Grid Forex strategies
Category : Robots
Starting their journey in trading on the Forex market, every newbie first goes through dozens and even hundreds of trading systems. From the outset, not everyone understands what type of trading is right for them and what principles to use in trading. This “Holy Grail” search may go from a scalping system to a level-based one or even to FIX API arbitrage. If you are reading this article, then surely you’d like to learn a new methodology or improve your current trading system. So, I’ll give a small FIX API tutorial in which I will try to outline all the principles and the methodology of the grid trading system, its types and key points in trading. First, let’s define that the grid strategy (or as often called in the trading community, the grid system) is an action complex of trading one asset, usually in different directions using pending orders. Simply put, the trader sets buy and sell orders based on the specified algorithm set in the system. The algorithms that a trader (or a robot, if the system is automated) uses, may be different. As a rule, support and resistance levels or Fibonacci levels are used in grid trading. Also a popular method is using pivot levels, which in principle is based on the same support and resistance levels, but set automatically, rather than by the FIX API trader manually.
Let’s take a look at a practical example. Grid trading system is based on following the trend and finding Fibo correction zones to enter the market. That is, the trader determines the trend. Then, with the help of Fibo, he or she finds the local maximum and the local minimum of this trend and sets Fibo from 0% to 100%. The next point of this algorithm: setting a limit order to buy when the correction level reaches 61.8% with the sell order from 38.2%, as there’s a high probability that the trend will continue to decline. Now we have a grid of two orders for the same currency pair. There are also additional transaction options when for example a transaction was entered at 61.8% and continues to grow. Then you can open another deal upon reaching 76.4%, 100%, 138.2%, 161.8%, and so on. And you’ll “trail” the loss limitation level after you reach each set point, thereby ensuring yourself a profit.
This is just one of many options of the grid strategy. As you can see, working in the grid allows to operate more flexibly in the market and “squeeze” more profit from a deal. Leveled grid strategies work similarly, as there the orders are set by levels. Key benefits of grid trading:
- If there is a sustained trend, extra profit can be guaranteed, because “adding” goes in the direction of profitability;
- Minimum number of support tools, since you only need 1-2 of them;
- Flexible risk management.
Key disadvantages of grid trading:
- In case of flat movement, there are many false signals and thus “locks” appear that do not generate neither profit, no loss;
- Control of the moments of reachig the levels.
Since the grid trading requires a lot of time for analysis and monitoring of the current deal state, I recommend that you automate this process. FIX API Forex market tends to change constantly. A trading robot greatly facilitates the participation of a FIX API trader in this process. It is also worth to note that this strategy will suit those FIX API brokers that allow to trade one instrument both for purchase and for sale. In other words, those that provide “account hedge”. Grid trading can be used as a ready trading system as well fit an already formed algorithm, being an effective filter for decision making.