Grid Trading Strategy: Step By Step Guide With Simple Explanation
Grid trading strategy is beneficial for traders in a volatile market. You can take advantages of the price fluctuations by executing as many orders as possible.
Additionally, when there is no particular trend, the grid method could be useful in a ranging market.
The technique of trading is quite impressive. In this method, the traders create a sequence of orders instead of opening up a single trade. They usually open multiple positions around the current price point. However, the number of trading orders will depend on traders.
The article will give you an idea of the grid method and how this method will work on your dashboard.
We also recommend to our current and young traders, check the grid technique on a demo platform, before taking a chance with real money.
Potential Time To Use Grid Trading Strategy
As we stated earlier, the strategy will work tremendously at the time of market volatility. So, the traders can earn money when the asset price keeps bouncing up and down. However, it is advisable to set the entry and exit level properly to avoid trading loss.
Without having the market update, you can not fully trust indicators. Since indicators do not give true information all the time, you should understand the accurate signals from the wrong ones.
Traders can use this method in two separate ways. You can whether running with the trend or against the trend.
If you select the first one, then the trend suggests placing Buy orders above the entry point and Sell orders below it. It will only work if the expecting price goes in one direction.
On the other hand, if the opposite approach is selected then the situation would be something like that; the traders will place the Sell orders above the entry and Buy orders below it.
In this time, the method will only work if the instrument price is expected to swing up or down.
How To Apply Grid Strategy
The first thing that you should do is to choose the right trading assets. Here, we will select the major Forex pair. Let’s see how we can apply the strategy on the real platform.
We pick the most popular broker platform IQ Option to explain the strategy. But the strategy can be chosen and implemented on any trading platform.
Suppose, the investment amount is $5 for a sell trade on EUR/USD on the market price 1.1230.
By employing the ‘With-the-trend’ following approach, a grid of several pending orders needs to create at the same distance.
- 1.1225 (sell order above the market price level)
- 1.1220 (sell order above the market price level)
- 1.1230 (market price)
- 1.1235 ( buy order below the market price level)
- 1.1240 (buy order below the market price level)
Based on each price level, we have to set a stop loss and take profit for each level. And then wait for the price movement, upward and downward, triggering the orders.
You can put more orders, but 3 to 5 is considered as the standard ones for this grid. As for the exit plan of the strategy for those trades, one can choose to close all at once. Or if a trader wishes to close one by one, he can do so.
Guideline That You Should Follow: Step By Step
Practice account can help traders to understand better how Grid trading method works in different market condition. Keeping a trading plan is a must for all traders where you can make a checklist of the all necessary steps.
For now, save the below list to a secure place so that you can implement later.
- First, decide your opening orders; with the trend or against the trend.
- Select an entry point, the number of pending orders, and the interval between them.
- Determine the investment amount.
- Make sure, you decide the stop-loss/take-profit levels.
- Have a good understanding of the potential losses.
- Stick with the plan while creating the pending orders.
- After generating the desire profits, close the deal or when the acceptable loss level is reached.
The trading strategy can only help you by showing a thornless path. But, no strategy has a 100% success rate. Similar to the other strategies, grid trading strategy is not an exception. Traders need to follow the ultimate learning process to avoid financial losses.