I know there’s no such thing as a fail proof trading strategy, but read this and let me know what you think. I read a similar strategy on some site, and made a couple of changes to it. Can this work?
So we take a pair that trends quite well and gives quite a few pips each day. For example GBPJPY. Start at midnight and place between 5 and 10 orders for buy and between 5 and 10 orders for sell. To make it easy, say at midnight the pair starts at 130. First buy order is placed at 130.20 then the next one at 130.40, then 130.60, 130.80 and so on. At the same time, we place our first sell order at 129.80, then 129.60, then 129.40 and so on. Basically at 20 pip intervals or whatever you prefer. Our TP and SL will be 400 pips (to ride the waves through the day, we are hoping to hit neither). Throughout the day, some of your orders on one side will get triggered and some on the other side. However, eventually one side will win because price cannot keep ranging forever. At that point, you close all of the trades (as long as you’re in the positive of course) and cancel all pending orders too. So if 2 orders got triggered on one side and 4 on the other side, you should be in profit. Obviously avoid trading big news events. Can someone please tell me why this method would not work? Thanks.
This is a simple grid system, the theory has been around as long as the lords of the underworld. And it will fail. The problem with them is you need to have a ridiculously large account to trade incredably small amounts that your return simple does not warrant the effort involved. If you do have sufficient resources where you can trade this style then I’m sure your bank is already knocking at your door wanting to manage your account.
I am not sure whether you are intending to always close all positions at the end of each day and reset your orders or sitting with the positions once opened until one day they move into net profit. But either way, I agree with bobbillbrowne that this is a heavy cumbersome strategy that may not prove profitable at all.
You mention the main necessary criterion in your post, i.e. that you need a good trending market. In your example, one scenario might be that the market first moves up and fills your buy orders at 130.20 and 130.40. Then it drifts off back to the 130 level. Later it moves down to fill your sell orders 129.80 and 129.60 before eventually finishing the day relatively unchanged at around 130.00. i.e. a Doji day. You are now locked into a net neutral position with 4 open trades and a net loss. You now need the market to move to at least 130.80 or 129.40 in order to open a further position (or reset the same levels as the previous day), and for that new position to now move [I]even further [/I]in order to start to cover the loss on your original 4 open positions - after that you might start to move into profit.
But now you have another problem: how can you judge how much further this latest position is going to move and when to close it? If you have a method for that then you could have used that same method to judge the market right at the beginning when the price was 130.00 and avoided building up all the baggage and waiting for the price to move already 80 pips before reducing your loss and eventually making a profit.
Of course, if the market took off in one direction and continued going then you will win - but how often would you anticipate that happening versus how often the following days are ranging and relatively directionless?
Thanks for tour response. I understand most grid trading systems have huge drawdowns and positions are kept open for months sometimes. What I’m proposing here means most times you will close all your positions after one or two days. As soon as the pair trends one way, you win (I think). Am I wrong?
You are right, but the problem is [U]how far[/U] does that trend has to continue in order to cover any losses already built in and make a decent profit? Is it easy to say that “as soon as the pair trends” but in practice that is not so easy to determine. It is only in hindsight that we can see how far a move eventually continues, but once a trend starts how do you then determine how far it is going to continue and when to get out? It can always falter and collapse soon after your latest additional trade.
The point here is that if you can sucessfully identify the duration of the eventual trend that breaks you into profit, then is it not far simpler just to wait until whatever method you are using indicates a trend and enter your position at that point in that direction?
Ultimately, your system requires an open exposure in one direction for a minimum duration before closing. Is that not what just about every trading method requires? You are effectively creating a “breakout method” but with the added risk of creating and carrying a locked-in loss during ranging days which fill both nearby buy and sell orders.
Sure, it can make profits, but I don’t see any advantage here over any other trend-trading method
If you mean “win on [I]that[/I] instance of trades”, then I suppose you’re right.
If you mean “put you into [I]overall[/I] profit”, then you’re mistaken. And I think this is the problem. Because you’ll often have previous losses to recover as well, before achieving that.
I agree with Manxx, above: making overall profit with this method ultimately rests on having a trend-determination/definition method which - if you had it available - you’d be better off and more profitable trading [B]without[/B] the “grid”. So I’m afraid it’s something of an “arithmetical fallacy”, really. :33:
First wrong assumption bro. Asumption, from the word assume, latin for making an a|s|s out of u and me. You are right, in theory, that a range can’t last forever, but then again hasn’t the EURUSD been ranging for the past 20 months? Where this system fails is the fact that its trend following. Trend following has no place in a day traders bag of tricks, you have to trade in the here and now. Manxx has given the perfect example why.
Again yes bro. Lets follow on from Manxx’s example. You have identified your pair as trending long and set your orders. Price moves up 20 pips, first order fills. 40 pips, 2nd order filled, 20 pips up things looking good. London opens, price moves another 20 pips 3rd order gets filled. It’s only 9:55am, your rubbing your hands together going you beauty, systems working fine once again, I’ll be able to by the missus those new shoes she’s been eyeing off. Unfortunately the market didn’t get them memo you sent out. Bang on 10am the market reverses and heads south, before you know it price has plunged 20 pips below days open triggering your first short. With 4 trades open you are effectively 180 pips down. Its still good, I’ll just keep adding short trades. By the end of the day price has close 80 pips below the days open but whats you net position. Do the maths, you are down 240 pips. What to do, what to do. Not to worry, market can’t range forever, I’ll hold and work myself out of this position tomorrow. So the next day the price continue to drop, you add 3 more positions. Yet now that deficit has only been reduced by 20 pips. This is hard work and not how the theory went.
But now the kick in the guts. Again the market changes directions and is back at your original price. Price has gone nowhere, you have 9 effect trades open and a net deficit of 680 pips. Hope your money management is good. Do I need to go on.
Sorry bro, looks like your going to have to do more homework.
Thanks everyone. In theory it sounded fine but some great examples above have shown me the shortcomings of this system. I knew it seemed to good to be true ������
i didnt read the entire thread so excuse me if i say something already mentioned.
the biggest fail if this sysrem is that positions entered into the daily direction end up in minus.
lets say 10 shorts
10 longs
simple example
200 is the starting. every 10 points new position.
price goes to 100 and 10 shorts have been opened.
prive goes back to 200 (all positions in minus)
price mives niw to 300 (brakeeven as 10 longs have been initiated)
but its not complete braje even bevause spreads and commitions need to be calculated aswell… so youre still in minus.
now lets say the day closes at 250 and not 300.
then you have 10 short positions which all are in loss side
4 ling positions in profit side
and 6 long positions in loss side.
a very bad system indeed.
if you can find a point at which you close manual and not waitvtill the end of the day. then it cam be a usefull one.
but if you want to know where price stops stalls reverses or continues then you still need the same learning and teachibg that you need for any other trading style. and other trading styles work better.
so as bob said, there are no short cuts to learning.
im sometimes using something similar to what you described. i use a grid system to scale in into existing trades.
fir example: i have 100 contracts long on something and my estinate is that there will be around 500 pips profit on that single trade. so i place new long orders every 50pips which each is the size of 20% of the first commitment.
with that you have the flexibility (the first commitment beeing the biggest and acting as fundament in times when the direction swifts against you) with always beeing in plus and scaling into winning trades.
