The no stop, hedged currency trading grid system uses the rule that one must be ready to close a dealings at a gain in spite of which way the market moves. One way this can be logically do able is that to have a purchase and a sell dealings active at the same time. Most traders do not recommend doing this; however let’s scrutinize this in more detail.
Assuming a grid with grid gaps of a hundred pips. We have a tendency to getting to use the best formation to indicate the principles concerned. This formation is that the 100% retracement formation wherever the price goes up to a grid level and then returns back to the beginning grid level. Unfortunately things become quite statistical from here. We tend to also ignore broker spreads to keep things straightforward.
Let us say that a dealer enters the market with a purchase (buy one) and sell (sell 1) deal active once a currency is at grade of say 1.0100. The value then goes to level one.0200. The buy can then be positive by one hundred pips. The sell are going to be negative by one hundred pips. Currently we’d profit our positive deal and bank our one hundred pips. The sell is currently however is carrying a loss of -100 pips. The grid system needs one to make sure that the trader will make the most on any movement in the Forex market. To do this one would once more enter into a buy (buy 2) and a sell (sell 2) deal at this level (level 1.0200).
Now, for example let us say that the value moves back to level 1.0100 (the beginning point).
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The second sell (sell 2) has currently gone positive by 100 pips and the second buy (buy 2) is making a loss of -100 pips. In line with the grid trading rules you’d cash the sell (sell 2) in and another 100 pips are added additionally to 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 is moved from level 1.0200 where it was -100 to level 1.0100 where it is currently breaking even.
The 4 transactions added together now incredibly 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 profit of 100 pips.
Ensure that you understand the statistics behind the activities discussed above. You will have to read again 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 value goes up to a grid level then returns back to the starting grid level and ends up in a possible profit for the forex dealer.