Modified Grid Hedge Method, Version 2

[Absolutely]

Modified Grid Hedge Method, Version 2

(Original Grid Hedge Method was on the net - I can give the URL privately to whoever is interested.)

This Grid Hedge trading method is a 100% mechanical method. But in my view, it needs monitoring the trade from time to time. It's NOT a 'set&forget' system, as the original system was.

This system assumes that the market never remains still at the same place all the time, but it has to move ... it always needs to move: on a good day a lot, and on a bad day a little, but it MOVES. So we are capitalizing on this movement of the market to make some money.

This is the method:

1. We need to have an account with a broker who allows us to hedge our positions (i.e., have Buy and Sell positions at same time). Or else we can use two different accounts or even two different brokers: one for the Buy trades and one for the Sell trades.

2. We will be trading EURUSD, and any other pairs that range equally well, or more, in a single day. We can place our orders at any time.

3. We place 5 pending orders, each 20 pips away from the previous order. We place 5 pending orders for Buy and 5 pending orders for Sell. Each will be 20 pips away from the neighbouring orders. They will all be consecutive, and start approximately from the current price. We can use round numbers to make the maths easier. For example, if the EURUSD price is 1.4573, we would enter 5 orders to Buy at the following prices: 1.4580, 1.4600, 1.4620, 1.4640, and 1.4660 ... and we would enter 5 orders to Sell at the following prices: 1.5550, 1,5530, 1.5510, 1.5490 and 1.5470. As you can see, all orders are consecutive and they all follow one another. On one side of the market price we have all the Buy orders, and on its other side, we have all the Sell orders. For ease of reference we label these orders A, B, C, D and E as regards the Buy orders, and A', B', C', D' and E' as regards the Sell orders - the A and A' orders being the orders closest to the market price at the time when we set the orders. There will be a 40-pip gap between the lowest Buy order - the A order - and the highest Sell order - the A' order. The price, at the beginning, ought to be somewhere near (not necessarily at) the midpoint between these two orders. (Try to visualize this and it should become more clear to you.)

4. We are not going to place any either stop loss (SL), trailing stop loss (TSL) or take profit (TP) on any of these orders.

5. Money management is the key in reducing risk, so we are going to use the SAME amount of money (i.e., number of lots) for each of our orders. It is advisable that initially we use the smallest lots (0.1 or 0.01) the broker allows us to use, and increase these lots as the account increases and grows. This should render the method the safest possible by limiting losses as well as drawdowns which the balance might experience.

6. We monitor the trade closely from time to time, especially right after setting the orders. If the A or A' order - the two orders nearest the price level which was current when we set the orders - has triggered, but then the price has retraced back so that this order is now in the red, we set another TWO orders of equal size - and also without SL, TSL or TP - in the opposite direction, so as to hedge the losing order, and even make money if the price keeps ranging between the A order and the A' order. If the price moves from the A order to almost the A' order, or vice versa, and then retraces 20 pips towards the A order, we close one of the two hedging orders, and take a 20-pip profit (minus the spread, of course). In fact, if the price keeps ranging between the A and A' orders, we simply use successive hedging orders to take small amounts of profit - say, 10 or 15 pips - each time the market reverses direction.

7. If the price however goes even further back in the correct direction, so that the A or A' order which was triggered initially - as the case may be - is now in the black again, we close the remaining hedging order, and let the initial A or A' order (as the case may be) run into a profit. If on the other hand the price retraces so much that the pending order in the opposite direction now gets triggered, we close it (this will be at a 40-pip-plus-spread loss, of course), and let the two hedging orders, plus the pending order that was triggered second, run into a profit. Alternatively, we can close both the losing order and one of the hedging orders at the same time, so that the net loss is just the two spreads on these orders: an amount small enough to not be of much concern in the larger scheme of things.

8. If the market is clearly trending, as indicated by the charts in higher time frames - say, the 12-hour, daily and weekly charts - we may, at our discretion, initiate additional market orders in the direction in which the market is trending. Each of these orders, like all the others, will have no SL, TSL or TP. If the trend reverses more than about 20 pips for a time, we hedge these orders with orders in the opposing direction so as to minimize losses during the reversal.

9. When the sum total of the orders shows a certain level of profit (which we ought to have in mind beforehand: say, 50 pips, or 75 pips, or 100 pips, or 150 pips, or 200 pips, or anything like that), we close all the trades - both pending and open - and start the process all over again. The larger this level the greater the risk, but then, the greater the chances of profit also. We must be comfortable with whatever level we choose: it's likely to be an individual preference, differing from person to person.

