Why They Banned Grid Trading And Martingale

Quantum FX Markets

5 Feb 202304:47

Summary

TLDRThe speaker discusses grid trading and its controversial reputation, explaining why it's often banned in trading challenges and prop firms. He highlights his experience with a trading challenge that disallowed grid and Martingale strategies, sparking his curiosity. Through research and experimentation, he found that grid trading, when applied with proper parameters like spacing, lot sizing, and risk management, can be profitable. Despite its risks, it is banned because it can consistently generate profits. The speaker hints that some firms ban these strategies to prevent traders from winning too easily.

Takeaways

😀 Grid trading and Martingale are often banned in trading challenges and funded accounts due to their effectiveness in the right conditions.
😯 A 2015 trading challenge had fine print disqualifying grid trading and Martingale, which piqued interest in why these methods were prohibited.
💡 The speaker believes that institutions and some prop firms don't want traders using grid trading because it can be highly profitable if applied correctly.
🤔 Grid trading, when used with proper parameters, can consistently generate profits, though it carries risks if not managed well.
💰 Prop firms that rely on subscription models may ban strategies like grid trading because they benefit when traders lose.
⚠️ Martingale strategies, while risky, can also be profitable if used with correct leverage and risk management, but can quickly lead to large losses if misused.
🧐 The speaker suggests that certain markets are not suitable for grid trading, and applying the wrong settings can lead to losses.
🔎 The speaker highlights that not all prop firms are against profitable strategies and endorses City Traders Imperium as a trustworthy one.
📉 Despite the risks associated with these methods, the speaker claims both grid trading and mean reversion can work well with proper setups.
🚀 The speaker plans to release new strategies under 'Dark Pool Technologies' and encourages traders to explore grid trading despite its risky reputation.

Q & A

What is grid trading, and why is it mentioned in the video?
-Grid trading is a strategy that involves placing buy and sell orders at predetermined intervals above and below a set price, aiming to profit from market fluctuations. The video mentions it as a profitable strategy, despite being banned by some trading challenges and prop firms.
Why do trading challenges and prop firms often ban grid trading and Martingale strategies?
-These strategies are banned because they can be highly profitable when applied correctly, which is not in the best interest of some prop firms that make money from traders' losses or subscriptions. Banning these strategies may protect the firms' profitability.
Who is Niall Fuller, and what relevance does he have in the video?
-Niall Fuller is an Australian trader who specializes in price action trading. He won a trading challenge mentioned in the video, which piqued the speaker's interest in why strategies like grid trading were banned.
What are the risks associated with grid trading?
-Grid trading can be risky if it is not set up with the correct parameters, such as market conditions, grid spacing, lot sizing, and risk management. It can lead to significant losses, especially in volatile markets.
Why does the speaker believe grid trading works well, despite being labeled risky?
-The speaker believes grid trading works well because, when applied with the right parameters, it consistently generates profits by capitalizing on market fluctuations. They claim it ‘peels money out of the market’ once set up correctly.
What similarities does the speaker draw between grid trading bans and the concept of ‘the Matrix’?
-The speaker likens the ban on grid trading to a conspiracy-like notion, where the financial system (like 'the Matrix') hides profitable strategies from traders because it doesn’t want them to win, similar to how 'the Matrix' hides reality from people.
What is Martingale, and why does the speaker believe it can be profitable?
-Martingale is a betting strategy where you double your trade size after every loss, aiming to recover losses and make a profit when a trade eventually wins. The speaker believes it can be profitable if managed with proper risk control, lot sizing, and leverage, though it can also be very risky.
What is the speaker's stance on prop firms, and which one does he endorse?
-The speaker suggests that many prop firms are structured to make money from traders' losses or subscription fees. However, he endorses City Traders Imperium as a good, trustworthy prop firm.
What advice does the speaker give regarding the use of grid trading?
-The speaker advises that grid trading should be used with specific parameters, including grid spacing, market selection, and proper risk management, in order to be profitable and minimize risk.
What are the speaker’s plans regarding grid trading strategies?
-The speaker mentions plans to release 'dark pool technologies strategies' in the near future, which may suggest the development of advanced trading strategies based on grid trading.

Outlines

00:00

🤔 Why is Grid Trading Banned?

The speaker begins by sharing their past experience participating in trading challenges, notably one held by the Australian broker Axi around 2015. A key rule in the challenge was a ban on grid trading and Martingale strategies, which caught the speaker's attention. This led to curiosity about why such profitable strategies would be prohibited. Despite common claims on forums that grid trading is highly risky and ineffective, the speaker embarked on a journey to explore these strategies in more depth.

💡 Exploring Grid Trading and Its Success

After diving into grid trading, the speaker shares insights about the strategy's profitability, showing an account that’s actively generating profits using grid trading. The speaker emphasizes that despite the risks, when applied correctly—with specific parameters, grid spacing, and risk management—grid trading can consistently generate profits. They argue that this is why some trading firms disallow grid trading, as it could work against the firm's financial interests.

📜 Prop Firms and the Ban on Grid Trading

The speaker explains how some prop trading firms, particularly the less reputable ones, profit from traders losing their accounts or subscription fees. Banning strategies like grid trading or Martingale is often a tactic to prevent traders from becoming too successful and profitable. However, the speaker also mentions there are reputable firms, like City Traders Imperium, which allow and support fair trading.

📈 Why Grid Trading Works (When Applied Correctly)

The speaker highlights how grid trading, with the right approach, can continuously generate profits by exploiting market conditions. When the proper parameters are in place, grid trading ‘peels money’ out of the market. Although risky if mishandled, the speaker emphasizes that with the right risk management, the strategy works effectively.

