Forex traders are some of the most enigmatic and mystified characters to the everyday man. All one understands is they are a few men are sitting in front of screens, predicting the highs and lows, and making a lot of money. One such section of dealers is Forex grid trader.
However, if someone puts enough effort into learning and understanding a bit about foreign exchange trading, they would find it quite interesting.
Here’s what grid trading is all about.
Getting an Idea
In a grid trading strategy, investors buy and sell Forex by banking upon the instability of the market. They buy and trade within regular intervals of fluctuations above and under a base price. This method forms a grid around the base price giving the strategy its name.
Why A Forex Grid Trader Use It?
Traders use grid strategy because it is easy to work with and can be automated with fewer complications. In case of standard grids, traders often incorporate algorithms that follow the process without any human interaction.
It is also used by rookie beginners who are just getting a hang of Forex trading since it doesn’t need a lot of pre-existing market knowledge. Here are some of the common types used by Forex grid trader.
Types of Grid Strategies
There are many variations of grid strategies that traders use. Here are some popular ones.
- Classic Grid System
In this system, traders incorporate their trades with hedges to reduce chances of massive losses. In an ideal condition, all the points are ultimately profitable at which point traders liquidate or remove some of their positions.
This market neutral strategy doesn’t vary profits according to market fluctuations. Profits remain the same even in volatile markets.
- Martingale Principle
In this system, traders follow a simple principle or doubling their bets every time they lose. For example, if you have lost $20 in a trade, you should invest $40 in your next trade. That way, if you win one trade you recover all your losses.
To put this principle to effect, one must have long term knowledge of market fluctuations. This way it becomes easier to predict, and the better the predictions, the more profits one gains.
These 2 Forex grid trader sovetnik methods have been used by many traders over the years and is especially helpful to newcomers.
Now, one should look into the disadvantages of this system.
Disadvantages of Grid Strategy
There are a few disadvantages of the system that a trader should know before relying on it.
They are in loggerheads with the National Futures Association 2009 ruling which prevents hedging with opposing points in one single time frame. However, this is only binding in the USA.
Grids are difficult and time staking to run manually.
It requires a lot of expertise when handled within smaller time frames.
Also, many traders do not look into the theories that operate this system because of its ease of use.
That being said, with a clear understanding about the basics and different aspects of this system, it is clear why a Forex grid trader use it. Although, before one jumps into the grid system training, a little background check might help them go a long way.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.