In today’s video we will be discussing how to get started with Grid Trading Systems. Our focus is on Forex Grid Trading, but all information is relevant for using Grid Strategies on any financial instrument.
We are on the cTrader platform in our session today, making use of the Adaptive Grid Blazer from Forexcove. However, all information is applicable on MT4, MT5 or any other platform you may be using.
Getting started with Grid Trading Systems
This is the first video in a series that is going to focus entirely on grid trading and grid systems, and it is going to form a playlist on our Youtube channel as well.
So, if you are interested in grid trading or if you are new to this, or perhaps even if you are experienced and would like to get some tips and ideas on how to optimize grid systems for different financial instruments, you’ve definitely come to the right place.
As this is the first video, I’ve selected frequently asked questions that I think will be of interest to people coming into grid trading.
It’s not a thorough explanation of what grid trading is; we’re going to have a look at that in an upcoming video, but I will highlight a couple of things that I think are really, really important for you in order to get off to a good start.
Forex Grid Trading Best Practice
The first thing we want to talk about is what I call best practice, which essentially is getting to know your trading system very well.
So this tip does obviously not only apply for grid training. Whatever your trading strategy is, especially when it comes to automated strategies, you really need to understand how the strategy works.
And that means that once you’ve found a vendor that you trust, and you think the description of the automated strategy is a good match for you, after you download, you absolutely must apply it on a demo account, see it trade at normal speed, and get to know how it positions its trades, how it enters and exits trades as well.
This is tremendously important. It’s also important to start the optimization process early on.
If you have a good dialogue with the vendor, the vendor obviously will be able to help you with settings, configurations and considerations.
So why am I saying this?
I’m saying this because a lot of people, they buy an automated strategy, they slap it on a live account and they pray and obviously what’s going to happen is frequently they will look at its trading, if they don’t understand it, they might want to interfere or close the trades because they think it looks wrong.
You can avoid all that getting to know the strategy early on.
Remember, an automated trading strategy is a tool. It’s the synthesis of a manual trading approach.
It’s just done automatically. Therefore, in order for you to get the most out of any tool, you have to understand the tool, find out how it works.
So the second question we have received a lot over the years is a funny one because it’s not always framed like this, but the gist is:
Are Grid Systems Magical Money-making machines?
Obviously the answer is no, If you’ve been in the markets for any time at all, you will know that every single trading strategy fares well under certain market conditions, and not so well under others.
Let’s take an example. If you are a trend trader, you want to get the most out of trending markets, and you want to get out of markets that move sideways.
So for trend trading, you’re making money when the markets are trending, and you’re probably not making money when the markets move sideways.
Conversely with grid systems, grid systems, we take profit when prices retrace, which means that we’re scaling in and out while adding to position sizes. So this obviously fares very well in ranging markets.
In short, there are no magical approaches to trading any markets.
We have strategies that will work well under certain conditions, and not so well under other conditions.
Are all Grid Systems the same?
No grid systems are not all the same.
They vary in terms of feature set, how much you can modify its trading behavior, and how much you can configure the algo.
That’s one difference. The one we’re looking at here is called the Adaptive Grid Blazer.
It’s a complete grid system that allows for modification and optimization for different investor profiles. if you’re interested in getting to know this system more, you can click on the link here.
Generally, I would say, they’re two maybe three types of Grid Systems.
We have serious grid systems that are fully featured. You can also find good systems where the configurations are hardwired.
When I say hardwired, it means that the vendor has selected for you the optimal currency pair, or the optional instrument and settings and then from time to time you get updated files or an updated algo with the new optimized sets for the new market reality.
I think in general terms what you want to look for it is a fully featured algo, where you can change the parameters simply given that the market’s change significantly over time.
So, we have fully featured training systems and we have hardwired systems.
When I said we have type three, it’s because they’re also unfortunately some scams out there that are typically hardwired, where you can’t forward test, you can only back test, and it gives excellent results on back testing.
Not so great on forward testing. So be careful with those.
What’s a reasonable account size?
The reasonable account size is something you would have to discuss with the vendor of your algo. It depends on the configuration of the grid system and, it depends on your trader profile as well.
But as a rule of thumb, you will need some money as a grid system is a self financing trading strategy.
Just as a simple example, if you are trading a simple trend trading cross-over strategy, you know that you will only have one position open at any given time, and you know how much you risk per trade.
But as mentioned previously, when you do grid trading, we have a varying number of trades open at any given time.
And that also means that the exposure in the marketplace varies, because we’re financing our own trading as we’re scaling in and out of trades all the time
It also means that we need to have some money to be able to do that, and we need to have some leverage.
So the account size and leverage obviously ties in.
As a rule of thumb, you would want to have as much leverage as possible.
It’s still possible to get 1:500 or 1:300. Some offer 1:100, and many are pivoting towards 1:30, which is on the low side for grid systems.
Again, talk to your vendor, but as a rule of thumb, the absolute minimum is normally about $1000 and then 3, 4 or $5000 and upwards you will get the best results.
What is the ideal multiplier setting?
The multiplier setting is incredibly important, because it determines the trading behavior of your grid system.
The higher the multiplier is in general terms, the less prices have to retrace in order for you to exit with profit.
So why is that? Well, when prices move up, se will open more sell trades, and the higher the multiplication is, the less retracement I need to see before I exit all my positions.
Most grid systems operate with a multiplier of somewhere between 1.2 and all the way up to 3, which is quite high.