| Grid Trading Strategy |
 Grid trading is one type of a forex strategy that will try to take advantage of the natural movement of the currency market forth and back by placing orders both above and below the current market price and then trying to catch the profits as the market moves.The best part of this forex strategy is that this type of trading model does not require any predictions on the direction of the currency market. However, the advantage of eliminating the variable of price prediction comes with a cost attached of intricate money management, grid visualization and trading psychology issues that you will need to tackle with when trading grids. There is no escaping of market analysis even with grid trading. Grid configurations are variations of the principle idea even though there is an endless possibility while configuring. For example, if we look at the elementary grid using the Euro/US Dollar pair, let us assume that the pair is trading at 1.5000 and we decide to use ten pip intervals. The basic forex strategy of the grid will be to set up buying orders above this price and selling orders below this price at preset intervals each with a uniform profit target and no stop loss orders. Usually, two trading accounts are required to manage the grid a bit easier. On one side, you will have to buy stop orders at 1.5010, 1.5020, 1.5030....; on the other side, you will have to sell stop orders at 1.4990, 1.4980, 1.4970. Each order will have a take profit attached to it. You can now place your grid into motion. You can look at the easiest of all possibilities where the price moves straight up or down. If the price moves up, the buy orders will be opened and closed out in profit as the price continues up to the take profit level. If the price moves down, sell orders will be opened and closed out in profit. New orders replace positions that are closed out. There will be 'buys' every ten pips above the market price and 'sells' every ten pips below. This will be fun as you do not have to try to figure out what the Federal Reserve Bank is going to do next week. Yet, there will be a need to add a little real world stress to the grid trading session. Given that the market price is fluctuating up and down, you will open and close positions as the market moves up. But when a buy position is open and the price begins to go down before that position's 'take profit' is hit, then that position will begin to lose money and the loss will continue to grow if the price goes further down. Conversely, if the price begins to move up before it hits the 'take profit' of one of your sell orders, the same situation will happen in reverse when you will have an order that is sitting well below the market price and losing money as the market price rises although the 'buys' will help start recovering when the price is moving up. One of the drawbacks of grid trading is the possibility of getting caught with an open position away from the market price on which you are losing money even as other positions may be profiting. The most important aspect of this forex strategy is your ability, both psychologically and financially, to deal with carrying losing positions for a period of time. So, grids do offer a good trading forex strategy structure but you will have to remember that they are not magic profit machines. |
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