The grid trading method is one of the most advanced methods to make a profit in the Forex market. This is not like your trading strategy by which you will place the orders at the support and resistance level. Placing trades after some specific interval using the key support and resistance level is known as a grid trading strategy. To master the grid trading method, you need to have strong knowledge of two specific terms.
These are –
- Support and resistance
- Nature of the trend
Support and resistance
Support is such a price zone from where the bulls take control of the market. The traders execute long orders when the price of a certain asset hits the critical support level. On the contrary, when the price of a certain asset hits the critical resistance level, price starts to fall. So, the traders execute the short trade when the price hits the major resistance level. But there is a small twist to this concept.
If the price manages to break above the resistance level, it becomes support. On the contrary, where the price manages to break below the support level, it becomes resistance.
Minor and major levels
If you closely notice the price chart, you will find the many levels to trade. Support and resistance level drawn in the lower time frame is known as minor levels. On the contrary, if you use the daily or weekly time frame to find the key support and resistance level, you are dealing with the major levels.
The professional traders place trades at the minor and major support by using the grid trading system. Since multiple trades are open in the grid trading system, managing the lot size becomes very hard. In fact, many traders often fail to place the trade at all the important levels. This is where the EAs come into action. By using the EAs you can easily automate your grid trading method and earn money without doing the hard work.
Finding the key trading zones
First of all, you need to design a unique EAs that can find the key trading zones. Most of the time, the traditional EAs find the major support and resistance level. Since you will be using the grid trading method, your EA needs to have the ability to find the minor support and resistance level. If possible include the time function so that you can determine which time frame the EA will analyze the draw the sweet trading spot. This gives you a great level of an advantage when it comes to complex price movement.
Scalping of the lot size
Based on the support and resistance level, the EA will automatically place the trade at those important levels. But what about the size? The lot size is also calculated based on the total number of pending orders that will be placed on a certain asset. But some of the advanced traders often use the manual trade execution process to place the trade.
For them, the lot size identifier EAs can suggest the best possible lot for the trades based on the number of the lot currently running for a specific trading account.
Setting up the stop loss
Setting up the stop loss is a very complicated process when it comes to the grid trading method. Either you can use a master stop or rely on specific stop levels for each trade. If you use a specific stop level, you must learn to use the price action signals. Those who are naïve can use EAs that can determine the most reliable price action signals at any time frame. But make sure you are placing the stops in such a way so that the cumulative risk exposure for all the trades never exceeds 5% of your account balance.
Setting up the take profit
The unique trailing take profit features makes the grid system much more interesting. As soon as the price moves in your favor, the stops are usually moved to the next price point by the EAs.
Most of the time, the EA calculates the pivot point or uses a fixed percentage to trail the stop for each open trade. By doing so, you can greatly improve your profit factors in the grid trading method.
Advantage of using the EAs
By now you must have a clear idea about the complexities associated with this grid trading method. If you intend to execute all these functions by using the manual method, the chances of making a mistake are very high. And for every mistake, you are going to pay heavily. But if you use the smart robot to automate the grid trading method, you can easily boost the profit factor. However, the EAs must be tested in the demo environment or else it will be really hard to say that you will be able to make a profit in the real market.