader. Grid trading is often criticized for such state of things.

Forex Grid Money Management

Money management is very important for grid trading, because it can help to solve problems concerning the constant threat of undesirable market movements, which can cause appearance of losing positions.

First of all, as we’ve already mentioned, you should have enough money in your account to be able to stay in the ever-moving market and to allow your grid strategy to work. Your account won’t be blown up because of your conservatism or too small lot size, but it will be blown up if you don’t have enough money in reserve.

Secondly, you should decide for yourself for how long you can afford yourself carrying losing positions.  You should clearly understand that such positions will arise almost all the time you use grid trading.

Forex Grid Conclusion

Grid Trading is a very popular strategy for Forex trading. Automation and visualization are two main advantages of grids. From the other hand, you should understand the basics of the market in order to use grid trading more efficiently.

Forex Grid Trading requires use of money management and advertence concerning available margin, because margin calls are very dangerous. Forex Grid Trading has a very good structure, but it is not a “magic stick”, which will bring you money with ease. You can be successful with the help of Forex Grid Trading, but at the same time you should learn its specifics and know how to deal with its challenges.

Forex Grid Professional Strategies

Expert Advisor fo MetaTrader 4 "Eldorado"

• Currencies: CHFJPY, EURCHF, GBPUSD
• Timeframe: Any
• Using Indicators: No
• Trading Time:24 hours per day
• Risk: Medium
• Minimum Deposit: $5000 ($500 with Lot =0.01 )
• Recommended Deposit: $20000 ($2000 with Lot=0.01)
• Orders Type: BUYLIMIT and SELLLIMIT pending orders
• Money Management: Stop Loss and Take Profit, closing by profit, closing at time
• Metatrader expert advisor Customization: possible upon the request
• NOT sensitive for broker

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