Grid strategies

Grid trading

Grid trading is the holy grail of forex according to some obscure websites or scammers who try to sell you crap forex robots. No need to watch the chart, just relax and make money! Technical analysis is for dummies, nobody need to watch high impact news, mathematical way of trading solves all these problems, forex trading is a piece of cake. Or is it? The truth is, grid strategy ALWAYS LOSE YOUR MONEY on the long run even if you make high profits for a few days or even months. Other forex robots that don’t have grid elements in their strategy may fail, may experience longer drawdown periods but grid based forex robot ALWAYS fail. All of them, no exception! If it hadn’t been like that all of us would have been winners without any knowledge whatsoever. Grid trading is the easiest way to trade psychologically speaking. Even if multiple positions are floating in deep drawdown a false sense of security is induced. Why? Because the trades are not yet closed and hope does its job. Unfortunately, forex laws are governed by statistics not by hope and faith. And now, let me explain how common grid strategies work and why they are doomed to failure.

Grid strategy #1
This is the simplest grid strategy ever. Place a trade then if Take Profit level is reached, the trade is closed, otherwise open another trade at N pips distance from the first one. If the market goes more against you then open another trade N pips distance from the previous trade and so on. If the market keeps going against you, get ready to lose all your money. And sooner or later this happens. Even if there is a stop loss level and the basket is closed when a certain percent of equity is lost or if every individual trade has a stop loss level, the loss will still be huge. The recover can take months and the profit would be very small thus making the strategy not worth to be traded with.

Grid strategy #2
The first strategy is a counter trend one, this one follows the trend. The main assumption is that the market has to move one direction or another which is true. The idea is to catch a big trend, it doesn’t matter in which direction. In order to do that N pending orders at X pips distance between them are placed bellow and above the current price. If the price goes up it triggers pending buys and close them for profit, if the main direction is down pending sells are triggered then the profit is taken. But what happens if it goes up, triggers the first trade without reaching its take profit level then goes down suddenly? You are left with at least a  floating trade in deep drawdown. You either close it and lose all your previous profits of apply “hold and pray” strategy which doesn’t work. Either way you lose money.

Grid strategy #3
It’s similar to previous one but this time stop loss = take profit = X pips which is the distance between pending orders. If one pending order is triggered another pending order takes its place. It works pretty well where there is a strong trend but if there isn’t and market ranges you are left with a multitude of open orders which sooner or later hit stop loss. Of course there are 50/50 chances to hit take profit instead but statistically, sooner or later an entire basket hit stop loss. And all profits are lost if it happens multiple times in a row.

Grid strategy #4
Keep opening positions in the direction of the trend and close them all if the whole basket is in profit. Example: open one long trade, the market goes against it by X pips, then open another short trade in the direction of the trend and keep doing that until the basket is in profit. If there is a strong trend you bank many pips but if the market suddenly starts ranging, you will be left with a multitude of open trades in both directions. Multiple open trades = huge loss. The more open trades, the fastest your account heads to a margin call.

Grid strategy #5
This one is the only one that survived to a 12 year backtest but failed in real live trading. It was employed by one of my very first forex robots. I called this strategy “guessing the retracement”. If the market turns against my open position another trade is opened, counter trend. If the number of open trades reaches 5, open the sixth trade. If the market turns against my sixth trade for X pips, I close it for X pips loss, open another one right after the closure and repeat (I only close the sixth trade). In the end, I’m left with 5 open positions in front of the grid and the sixth at the bottom at a very large distance from the main grid. All I have to do is wait for recovery. Even if it didn’t crash sometimes a few months are needed to wait until the recovery comes, not to mention the losses caused by the sixth trade. Not profitable at all.

So, there is no way to make money using grids? Well, if they are babysit all the time I think they can be made profitable, but it doesn’t worth the effort. For example, suppose you are trading strategy #2 where a strong trend is needed. You have to place the grid right before a high impact news but what guarantees you have that slippage and requotes won’t kill it? In fact, it happens frequently in real live, that’s why experienced traders never trade near a high impact news, they trade the aftermath.

My advice is not to run these systems, they will blow your account, it’s not a matter of it, it’s a matter of when.

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