4. How You Can Make Money From Using The Forex Trading Grid Technique

By Author: David Lloyd
Total Articles: 3698
Comment this article

The key part of how to make money using the no stop, hedged, Forex trading strategy will now be covered. In the previous articles in this series we reviewed trading without stops, not being worried about which direction the price moves and places to cash in on profitable trades. We are now going to show how it is possible to make money buying and selling at the same time using the grid structure.

The no stop, hedged forex trading grid system uses the principle 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 deal active at the same time. Most traders will say that doing this is not recommended but let's investigate this in more detail.

Assuming a grid with grid gaps of 100 pips. We are going to use the most simple 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. Now 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 technique requires one to make sure 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 assume 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 go into your account. That brings the grand 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.

All 4 deals 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 liquidate all the deals and have some champagne as we have made a gain 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 understand the concept.

This formation is the 100% retracement formation where the price goes up to a grid level and then returns back to the original grid level and results in a nice gain for the forex trader. There are many other market movements that turn this strange Buy and Sell at the same time activity into gains. 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 system in future articles in this directory. Do not miss them, whatever you do.