Nigel has been in the regulated financial services industry for nearly a decade, has previously owned a financial brokerage and has written many times for sites relating to personal finance and trading.
If you’re not familiar with the grid trading strategy in forex trading, it is a clever one to add to the way you navigate your profit-making in the markets. The beauty of this technique is that you can easily automate it in the same way that you automate a stop loss.
So, in this article, we are going to take you through our grid trading guide where you will find out:
So, let’s get started.
Grid trading is when a trader will seek to profit from price trends and the natural movements of the markets. They will place buy and sell orders above or below the current price at increasing or decreasing levels.
Alternatively, they could place sell orders at incremental levels above the current price or buy orders at progressive levels below the current price, in the hope of capitalising on a change in the trend of a market.
This strategy can work in a CFD context as well, but it is not for new or beginner traders. It is for those who are fairly advanced, confident and tenacious.You should learn how to trade CFDs, gain a thorough understanding of all techniques, and build up your portfolio, expertise and planning capabilities before attempting grid trading.
If you’re new, attempt it in theory while you learn all the fundamentals of trading and other main strategies in general.
Doing this on paper while you grow in experience gives you an edge in the sense that it won’t be entirely foreign to you by the time you are at a level that allows you to trade using this strategy.
This technique is simple, but deceptively so. Throw CFDs into the mix, and the risks are much higher than normal, but so is the reward. You also need reserve funds.
Let’s dive further into some more detail.
If a trader is looking at the GBPUSD, and the current price is 1.2725 (as you can see below), they would then place buy orders at certain levels above the current price. They could also place sell orders below that price at regular intervals such as you can see below. The trader is seeking to gain an advantage of the price trending in either direction.
There are two types of trading grid:
Using grid trading is an excellent way of trading the markets, and if used correctly, it can be extremely profitable.
It also simplifies trading. There isn’t the need for technical indicators or complicated fundamental analysis, you simply pick out the key levels that you want to enter, set your grid to work and allow it to play out. Of course, trading is not that easy, but a trading grid does simplify the concept.
Finally, scaling into and out of positions is a great aspect of a grid trading system. Many amateur traders will enter one large position, and if they lose it will be exited in one go. Grid trading allows you to break up the size and enter smaller positions incrementally, therefore reducing your risk.
The pros of grid trading are:
The cons of grid trading are:
A grid trading Bot helps you automate your trading grid system so that you don’t need to check and manage your trades constantly. The grid trading bot will allow you to establish your rules for entries and exits, and the computer will automate them.
There is little input needed on your side. In fact, most grid trading is typically managed by a Bot. You simply choose the Bot you want to use, input your levels and rules for entries and exits, then let the Bot work away and execute the positions for you.
Now, while using a trading Bot may sound complicated, it isn’t. Here are some of the advantages of using one:
Some of the disadvantages of using a grid trading bot are:
To build a grid trading strategy, you will need to follow these steps:
You want to control the potential downside on each trade, so do you set trailing-stops? Fixed stops? Etc. Managing risk is the most crucial part of this setup.
You don’t want your account to be taken out by one big market move.
PEOPLE WHO READ THIS ALSO VIEWED:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .