How to trade the Forex Grid system. A detailed introduction on how hedging trades create gains
Summary
TLDRIn this video, Alex Du Plooy from Expert4x introduces the grid trading system, a method for trading currencies without relying on market direction. The system involves establishing a grid size, buying and selling at the start level, and entering trades at each new grid level as the price moves. It emphasizes risk control by not trading past the fourth level and cashing in profits at various retracement points. The video also discusses the system's strengths, including its mechanical nature and low supervision, and its potential weaknesses, such as the need for patience and the appearance of complexity for new traders.
Takeaways
- 😀 The grid trading system is a method that involves buying and selling the same currency simultaneously to take advantage of market fluctuations without predicting the direction.
- 📏 The system requires establishing a grid size, such as 200 pips in the example provided, which determines the distance between grid lines.
- 🔄 The grid system operates by entering a buy and a sell at the start level and then repeating this process at each new grid level as the price moves.
- 💰 The system aims to cash in on positive transactions while letting negative ones continue until they can be closed at a breakeven point or a profit.
- 📊 Grid trading can be used with any investment that has a random and range-bound nature, including forex, stocks, and indexes.
- 🚫 The grid system does not use stop losses and is hedged or partially hedged, relying on the market's natural wave movements rather than predicting price direction.
- 🔄 It's an investment system rather than a trading system, with transactions potentially taking weeks due to the size of the grid.
- 🛠 The grid system is highly mechanical and can be automated, requiring minimal supervision once set up.
- 📉 A potential weakness of the grid system is its initial complexity and the need for a paradigm shift for traders accustomed to traditional trading rules.
- 💡 Risk management is crucial; Expert Forex recommends not trading beyond the fourth grid level to prevent significant losses during strong trends.
- 🌐 The grid system can handle large trends and is not significantly impacted by them, as long as traders follow proper risk management and cash in profits during market consolidations.
Q & A
What is the grid trading system discussed in the video?
-The grid trading system is a trading strategy that involves setting up a grid of predetermined price levels and buying and selling a currency pair at the same time, without predicting the market direction. It uses a series of buy and sell orders to capitalize on market fluctuations within a set grid size.
What is the first step in setting up a grid trading system according to the video?
-The first step is to establish a grid size for your trading. In the example given in the video, a grid size of 200 pips is used, meaning the gaps between the grid lines are 200 pips apart.
How does the grid trading system handle market direction?
-The grid trading system does not rely on the direction of the market. It involves buying and selling the same currency at the same time, which means the trader is hedged and does not need to predict the market's direction.
What happens when the price moves by the grid size in the grid trading system?
-When the price moves by the grid size, it reaches the next level of the grid. At this point, the trader enters a new buy and sell order at that level, and cashes in the positive transaction from the initial trades.
What is the purpose of cashing in the positive transactions in the grid trading system?
-Cashing in the positive transactions allows the trader to realize profits from the grid trading system. It is part of the strategy to accumulate gains while leaving the negative transactions open to potentially break even or turn positive as the market moves.
What is the recommended approach for risk control in the grid trading system?
-The video recommends not trading past the fourth level of the grid to control risk. If the market trends strongly in one direction, it's advised to take the loss at the fourth level and start the grid trading process again.
How does the grid trading system handle drawdowns or losses?
-The grid trading system can incur drawdowns if used inappropriately, such as in a strongly trending market with an unsuitable grid size. However, the strategy includes cashing in profits more frequently than losses, which can help offset drawdowns.
What is the significance of the 100% retracement move in the grid trading system?
-The 100% retracement move is a profit-making opportunity in the grid trading system where the market price moves up to the next grid level, and then back to the starting level, allowing the trader to cash in both the buy and sell transactions for a profit.
What is the 50% retracement move and how does it work in the grid trading system?
-The 50% retracement move is another profit-making opportunity where the market price moves up two grid levels, and then back to the first level. This allows the trader to cash in multiple transactions, resulting in a net profit.
How can the grid trading system be automated?
-The grid trading system is highly mechanical and can be automated using a trading platform or software that supports the execution of pending orders, which are used to implement the grid strategy.
