Grid trading is a straightforward strategy that is often overcomplicated by traders trying to use it.
Grid trading is a strategy that can be easily automated and requires very little technical analysis.
In this post, we go through exactly what grid trading is and how you can use it in your own trading.
NOTE: You can get your free grid trading strategies PDF guide below.
Free PDF Guide: Get Your Grid Trading Strategies PDF Guide
What is Grid Trading?
Grid trading is a system where you are putting multiple buy and sell orders above and below where the price is currently trading.
These pending orders create a ‘grid’ of orders which is where this strategy gets its name from.
Grid trading is most commonly used in markets such as Forex or cryptocurrencies, where the price can move in solid trends, and there are minimal gaps in the price.
As a grid trader, you are not looking at complicated technical analysis or indicators. You are adding a grid of buy orders and a grid of sell orders.
This strategy works well when the price makes a solid move in one direction, either higher or lower, and is not ranging. The reason for this is because as the price moves higher, more and more of your pending buy orders will be hit.
As the price continues moving higher, your long position will grow as your grid buy orders are entered, and you will continually add to your position to make bigger winners.
The downside of grid trading is when the price is ranging or whipsawing. With this type of market, you could have multiple orders entered into only for the price to reverse and put you into a losing position. Whilst in a ranging market you can reverse the orders and buy as price moves lower and sell as price moves higher, it is not as effective as when the price is trending.
How to Grid Trade
One of the main upsides of grid trading is that you only have to carry out a minimal analysis. You can also easily automate it and use it in many different markets and on all time frames.
There are risks you should take into account. These include the potential for price to reverse against your grid and put you into a losing position. If, for example, the price moves higher and enters you into your long grid trades before quickly reversing, you will quickly start losing. The other risk in this scenario is that your sell grid orders start being triggered before once again changing direction.
You also have to take into account that the grid does not take profit for you. You will have to decide where you start taking profit and where your stop loss levels to close the trade are.
The first step to creating your own grid is to decide how large the grid is and how large the intervals between orders will be. For example, if on a 1 hour chart, you might have five buy and five sell orders. These could be priced at 20 intervals from each other. With this, you will need to consider how much volatility the market you want to trade has and how far it regularly moves. You can use the average true range indicator to help you get a pretty good idea of the average movements.
You will then need to decide if you are setting up a grid to profit from a trend or a range.
When looking to profit from a trend, you are looking to buy orders above price and sell orders below the price. In this scenario, as the price moves higher, more and more long positions would be added. As long as the price continues moving higher, you would make larger winning trades as you continue to add them from your grid.
Grid Trading Strategies
In the grid trading strategy example below, we have decided to use a trend trading grid strategy.
We are on the 1 hour chart and have buy and sell orders 25 pips apart from each other.
In this example, as the price starts to move higher and long trades are entered. As the price continues to move higher, more of our grid is activated, and more long trades are added.
With this type of grid, we need to think about where our stop loss level will be if the price reverses against us and where our profit will be. A conservative take profit could be 25 pips above our final long entry. An aggressive target could be one to two times the length of the grid.
Another thing you might choose to use is breakeven or trailing stop loss. As price moves in your favor and more positions are entered, you may choose to start trailing your stop loss to lock in profits.
Using Grid Trading in a Trending Market
What you are aiming for when grid trading is to have all of your grid orders opened in one direction and not the other.
The best way to achieve this is when the price is making a trend clearly in one direction.
As your orders start to get triggered in one direction, you need to start thinking about your profit level and where to look for a profit target.
To limit your position downside when trading a grid, you also need to think about how many orders your grid will have. You also need to calculate how much you could lose if the price quickly reverses and goes against all of your grid orders.
The benefit of trend trading in markets such as Forex is there are many different trends you can find and trade. There are also many different time frames that can offer different trends.
If you are looking to use a trend trading grid system, you can easily use some indicators and price action information to understand better the current or potential new trend you can use.
The other thing to consider is the rules you will use to cancel the other grid orders. Many grid traders will cancel the opposing orders as their grid opens. For example, if the price starts moving higher, you could think about closing the opposing sell orders.
Using a Grid Indicator in MT4
One of the easiest ways to set up your grid trading strategy is by using indicators in your MT4 or MT5 charts.
The MT4 grid indicator adds horizontal lines to your chart. The lines are set up with two different colors for above and below the price. You can change these colors to suit your needs.
This indicator does not actively open trades at your grid levels; it just adds the levels quickly on your chart, so you know where to set up your orders.
You can customize how far apart each level on the grid is, which will quickly help you find where to put your grid trading orders.
You can get the free MT4 grid indicator here.
Using a Grid Indicator in MT5
This is similar to the MT4 grid indicator in that it quickly and easily adds horizontal levels to your charts. You can then use these levels to quickly where to place your grid orders.
With this MT5 grid indicator, you can customize har far apart each grid line is along with the colors of the levels.
You can get the free MT5 grid indicator here.
Note: Don’t know how to install and use these indicators? Read How to Download, Install and Use MT4 and MT5 Indicators.