GRID TRADING - How to Use it & Why it's Effective

Summary

In this video, the speaker shares their eight-year experience with grid trading, a technique that has provided them with a consistent and profitable edge in the market. They discuss the use of the Comeback Manager EA for grid and multi-order trading, which has yielded conservative gains over six months. The speaker emphasizes the importance of using equity stop losses over hard stop losses for greater flexibility and demonstrates the effectiveness of grid trading through a 21-year backtest. They also contrast grid trading with common retail trading strategies, highlighting its low-risk, high-flexibility approach, and the use of trend filters like the weekly ADX and Super Trend to identify strong trends for grid trading.

Takeaways

• 📈 Grid trading is a technique that has provided the speaker with a long-term profitable edge over eight years.
• 🤔 Most people struggle with understanding grid trading, particularly how to average in positions and where to place stop losses.
• 🔍 The speaker has been refining their grid trading approach using specialized software like the Come Back to Manager EA for multi-order strategies.
• 📊 The speaker's results over six months have been consistent, with conservative gains of 3-5% per month, aiming for long-term profitability.
• 💡 Grid trading is often misused in high-risk ways; the speaker has developed a formula using equity stop losses for more flexibility.
• 🧮 A back test over 21 years with the Come Back Manager EA showed an 11.33% maximum drawdown, indicating the strategy's long-term effectiveness.
• 📉 The Come Back Manager EA uses trend filters like the weekly ADX and Super Trend to identify strong trends for grid trading within.
• 🚫 The traditional approach to trading often leads to losses due to predictable patterns exploited by banks and institutions.
• 🔄 Instead of predicting breakouts or support/resistance levels, grid trading allows for entering multiple orders to adapt to market movements.
• 💼 The speaker's personal account uses a 15% maximum drawdown limit for grid trading, providing a balance between risk and flexibility.

Q & A

What is grid trading?

Grid trading is a technique where a trader places multiple orders at different price levels, aiming to profit from market fluctuations by averaging in positions and using stop losses effectively.

How long has the speaker been using grid trading?

The speaker has been using grid trading for the last eight years and has been continuously improving their approach.

What is the Comeback to Manager EA, and how does it relate to grid trading?

The Comeback to Manager EA is a specialized tool that the speaker uses for grid and multi-order trading techniques, which has shown consistent results over the last six months.

What is the speaker's target profit in the forex market?

The speaker is not looking for more than three to five percent profit per month in the forex market, as they consider this to be a conservative and sustainable gain over the long term.

How does the speaker incorporate grid trading techniques into their algorithms?

The speaker has programmed grid trading techniques into algorithms like Ranger and Vigorous, which have been running for several months, and the Big Risks algorithm, which has been running for almost 12 months.

What is the difference between hard stop losses and equity stop losses as mentioned in the script?

Hard stop losses are set at a fixed price level for each trade, while equity stop losses are dynamic and based on the overall equity of the trading account, providing more flexibility.

What was the outcome of the backtest using the Comeback Manager EA over 21 years?

The backtest showed an 11.33% maximum drawdown over the 21-year period, demonstrating the long-term effectiveness of grid trading when done correctly.

How does the speaker use trend filters in grid trading?

The speaker uses trend filters like the weekly ADX and the Super Trend to identify strong trends for grid trading within, focusing on trades that align with these trends.

Can you explain the concept of multi-order trading as described in the script?

Multi-order trading involves entering multiple trades at different price levels, allowing for flexibility and averaging in positions. It contrasts with single-order trading by spreading risk and aiming for an overall profit when the market moves in the intended direction.

What is the speaker's approach to managing risk in grid trading?

The speaker manages risk by setting a maximum drawdown limit of 15% on their account, which allows for flexibility in grid trading while still maintaining control over potential losses.

How does the speaker's grid trading strategy differ from typical retail trader approaches?

The speaker's grid trading strategy differs by not relying on predicting breakouts or support/resistance levels. Instead, it focuses on entering multiple orders with low initial risk and using equity stop losses for flexibility, aiming for smaller profits with less reliance on market predictions.