What are the key strengths of the grid trading system mentioned in the video?
-The key strengths of the grid trading system include the absence of stop losses, no directional bias, and its mechanical nature requiring low supervision. It can be easily automated and is suitable for various investments that exhibit random and range-bound behavior.
What are the potential weaknesses or challenges of using the grid trading system?
-The potential weaknesses include the system appearing complex and illogical initially, requiring a paradigm shift for traders used to traditional trading rules, and the possibility of incurring losses if used in a strongly trending market with inappropriate grid sizes.
Outlines
📈 Introduction to Grid Trading System
Alex Du Plooy introduces the grid trading system, a method that involves setting a grid size, typically 200 pips in this example, and trading by buying and selling the same currency simultaneously. The system capitalizes on the market's natural wave movements without relying on its direction. It's described as an investment system that requires a paradigm shift for traders accustomed to traditional trading concepts. The grid system is mechanical, low supervision, and can be automated. It's also noted for its strengths such as no stops, no directional bias, and its weaknesses including its initial complexity and potential drawdowns in trending markets.
💰 Profit Making Moves in Grid Trading
This section explains the two primary profit-making moves in grid trading: the 100% and 50% retracement moves. The 100% retracement results in a profit equal to the grid size when the price returns to the starting level, allowing traders to cash in their initial transactions. The 50% retracement involves additional buy and sell orders at successive grid levels, potentially leading to a profit when the price partially retraces. The process is illustrated with examples and emphasizes the importance of understanding these moves for successful grid trading.
🔄 Break-Even Scenario in Grid Trading
The script discusses a break-even scenario where the price moves three grid levels away and then retraces to the second level. This results in four cash-ins totaling the initial investment, with open transactions resulting in a net zero loss. The example provided shows how the price movement and subsequent cash-ins can lead to a break-even situation, highlighting the importance of risk management and the strategy's ability to handle market trends.
🛡️ Risk Management in Grid Trading
Alex emphasizes the importance of risk control, advising against trading past the fourth grid level to prevent significant losses. He explains the potential losses at each level and how cash-ins along the way can mitigate these. The strategy is shown to be capable of handling large trends, with the recommendation to take the loss if the market continues to trend beyond the fourth level. The video concludes with an example of a profitable application of the grid system and an invitation for viewers to reach out with questions or for more information.
Mindmap
Keywords
💡Grid Trading System
💡Grid Size
💡Hedging
💡Retracement
💡Breakeven
💡Risk Management
💡Pips
💡Investment System
💡Mechanical
💡FIFO Rule
💡Drawdown
Highlights
Introduction to the grid trading system by Alex Du Plooy from Expert4x.
Grid trading system is explained through a video format for better understanding and review.
The grid system requires establishing a grid size for trading, using 200 pips as an example.
The system involves buying and selling the same currency simultaneously to hedge against market direction.
Price movement by the grid size triggers the next level of trading actions.
Entering buy and sell orders at each level and cashing in positive transactions is a key strategy.
The grid system can be used for various investments with random and range-bound characteristics.
Trading with no stops, relying on market wave movements, and being direction-agnostic are highlighted as system features.
The grid system is more of an investment approach rather than a trading system due to its nature and grid size.
Charts are only needed initially to establish trading parameters; pending orders and trading platforms are used thereafter.
The system's strengths include no stops, no directional bias, being mechanical, and requiring low supervision.
Potential weaknesses include initial complexity, requiring a paradigm shift, and possible drawdowns in trending markets.
The five steps of trading the grid system are outlined for clarity and application.
Examples of profitable money-making moves, such as the 100% retracement move, are demonstrated.
The importance of risk control and not trading past the fourth level to avoid significant losses is emphasized.
A real-life example of generating 3,200 pips within 41 trading days showcases the system's profitability.
Risk management strategies, including knowing when to stop trading during trends, are discussed.
Contact information for Expert4x is provided for further inquiries and information.
Closing remarks by Alex Du Plooy, summarizing the grid trading system and inviting questions.