⚠️ Risks and Markets to Avoid for Grid Trading

Despite the advantages of grid trading, the speaker warns that it doesn’t work in all markets and can result in significant losses if misapplied. They share their personal experiences of learning these lessons the hard way, cautioning that understanding the markets and conditions where grid trading is ineffective is crucial to avoid blowouts.

🤖 Martingale Strategy: A Future Discussion

The speaker briefly touches on the Martingale strategy, stating that it also works when used with proper risk management and parameters. While it has the potential to quickly lead to account blowouts if over-leveraged, Martingale can be a profitable strategy when used carefully. The speaker hints at a future video dedicated to discussing the Martingale strategy in more detail.

🏦 Why Prop Firms Ban Martingale and Grid Trading

Returning to the subject of prop trading firms, the speaker reiterates that many firms ban grid and Martingale strategies because they don’t want traders to win. By limiting the use of these effective strategies, firms can profit more from traders who lose. However, the speaker mentions there are reputable firms out there that allow for more fairness in trading.

🚀 Final Thoughts and New Strategies

The speaker concludes by reinforcing the idea that grid trading is banned because it works, if done right. They also tease upcoming content related to dark pool technologies and strategies, encouraging viewers to stay tuned for more insights on profitable trading approaches.

Mindmap

Keywords

💡Grid Trading

Grid trading is a trading strategy that involves placing buy and sell orders at predetermined intervals above and below a set price. The video highlights that grid trading is often banned by trading challenges and prop firms, implying that it is effective when used with the correct parameters. The speaker mentions how, when properly configured, grid trading consistently generates profits by 'peeling money out of the market.'

💡Martingale

Martingale is a betting strategy that involves doubling the stake after every loss to recover all previous losses and gain a profit. The video discusses how this method is also banned in many trading evaluations due to its potential to make money if done with the right risk management. However, it can be highly risky if improperly leveraged, which can lead to significant losses.

💡Prop Firms

Prop firms, short for proprietary trading firms, provide traders with access to capital in exchange for a share of the profits. The video mentions that many prop firms ban strategies like grid trading and Martingale because these methods can lead to consistent profits, which would hurt the firm's business model if traders consistently win. However, some reputable prop firms, like City Traders Imperium, are highlighted as trustworthy.

💡Mean Reversion

Mean reversion is a financial theory suggesting that asset prices and returns eventually move back toward their historical mean. In the video, the speaker discusses how mean reversion strategies can be profitable, similar to grid trading and Martingale, if used correctly in the right market conditions. The implication is that these strategies, while risky, can provide opportunities for profit.

💡Risk Management

Risk management involves identifying, analyzing, and accepting or mitigating uncertainty in investment decisions. The speaker emphasizes the importance of setting proper parameters for grid trading, Martingale, and other strategies, as they can 'blow up' an account if not managed correctly. Effective risk management is key to making these strategies work without experiencing large losses.

💡Price Action

Price action refers to the movement of a security's price plotted over time. The video mentions Niall Fuller, a price action trader, as someone the speaker used to learn from. Price action is often used in technical analysis to make trading decisions, and it plays a central role in identifying profitable opportunities in grid trading and other strategies discussed.

💡Trading Challenge

A trading challenge is a competition in which traders aim to achieve the highest returns within a set period, often with specific rules or restrictions. The speaker recalls participating in a trading challenge hosted by Axi Trader in 2015, where strategies like grid trading and Martingale were explicitly banned. The ban raised curiosity and led the speaker to explore these strategies further.

💡Leverage

Leverage involves using borrowed capital to increase the potential return on investment. The video discusses how improper use of leverage in strategies like Martingale can lead to rapid losses, while correct leverage, combined with proper risk management, allows these strategies to generate profits. The speaker warns against over-leveraging, which can quickly 'blow up' an account.

💡Profit-taking

Profit-taking refers to the act of selling an asset to lock in gains after a favorable price movement. The video frequently highlights the consistent 'green' or profits generated by grid trading strategies, where the system 'just keeps taking profits.' This steady accumulation of profits is central to the appeal of grid trading for the speaker, especially when parameters are set correctly.

💡Trading Evaluations

Trading evaluations are tests or assessments used by prop firms to determine whether a trader can manage risk and make consistent profits. The video emphasizes that grid trading and Martingale are often banned in these evaluations because these strategies can allow traders to win consistently, which would be unfavorable for firms that make money off traders' losses. The speaker argues that this is why these strategies are forbidden by many firms.

Highlights

Grid trading and Martingale are banned in many trading challenges, including those by brokers like AxiTrader.

Niall Fuller won a trading challenge despite strict rules against grid trading and Martingale.

The fine print of trading challenges often disqualifies grid trading and Martingale users immediately.

Banning grid trading raises curiosity, leading the speaker to explore its potential benefits and risks.

Grid trading, if applied with specific parameters, can work effectively and generate profits.

The speaker discovered that proper spacing, lot sizing, and risk management make grid trading successful.

Some dodgy prop firms make money when traders lose, banning profitable strategies like grid trading.

Grid trading works in specific markets but can be risky if misused or applied to the wrong markets.

Martingale strategies also work, though over-leveraging can quickly lead to losses.

Proper sequencing, leverage, and lot sizing are essential for Martingale strategies to be profitable.

Prop firms ban Martingale and grid trading because they can be highly effective when used correctly.

Not all prop firms are sketchy; City Traders Imperium is endorsed as a good firm by the speaker.

Grid trading can continuously generate profits once proper parameters are set.

Both grid trading and mean reversion strategies can work effectively if set up correctly.

The speaker plans to release strategies like dark pool technologies soon.