Outlines

00:00

📈 Introduction to Grid Trading

The speaker introduces grid trading as an effective yet underutilized trading technique. They share their eight-year journey with grid trading, emphasizing its long-term profitability. The speaker discusses common misconceptions about grid trading, such as the placement of stop losses, and introduces the 'Come Back to Manager EA', a tool they've used to enhance their grid trading strategy. They highlight the importance of conservative gains, aiming for 3-5% profit per month, and the use of grid trading in various algorithms over extended periods, demonstrating consistent results with minimal drawdown.

05:00

🔍 Deep Dive into Grid Trading Strategies

The speaker elaborates on their grid trading approach, focusing on the use of equity stop losses over hard stop losses to increase flexibility. They present a backtest of the Euro vs. US Dollar using the 'Come Back Manager EA', showcasing a 21-year test with a maximum drawdown of 11.33%, illustrating the technique's long-term effectiveness. The speaker also explains the use of multi-order trading, either with or against the trend, using trend filters like the weekly ADX and Super Trend to identify strong trends. They provide a practical example of entering multiple orders at different price levels, managing risk through grid trading, and achieving profits even in volatile market conditions. The speaker concludes by advocating for a methodical, non-predictive approach to trading, aiming for smaller profits with more flexibility and lower risk.

Keywords

💡Grid Trading

Grid trading is a strategy that involves placing multiple orders at different price levels to take advantage of market volatility. It's effective because it allows traders to enter and exit positions systematically, regardless of market direction. In the video, the speaker has been using grid trading for eight years and has found it to be a profitable long-term approach, particularly when combined with other techniques like multi-order trading.

💡Averaging in Positions

Averaging in positions is a technique where a trader enters additional trades as the market moves against their initial position, thereby reducing the average cost of the position. This strategy is highlighted in the video as a key aspect of grid trading, allowing for flexibility and potentially reducing the impact of adverse market movements.

💡Stop Loss

A stop loss is an order placed by a trader to sell a security when it reaches a certain price, typically used to limit potential losses. The video discusses the importance of placing stop losses effectively in grid trading, with the speaker suggesting the use of equity stop losses as opposed to hard stop losses for greater flexibility.

💡Equity Stop Losses

Equity stop losses are a type of stop loss that is based on the overall equity of the trading account rather than a specific price level for each trade. This concept is introduced in the video as a method to manage risk in grid trading, allowing the trader to maintain a broader perspective on their overall exposure rather than focusing on individual trade levels.

💡Multi-Order Trading

Multi-order trading refers to the practice of placing multiple orders simultaneously or sequentially to capitalize on market movements. The video emphasizes the effectiveness of multi-order trading when used in conjunction with grid trading, especially within strong trends, as it provides a systematic approach to entering and exiting the market.

💡Trend Filters

Trend filters are tools or indicators used to identify the direction of a market trend. In the video, the speaker mentions using trend filters like the weekly ADX and the Super Trend to filter out the strongest trends for grid trading, which helps in determining the appropriate direction and timing for placing trades.

💡Breakout

A breakout in trading refers to the price of a security moving past a resistance or support level, often signaling a potential trend change. The video discusses how many traders look for breakouts as a trading opportunity, but also warns about the risks of fake breakouts, which can lead to stopped out trades and losses.

💡Support and Resistance

Support and resistance are price levels at which an asset's price tends to stop and reverse. Support is the price level where the asset is expected to find buying interest, while resistance is where selling interest is expected. The video explains how many traders use these levels to predict market movements, but also how this approach can be exploited by market institutions.

💡Drawdown

Drawdown in trading refers to the peak-to-trough decline during a specific period for an investment, before a new peak is achieved. The video mentions a maximum drawdown of 15% as a risk management strategy for grid trading, indicating the speaker's approach to balancing risk and reward in their trading strategy.

💡Consistent Gains

Consistent gains refer to a steady and reliable increase in profits over time. The video speaker mentions seeking conservative gains of three to five percent per month, emphasizing a long-term approach to trading rather than chasing large, immediate profits.