Transcripts
Hi, everybody. This is Alex. Du Plooy from Expert4x welcome to today's discussion on the grid trading system
This is an introduction and being on a video. We are covering quite complicated
calculations the advantage of having it on videos that it allows you to
Look back stop the video
Repeat certain sections until you have a good feel of what's involved in trading the grid system
So let's jump straight into it and and look at what the grid system is all about and there are five steps to
Trading the grid
system firstly the Grid system requires us step one to establish a
Grid size that you're going to be using for your trading and in this example
We're going to use 200 pips as a grid size, so they the gaps between the Grub grid lines
It's going to be 200 pips so once you've established that will go into how you establish that too in later videos
you then start
your grid trading system by buying and selling
The same currency at the same time will you therefore?
We don't know what direction the market is going to be moving so we buy and sell
At the same time the third step is the price then moves by your grid size
It moves to the next
Level so that you'll start level so your next level will would be or level 1 start level there and level one there
There's nothing to do as the price will get there by itself once it has reached. There you go into
2.4 which is you enter a by and a cell at that level again?
Then you cash in your positive transaction so the buy from that from your initial transactions will be positive
So you cash those by that by [and] you and you just leave the transaction that's negative then
Continue until all the transactions that you have entered
into our positive or
Breaking II at a grid level once that happens you cash all in and you start all over again [alright]. We're going to
Calmer start making sense once we go through a couple of examples
But that is essential is the recipe to trade the current system just to some
Terminology that we use the grid gaps are the differences between the grid lines that you see here, so in this example
we've used 200 perps as our grid Gap and
We tend to Draw lines on the charts just for visual
Clarification so the trading grid is in fact all these lines that are drawn
On the chart just to clarify we only need two charts to
Establish our grids and establish the currencies [that] we're going to be trading
With after that trading charts are not needed as we use pending orders and the brokers trading
Platform to trade the grid system, okay?
So let's just have a [good] quick overview of the grid system
It can be used for any investment that is random and range [balance] so it can be used for
indexes for shares for for 4x4 or in any investment that is random and range bar about
It we trade with no stops as you've noticed that we don't put any stops in
that is because we are either fully hedged or partially hedged throughout the
process there is no Reliance on Direction
don't care which direction the price is moving and we make use of the natural wave movements of [the] market it is Mainly an
Investment system not really a trading system and it
because of the size of the grid sometimes your transactions can take
weeks to actually happen it requires a paradigm shift if you are a
Trade at the moment and used to trading concept
We basically using investment concepts when using the grid system does not require charts as mentioned before
The charts are only required really to establish your initial
Trading instrument [also] the charts are only used to establish the reason ability of the trading gaps
It is am highly mechanical with very low supervision and can be automated into for instance an e
Quite easily just overview again the strength of the system. No stops no directional bias mechanical and very low [superfit]
supervision the weaknesses of the shimmer Edit is that it appears complex and illogical in the beginning if you've never
Traded it before it just seems
Totally illogical
It requires a paradigm shift
Especially because it breaks all the normal trading rules that we have for instance one of the rules is let your winners run
And cash in your losses as quickly as possible this does the opposite it actually cashes in the winners
Aamir quicker than the losers, so
it's got a few concepts that traders don't really like it can incur drawdowns if
traded in a or used in a strongly trending market within a prayer inappropriate Currencies and
Inappropriate grid sizes it requires considerable patience as I say sometimes
Transactions take more than a week to happen Mr.. Reminder. There are five steps to trading the grid system
The first one is Establish a grid
second one is to buy and sell at your start level the third one is actually just the price movement that occurs then and the
Fourth one is to enter buy and sell it at the next grade level and cash in the positive and let the negative
right and then then to continue that process until the transactions are positive or
Breaking even at a grid level once that happens [you] can cash in and start again
But for more information on a grid trading you can visit these sites and there are some articles videos and other
