I wish to tell you my story about Grid trading!
I have spent a lot of time on studying grid trading. I don't know if you have ever been in touch with grid trading system? Grid concept is all about averaging the position.
Open Buy and Sell positions at the same time. And if price fall (for example) for certain number of pips ( STEP) close sell position with profit and open another buy/sell position.
When price comes back to the first open price you can close all with profit. I won't explain all about it now because you can find all about it on the web (try to google it).
If you have been researching grid trading system/s and you didn't find the answer «how to make profit from grid», then I need to guide you trough the complete process of thinking.
First of all The Grid has shown best results in sideway trend because it needs 50% retracement to show best results.
Lots of traders are trying to trade grid approach in wrong time (read high volatility).
When there is high volatility we can expect up or down trend to show up.
You can conclude that low volatility would suit the grid.
Question that you need to ask yourself is: «If there is sideway trend how would you trade it?»
a) open Buy near support line and Sell near resistance
b) open Buy near resistance and Sell near support line
c) open Buy and Sell at median line (50% of sideway trend), another Buy/Sell at support and Buy/Sell at resistance when price come to this levels.
The correct answer is a) !!!
Let's analyse your moves (actions) in a grid system trading.
When you open buy and sell at the same time with the same lot size on the same currency pair, you have paid the spread but you didn't open a position!
What do I mean that position is not open when there are two positions ???
I say that because there is no open position, you are not earning or loosing .
So when price touches (for example) support line you will close sell (take profit) and there will be BUY position left open with the same loss as your profit. Plus you will open another Buy/Sell position at that same spot which means that there is no open position. Only position that you will be holding is BUY at support.
Same thing for Sell only opposite from buy. That is why answer a) is correct.
I hope that you have understood why it's pointless to mislead yourself with opening BUY/SELL positions at the same time.
When we have resolved that, there is no need to mislead yourself. We can go one step further.
What do I think about averaging the position with another position? What does that mean?
Example: If you open Buy position and price turns against you, you will open another buy position with the same lot size and on the same currency pair but 50 pips lower. So, when price comes back only 25 pips up, your P/L ratio would be zero.
I must say that I am not against that. WHY?
If you know when(time&price) to add a position and when to close all opened positions then I would say that you know how to manage your risk!
First mistake that new trader can make with averaging the position is adding to the loosing position with no limit. That is exponential losing and is against main trading rule: «Don't marry your position, just date your them!»
I know what you will say, something like: «OK! Now I know how to beat everyone else on the market!»
But I must warn you! There is a long way to become profitable trader.
You need to develope your own strategy. Averaging The Position with certain set of rules and appropriate risk management is just an excellent tool in your «trading tool box».