Highlights

Grid trading is an effective yet underused technique for long-term profitability.

The speaker has been refining their grid trading approach for eight years.

Grid trading involves averaging in positions and strategic stop loss placement.

The ComeBack Manager EA is used for grid and multi-order trading techniques.

Consistent but conservative gains are sought, aiming for 3-5% profit per month.

Grid trading is integrated into the Ranger and Vigorous algorithms for long-term testing.

The ComeBack Kid Manager EA effectively uses equity stop losses for flexibility.

A 21-year back test shows an 11.33% maximum drawdown, indicating long-term effectiveness.

Multi-order trading can be used with or against the trend, depending on the strategy.

The ComeBack Kid EA uses trend filters like the Weekly ADX and Super Trend.

Grid trading allows for entering multiple orders to capitalize on market movements.

The technique minimizes risk by spreading out orders and using flexible stop losses.

A visual demonstration explains how grid trading differs from traditional breakout strategies.

The majority of retail traders lose due to predictable market approaches.

Grid trading avoids predicting breakouts or support/resistance levels.

The speaker's account allows for a 15% drawdown, providing flexibility in trading.

Grid trading has been a successful strategy for the speaker over many years.

Transcripts

grid trading is one of the most

effective but underused training

techniques out there

in this video today i'm going to be

talking to you about how i've approached

grid trading over the last eight years

and how it's given me a long-term

profitable edge that i've always been

looking for

most people don't fully understand how

grid trading averaging in positions can

be effective where to place a stop loss

so in this video i'm going to be talking

to you about how to approach grid

trading in the best way possible to

bring you that long-term profitable edge

i found grid trading about eight years

ago and ever since that time i have been

constantly trying to improve

my approach and push the limits of this

type of trading technique

to see how profitable it can be over the

long term so i've been using the uh come

back to manager ea which specializes in

grid training and multi-order training

techniques and you can see my last six

months of results here

have been really quite consistent

but conservative gains and that's what

i'm looking for in the forks market is

i'm not looking for more profit than

three to five percent per month as

that's going to be plenty especially

when an investment is considered over

the next five to ten years so i also

programmed uh grit training techniques

into the ranger and vigorous algorithms

that you can see here that's been

running for

quite a few months seven months there

and the ranger and the comeback kid

together that one's been running for

over a year and a half now and the big

risks running by itself on this account

for almost 12 months now so grit trading

technique

techniques have been

used before but most people use them in

a very high risk way

it's difficult to know where to put stop

losses so

i have

basically come up with a formula uh

using the comeback kid manager ea

that's been really effective in

using equity stop losses instead of hard

stop losses on each trade

to give the trader more flexibility

within approach to this market so i ran

a quick back test on the euro us dollar

using the comeback manager ea and its

approach to grid trading and multi-order

trading and you can see that this test

right here was run over 21 years using

99.9 percent modeling quality

uh and you can see the

11.33

maximum drawdown uh for the 21-year test

so it shows how effective this type of

training can be

over the long term if done in the right

way so

multi-order trading can be effective if

used with the trend or it can also be

used in counter-trend trading as well in

this case the comeback kid manager ea

looks for

grid trading within a strong trend so it

uses two trend filters the

weekly adx and also the super trend as

well

to filter out the strongest

trends and in this case we had trade

number one so trade one was taken here

this was a short position looking for a

market to go down and it didn't and so i

entered a second third fourth and fifth

position now

orders one two and three these three

were all in loss and four and five were

in a big profit and all the trades

closed out for a realized gain at this

point

so

instead of making a hard stop loss on

trade one

at the last swing level and getting

stopped out i'm still looking for the

overall trend to be in in the down

direction at this point and so the

chances of a pullback happening

were pretty high in this case it took

five orders the crazy thing is that

you're probably thinking well this is

going to be a lot of risk right here

with these five positions but

the reality is is that if you do grid

trading or multi-order trading correctly

five orders within the markets isn't

going to have big drawdown this was

probably

maybe a half percent of drawdown maybe

less than that

overall and i was able to come out with

