How to trade the Forex Grid system. A detailed introduction on how hedging trades create gains

Summary

In 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

00:00

📈 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.

05:00

💰 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.

10:02

🔄 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.

15:11

🛡️ 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.

Keywords

💡Grid Trading System

The grid trading system is a method used in forex trading where a series of buy and sell orders are placed at predetermined price levels, creating a 'grid'. This strategy is designed to take advantage of market fluctuations within a certain range. In the video, Alex explains the five steps to trading the grid system, emphasizing its use in investments with random and range-bound behavior, and its ability to generate profits without relying on market direction.

💡Grid Size

Grid size refers to the distance between each level in the grid trading system, measured in pips. In the script, a 200 pip grid size is used as an example, meaning each buy or sell order is placed 200 pips apart from the next. This setting is crucial as it defines the potential profit and risk levels for each trade within the grid.

💡Hedging

Hedging in the context of the grid trading system means having both buy and sell orders open at the same time, which reduces the risk of market movement in either direction. The script mentions that the system is either fully or partially hedged, meaning that losses on one side can be offset by gains on the other, thus managing risk effectively.

💡Retracement

A retracement is a price movement in the opposite direction from a previous trend. In the grid system, retracements are key to profit generation. The video discusses two types of retracements: 100% and 50%, which are profit-making formations. For example, a 100% retracement results in a profit if the market returns to the starting price level after moving up or down by the grid size.

💡Breakeven

A breakeven situation in the grid trading system occurs when the sum of profits and losses from the trades equals zero. The script explains a breakeven formation where the price moves three levels away from the start and then retraces to the second level, resulting in four cash-ins that balance out the negative open trades.

💡Risk Management

Risk management is a critical aspect of the grid trading system, as it involves strategies to limit potential losses. The video emphasizes not trading past the fourth level to prevent significant drawdowns. It also discusses the importance of recognizing market trends and consolidations to avoid trading during unfavorable conditions.

💡Pips

Pips, short for 'percentage in point', is the standard unit of measurement for changes in the exchange rate of a currency pair. In the script, the grid size and profit or loss calculations are based on pips, highlighting the importance of this unit in forex trading and the grid system's mechanics.

💡Investment System

The grid trading system is referred to as an investment system rather than a trading system because it involves a long-term approach and does not require constant monitoring. The video mentions that transactions can take weeks to occur, indicating a more patient and strategic approach to forex trading.

💡Mechanical

The term 'mechanical' in the context of the grid trading system suggests that it is highly systematic and can be automated. The video mentions that the system is highly mechanical with very low supervision, meaning it follows a set of predefined rules that can be executed without the need for constant human intervention.

💡FIFO Rule

FIFO stands for 'First-In, First-Out', which is a rule that dictates the order in which trades are closed. The script discusses how changes in the American market regarding hedging and FIFO rules initially posed a challenge, but the use of two trading accounts—one for buys and one for sells—overcame this issue.

💡Drawdown

Drawdown in trading refers to a decrease in the value of a trading account. The script mentions that the grid trading system can incur drawdowns if used inappropriately in strongly trending markets or with unsuitable grid sizes. It is an important consideration for risk management within the system.

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