Interesting information about a gridded trading or you can contact info at exposed forex.com
Okay, so let's have a look at some money making moves using the grid
System the first one is the one hundred percent
retracement move and that results in a in a profit if using a 200 bridge that would result in a 200
profit and how this works is you would start with a buy and sell it at the start it would go up to your
Next level and there you would enter buying a cell and you would cash in your positive transaction, and you would the negative
Transaction there it would then move back to your start level the price warm
Then move back to your start level and you will cash in on the cell going down
You'll buy would be negative over there
But your cell that was previously negative will go
Level your cell that was previously negative will break even because the prices return to that price level
So that would once that has happened. You will make a 200 profit
And I will just quickly go through that very carefully in the beginning you buy and sell and that's a zero
situation
The plus then moves to you your first level and at that level you enter a new by in a [cell]
So they are neutral you cash in the by the first by and your cell at will have then gone
200 perps negative, so you've got one open transaction of
Minus 200 you've cashed in one of the transactions
And you then have to open transactions that have no result at that time it then moves
down to your back to your starting position and
At that point now your first buyer has been cashed in your your first cell then becomes
neutral because the prices moved back to the same prior a price level and
The buyer that you had at that level one has now become negative
200 but the cell has but you've [been] able to cash in the cell
At that point at that point if you add that all together you got a positive
Cash in there in a cash in there. You've got you're carrying one negative and one break even if you add them together
It's a overall position of plus 200 the advantage of videos that you can go through these calculations
Go backwards if you have if this doesn't make sense the first time around and just make sure [that] it does make sense
Before you move on and here's an eclectic example of how the price movement would happen you would enter
At a particular price level it would go up
Hit your price. Level eventually it comes back to your entry level and this is an example of a hundred percent
Tradesmen now the next oh
Money-making move is [the] fifty percent retracement and what happens with the thirty percent retracement
Is that you enter buying a salad to start it?
goes up
and in this example again me remember using two hundred [perp] grids it then goes to the next level where you enter by in a
Cell in your cash in the positive and you let the negative right it then goes up again
And you do exactly the same you enter by a nacelle you cash the positive and you leave the negative opener transactions there
The under this movement the assumption is that it would then move back to the first level
I just start level but the first level and what would happen
then is that you would cash that leg in you would have a buy transaction here that is negative and
You would have a cell transaction year that is negative and your cell transaction year would be
Breaking even so you'd have three cash ins one two three and you'd have to negative transaction
And that would result in a positive gain of two hundred pips
So let's go through that very carefully let's go to the start
Start again you you're breaking even then you move to the second level which is the same as the previous example
There you cash in a year by your cell is then an open transaction
Which is negative two hundred and you then enter two?
new transactions
Which is a by in a cell which are price then moves to the next?
Level and you basically do the same thing again you enter a by nacelle
and you knew that's neutral you cash in the by that has gone positive and
There is a cell transaction which is an open transaction. Which is negative
200 Remember the cell from your first transaction will be minus
400 which is an open transaction so at that point you 200 pips
down under this move the price would move back to your
set of first level and
you would then cash in the cells run section and
Let's have a look at let's have a look at the calculations for that move
Your first buyer would have been cashed in your second by would have been cashed in and your cell
Would be cashed in as we've seen previously
we're talking about cashing in that cashing in [that] one and cashing in that move you then have a
Bi- year Sl- there and a cell neutral there
Which is reflected here you have a cell negative your first
Cell you have a bi- which is the previous the lost by and your muddle
cell is now breaking even in an open transaction however if you add them all together you are now plus [two] [hundred] [and]
You would cash in the whole lot and start again according to the grid formula, and [you] again is a real-life situation
showing you the price movement going from one level to the next level to the next level to the next level and
You would cash in those three legs and you at that point there?