a decent profit once all closed out all

trades closed out uh for a realized game

okay so that is multi-order trading in

kind of a nutshell

to better help you guys understand a

grid or multi-order approach i've got a

drawing pad out here to just show you

some standard market structure and how

traders typically trade that structure

to hopefully come out and to profit but

the unfortunate reality is that

the majority of those traders that are

approaching the market like this

are losing um and it's because the banks

institutions know how people typically

approach or retail traders approach the

market

and they can just take advantage of that

exploit how traders approach

so they can bring price in an opposite

direction so what most traders are

looking for are breakouts of this level

so this is the last swing high where

resistance has now been hit because

price went down and then it bounced back

up so a breakout of this level seems

you know i like a good idea and see if

we can catch when the trend breaks out

but a lot of times what happens with

that approach is a simple

fake out so we have this happen

and then

it comes back down and reverses

okay so we basically get our position

that we entered right up here stopped

out because it was a fake breakout

so that is one one thing that happens

and then there's another thing that

happens here where

traders will look for

that last swing high as a potential

entry into the market where that

resistance up here is now turned into

support

and i see this

as a type of approach that most traders

are using

and there is a lot of issues with this

one too because

if you're looking for

a retest to happen of

or the resistance to be a support

you might just end up it might just keep

going down and you're going to get wiped

out maybe your stop loss is down here

and you get knocked out

that is what a lot of times will happen

on these fake breakouts or if price just

doesn't have enough support

where that resistance was to really

shoot back up

so that's where a lot of traders get

stopped out and they constantly are

getting

having

losing trades because of where they

think the market is going so instead of

trying to make predictions on where it's

going to break out where it's going to

find support and resistance what i'm

typically doing is i might enter a trade

right here okay

looking for a

the market to push back up but instead

of it doing that in this case

it decides that it's going to head down

further and i'm going to enter another

order so that's my second order then

it's going to keep going down

third order okay so third order is right

down here at the last swing low level

and is price going to behave there well

let's say that it does and price ends up

shooting back up and even breaking out

of the last

resistance point so that means we have

three orders in so if price did that and

that means that our three positions

closed out for an average in profit at

this point when price decided to push

back up so instead of making our trade

one a prediction and getting wiped out

we entered two more times and looking

for price to give flexibility to our

trading in order to come out into profit

once price does continue to move in our

intended direction so instead of trying

to predict on trade one we're basically

predicting that the swing is going to

going to be larger so we're predicting a

price within a realm of of a swing level

or from a range to another range

for our

averaging trades to take profit

in this case

it worked out pretty well but let's say

that price you know didn't quite do

exactly what we wanted and continue to

go back down

okay so we enter a fourth trade let's

say it continued to go down even further

in a fifth trade then all of a sudden it

decides that it's going to shoot back up

okay so then we have our fifth five

trades all averaging in for a realized

gain right about there and we're able to

close out for our positions and the

thing that we're looking for with this

type of trading is

basically low risk on our first trade

low risk second third and fourth and

fifth and we're looking for smaller

profits

and

more flexibility with our stop loss so

instead of having that hard stop loss

we're actually looking at an equity on

our account so from my from my account

that uh that you saw at the come back

humanitarian here i'm looking for a

maximum 15 drawdown

so 15 drawdown is a lot higher than what

you can get at the majority of prop

firms but since this is my own account

of 33 000

i thought that 15 drawdown is enough

enough flexibility within my grid

training techniques

to

approach the market in a very uh

thoughtful way

so 15 drawdown and a

maximum drawdown and i will cut trades

if that takes place and then

likely i will be able to recover my 15

loss within a three to four month period

so everything is methodical and thought

out in my approach so i have that

flexibility that i'm looking for with

grid training all right so i hope that

this helps you in understanding why grid

trading can be effective and why it's

been effective in my trading for the

last many years now

anyway guys thanks so much for watching

catch you on the next one