Grid trading is a method where a trader does not just open a trade, but rather creates a sequence of orders at increasing or decreasing prices incrementally around the current price. The quantity of orders depends on the trader, what matters is that they are all set at regular intervals.
When could it potentially be used?
This method aims to take advantage of market volatility and execute as many orders as possible during price fluctuations. The grid method could be useful in a variable market when there is no particular trend.
The benefits of such an approach are obvious: this strategy usually works in unpredictable conditions where the price continues to bounce up and down. That said, the trader should still have an approximation of when to end the grid and exit trades.
However, it’s worth noting that no indicator can guarantee accurate information 100% of the time. From time to time all indicators will provide false information, and the Grid method is no exception. It is your duty, as a trader, to understand the true signals from the false ones.
Running with or against the trend
There are two ways to implement this method. Trend trading suggests placing buy orders above the entry point and sell orders below it when the price is expected to go in one direction. An opposite method is to place sell orders above the item and buy orders below it if the price is expected to swing up and down. This approach is called counter-trend.
How to apply it?
Let’s look at an example of how the grid method could be performed on Forex onbinary options platform.
In the example, the trend approach is used. A sell agreement on EUR / USD has been opened with an investment of $ 5. The trade opens at the level of 1.1230.
Step By Step Grid Trading Strategy
According to the grid strategy, multiple pending orders need to be created at the same distance from each other. In this example, a range of 5 pips and 2 levels above and below the starting point was chosen. This means that two pending sell orders have been created at the levels of 1.1225 and 1.1220 and two buy orders at the levels of 1.1235 and 1.1240.
The Take Profit and Stop Loss levels have also been set for each of the trades which is very important as it adjusts the closing order if it reaches a certain level of profit or loss. It allows you to manage the risks associated with this strategy.
What remains to be done is to wait for the price to go up or down, activating the orders. There may be multiple orders in the grid, the standard amount generally used by traders is 3-5.
There are two ways to exit the agreements: close the entire grid at the same time or close the agreements one by one once a certain goal is reached.
To better understand how this approach works, you can try it on the practice account. Here is a checklist of the steps required to implement the grid trading method. You can save them or write them down for your next trading plan.
Step By Step Strategy:
1. You can decide whether to open orders with the trend or against it.
2. You can decide an entry point, the quantity of pending orders and the interval between them.
3. You can determine your investment amount and Stop Loss / Take Profit levels. Make sure you have a good understanding of the potential losses you could face should the market go against you.
4. You can create pending orders, making sure you stick to the plan.5. You can exit trades once the desired amount of profit has been generated or when the acceptable loss level is reached.