You would have a negative [x] there and a negative cell there
But you'll buy your cash ins would outweigh the negative transactions, and you'd be in profit
We've now covered the two profit making moves
we're not going to look at the break-even move now the break even move is it assumes that there is a
The price moves three levels away from your start, so it goes one two
three levels away, and then does a retracement
after the third level
To the second level in fact so what you would [have] here is you'd have [a] cash in of one two
three four so you have for cash ins for x 200 is
800 Perps
But you would [have] a buy that's open year that's negative at 200. You would have [a] cell
Year, that's open at negative 200 and your cell here
Which is not two levels away from where the price is now would be negative
400 and
if you add the open transaction
Sir that works out to 800 if you add up the cash ins that works out to 800 and you have your break-even
Situation okay, and there's the calculation if you want to do the calculations that I've [just] shown you and there there are okay?
so we've got to profit of formations and one Breakeven formation and
Those are the tools that will use for our grid trading. We're going to now show you an example where?
3200 Perps were
Generated within I think 41 trading days which is about two months
In our actual subscription trading service which was run a while ago the service is no longer
available we've stopped it due to the trending nature of the market and also due to some changes that were made in [the]
American Market
regarding hedging and fifo rules those have now been overcome subsequently by using
two trading accounts
so you use one account for buyers and one accounts for cells and the fifo rule is no problem because we do cash in the
First transaction at all times so just a reminder
your first money maker formation is the hundred percent retracement and
the second Money-making
Formation is the fifty percent retracement okay, so we can make money
Using any of these combinations, you can
So there's a lot of combinations which give you profitable opportunities?
and here's an example of where we used a
250
Gap and
There are the grid lines I trade traded on this currency
This was a subscription transaction and this shows the formation
you
teen [times] 250 and we had therefore a nice gross gain of
3,200 pups and here you can see [the] application of the
Profit making formations. We didn't even
encounter a break-even formation in this particular instance now risk control
this is probably the [most] important slide because what it's going around in all people's minds is what if the
Price [just] trends and trends and trends and never makes any of these retracements
And we only need one hundred percent retracement to make money. We need a 50-percent retracement to make money, and then we need a
33-percent a retracement to a break even and then after that we start making losses so at
expert Forex we recommend very strongly that you never trade past the fourth level and
using the previous example
If we were to if the price had to reach the fourth level which [is] a thousand pups from your start
There you would Inc your your losses would be your start level would be a thousand
Your first level loss would be serious 700 you
Second level Loss would be 500 your third level Loss would be
250 and your fourth level because you've just reached there will be have no loss, but if you add [them] all together
That's a minus of
2500 Perps
however along the way you will have cashed in so you'll have cashed in one leg two legs three legs four legs cash in and
minus for a one of two thousand five hundred
plus a thousand gives you minus
1500 so at that point
what we're saying is at that point [just] treat that as a loss and start again or
Refrain from training and trading until you are sure that the currency is no longer trending so that is the risk control
method that we use and if you trade the great trading
system over a long period of time
You sure you will be stopped out a number of times
But you will also cash in a lot more than you'll get stopped out
Remember whenever there's a trend. There's always a consolidation before the trend then there's a trend and then is a consolidation
Really often after the trend so a lot of people make enough money during those two
consolidations to make up for the losses that they've made during a trend so the runaway it trends on are not a problem [for] the
Root system. We just take the the loss on the nose. It's not [a] big loss. It's only six cash ins
there's only six cash ins and
You know you just have to look at our
example
previously, here's an example of a
1000 per Trend look at that that's one two three that's seven hundred, but if you if you go beyond the lines
That's another two hundred, and there's another 50, so there's a thousand per trend
that was encountered there and there was never a danger of
Of a problem, it's because of the cash in at that point
Which helped us there, but you can see we're the the system can actually take
trends of well over
Thousands we can track trends or most probably up to
1500 or 400 rather and before [you] actually cash in
Negatively, so so risk management is very important study. This this is our recommendation that [you] never go past level for
Whatever you doing it, and this looks like a lot, but remember if you're training trading a micro account
that is one hundred and fifty dollars and that's
$25 a shot, so if you're trading micro lots
This is this is not [a] train smash or a High-risk trading method
Right from me Alex [deployer]. Thank you very much for you for watching this video, and if you do have any questions
please contact info at expert Forex Com and
we're happy to answer in equations otherwise go to [h] forex Com or
Expert Forex Com for more information, so for me Alex. [I] play Cheerio
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