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The no stop, hedged currency trading grid system uses the rule that one should be able to close a transaction at a gain no matter which way the market moves. The only way this is logically possible is that one would have a buy and a sell transaction active simultaneously. Most traders will say that doing this is not recommended but let’s investigate this in more detail.
We are going to assume a grid with grid gaps of 100 pips. We are going to use the simplest formation to illustrate the principles involved. This formation is the 100% retracement formation where the price goes up to a grid level and then returns back to the starting grid level. Regrettably things become quite mathematical from here. We are also ignoring broker spreads to keep things simple.
Let us assume that a trader enters the market with a buy (buy 1) and sell (sell 1) transaction active when a currency is at a level of say 1.0100. The price then goes to level 1.0200. The buy will then be positive by 100 pips. The sell will be negative by 100 pips. At this point we would cash in our positive transaction and bank our 100 pips. The sell is now however is carrying a loss of -100 pips. The grid system requires one to ensure that the trader can cash in on any movement in the Forex market. To do this one would again enter into a buy (buy 2) and a sell (sell 2) transaction at this level (level 1.0200).
Now, for convenience let us say that the price moves back to level 1.0100 (the starting point).
The second sell (sell 2) has now gone positive by 100 pips and the second buy (buy 2) is making a loss of -100 pips. According to the grid trading rules you would cash the sell (sell 2) in and another 100 pips will be added to your account. That brings the total cashed in at this point to 200 pips (buy 1 and sell 2). At this stage the first sell that is active has moved from level 1.0200 where it was -100 to level 1.0100 where it is now breaking even.
The 4 transactions added together now magically show a gain:- 1st buy (buy 1) cashed in +100, 2nd sell (sell 2) cashed in +100, 1st sell (sell 1) now breaking even and the 2nd buy (buy 2) is -100. This gives an overall a gain of 100 pips in total. We can cash in all the transactions and have some champagne as we have made a profit of 100 pips.
Please ensure you understand the calculations behind the activities discussed above. You may have to reread and draw the movements on a piece of paper to make sure you have mastered the concept.
This formation is the 100% retracement formation where the price goes up to a grid level and then returns back to the starting grid level and results in a nice profit for the forex trader. There are many other market movements that turn this strange Buy and Sell at the same time activity into profits. The next article will cover the 50% retracement formation which produces the same amount of profit.
There will be much more on the no stop, hedged grid trading technique in future articles in this directory. Do not miss them, whatever you do.
Category: Forex TradingHow You can Make Money from the Forex Currency trading Grid Technique was written by:Author:David LloydAdded: Fri, 09 May 2008 00:19:35 -0400 This Article Has Been Read 253 times View all David Lloyd's articlesAbout the Author: If you have missed any of the previous articles on no stop, hedged, forex trading using the grid system please contact the authors David Lloyd and Mary McArthur at GRID SYSTEM or for a free course showing you how to double your trading account in 3 trades go to FREE COURSE |
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