Grid trading - order grid strategy

Grid Trading is the favorite strategy of traders with a gambler's streak :-). Why…? Trading in the markets nowadays can be considered very diverse. Some stocks move in strong trends, and there are also those where consolidation prevails most of the time. Traders can be divided into specific groups. One group are the so-called trend followers - following the trend, the other counter-traders, for whom the key aspect of trading is the opposite of the current trend. There are also those who feel best on the market in consolidation. Regardless of what style of trading we prefer, each strategy requires certain specific assumptions. Regular profits know exactly why they open every position. In today's article, we will introduce one of the popular trading methods, namely the grid strategy.

What is grid trading?

Grid trading in free translation means trade using the order grid. The idea of ​​the whole methodology is to place pending orders in places evenly spaced from each other. The main market in which this trading technique is used is the forex market. This is due to adequate liquidity and volatility. In addition, the price very often returns again to the so-called level of balance. It cannot be denied that the grid will perform best in highly consolidated markets. The main assumption of the strategy is based on orders placed at equal distances. For example, if the current price is at 1.2000, and the trader wants to sell every 50 pips, the individual sell orders will be at levels 1.2050, 1.2100, 1.2150, etc. Of course, the same situation may occur when buying - then the first order at 1.1950, 1.1900, etc. This way we create an even order grid. 

Example of an order grid. Chart EUR / USD, D1 interval. Source: xNUMX XTB xStation

Using the grid, we assume a certain development of events, but always leave room for possible errors and averaging the loss position. Undoubtedly, this type of strategy raises a lot of controversy, because averaging a lossy position is usually not a good idea. It is very important in gridting proper position management and determining the maximum allowable loss in advance. 

Be sure to read: Pyramidation of transactions on the Forex market

How to build a job grid

Grid can be divided into several categories. Undoubtedly, the best market to implement such a strategy is the market in consolidation. The premise is simple: we earn both during increases and decreases. The whole idea is to close orders with a profit, regardless of the price direction. Of course, it is never the case that all items give you money. The most important thing to keep in mind during the grid is to post profits that exceed the maximum capital draw. At what distance should I place subsequent orders? There is no clear answer here. ATR, or Average True Range may be helpful - the indicator determines the average range of traffic. Another thing to keep in mind is position and capital management.

Check it out: Tools helpful in capital management

If the market on which we grid is in consolidation, specify the maximum risk and the point where we close the entire grid. We always set also stop loss, otherwise we risk the maximum amount of capital we have. For example, the risk is 10%, we adjust the grid so that the maximum loss on all positions is just the amount of our deposit. It is also worth determining how many levels the grid will have. If we determine, for example, that the maximum number of positions is 5, pips 10 spaced from each other and the price jumps 60 from the original level, we automatically close the grid, because the price hits our SL level.

Who is Grid trading for?

In fact, every trader can grid. It is worth remembering, however, that setting simultaneous buy and sell orders does not release you from determining the level at which we close all open positions. In the event of a sudden change in trend without proper assumptions, the lesson will be very painful. If the grid is to bring profit, all aspects must be specified before placing orders on the account, including closing the grid both on profit and loss.

Attention! Griding raises the risk of excessive risk exposure, so if you decide on this type of strategy, properly estimate the capital possibilities and scale of losses with potential failure.