INITIAL ANALYSIS:

Remember that every losing order is hedged, either at the time the A or A' orders go into a loss, or (with regard to the other orders) once they reach 20 pips of potential loss; so the losses from any given losing order are minimized - namely, 20 pips during a bad a day (plus two spreads: one spread for the original order, and one for the hedging order), as long as the trades are monitored on a regular basis - like, say, every minute at the start and subsequently, every five or ten minutes during the day. (With cell phone apps available widely these days, this should be possible from wherever one happens to be.)

Remember, too, that at any one time, only ONE order will be running at a loss; if any of the other orders have triggered, they will be running at a profit!

And if the market ranges for a whole day between the A order and the A' order, we make profits from the hedging orders.

On the other hand, if the maker trends and the wins are allowed to run to their maximum profits - and with pairs like the EURUSD and USDGBP, that can easily mean 50-100 pips in a day in either one or the other direction from where we initially found the market price; and it might even move as much as, or even more than, 100 pips in a single day - we stand to win a lot. (A study of the ATR(1) for the daily chart reveals that the price can move as much as 250 pips for EURUSD in a single day; the minimum is around 40 pips, and the mean is around 100 pips.) Since we are setting multiple pending orders, a 100-pip move of the market price in one or the other direction would mean a total win for us of around 170 pips (i.e., 80+60+40+20-20-pips-minus-5-spreads: the first four wins corresponding to the four pending orders that have been triggered one after the other (closed by their TSLs), and the last - the 20-pip loss - corresponding to the order which was closed manually, which was originally the last or fifth pending order). Or alternatively, in a single day the market could move, say, around 70 pips in one direction and then retrace and move around 130 pips in the opposite direction: this could still result in a total win of around 120 pips: 90-100 pips or so in one direction and about 30-40 pips in the opposite direction. Even on a bad day, when the market ranges only about 70 pips in total (i.e., from the day's high to the day's low), we would still stand to gain 20 or 30 pips. Some days of course there would be zero gain, or even a loss; but if what I envision is right, the losses on bad days should be small in comparison to the wins on the good days.

Thus the Risk-to-Reward Ratio (RRR) of this strategy seems to be very favourable; indeed, I can't think of a better RRR in any other strategy.

As you can also see, this is a fairly simple and easy system to work with. The only problem, as I see it, is monitoring the trades pretty much constantly, 24/7. Obviously that's impossible (one has to sleep, at the very least!) So I am hoping an EA can be coded to automate it. I am no good (as yet) at coding EAs, so I was hoping someone else who might find this system attractive could do it.

Go on and back-test this method, and also have some weeks of practice on a demo account to gauge the profit potential of this method. Please share your experience and suggestions to improve this simple method. Comments are warmly welcomed: even adverse comments (hey, we want to make sure the strategy stands up in live trading, don't we.)

Cheers,

"Absolutely".

P.S. I am a complete newbie, having started studying Forex only since last December (and that was at the EXCELLENT Babypips School), so please excuse my ignorance if what I have said above seems to you to be total nonsense. I am also new on babypips.com. I have introduced myself separately on the "Newbie Island" and "Introduce Yourself" sections of this forum.

[Forexmike]

isn’t this more a ‘grid system’ than a ‘hedge system’?

[hasan1157]

[thank you very much,I could not undrestand the item 6 clearly,would you please give a schematic or more explanation?
thx again for the introduce your strategy
QUOTE=Absolutely;465057][B]Modified Grid Hedge Method, Version 2[/B]

(Original Grid Hedge Method was on the net - I can give the URL privately to whoever is interested.)

This Grid Hedge trading method is a 100% mechanical method. But in my view, it needs monitoring the trade from time to time. It’s NOT a ‘set&forget’ system, as the original system was.

This system assumes that the market never remains still at the same place all the time, but it has to move … it always needs to move: on a good day a lot, and on a bad day a little, but it MOVES. So we are capitalizing on this movement of the market to make some money.

This is the method:

1. We need to have an account with a broker who allows us to hedge our positions (i.e., have Buy and Sell positions at same time). Or else we can use two different accounts or even two different brokers: one for the Buy trades and one for the Sell trades.

2. We will be trading EURUSD, and any other pairs that range equally well, or more, in a single day. We can place our orders at any time.

3. We place 5 pending orders, each 20 pips away from the previous order. We place 5 pending orders for Buy and 5 pending orders for Sell. Each will be 20 pips away from the neighbouring orders. They will all be consecutive, and start approximately from the current price. We can use round numbers to make the maths easier. For example, if the EURUSD price is 1.4573, we would enter 5 orders to Buy at the following prices: 1.4580, 1.4600, 1.4620, 1.4640, and 1.4660 … and we would enter 5 orders to Sell at the following prices: 1.5550, 1,5530, 1.5510, 1.5490 and 1.5470. As you can see, all orders are consecutive and they all follow one another. On one side of the market price we have all the Buy orders, and on its other side, we have all the Sell orders. For ease of reference we label these orders A, B, C, D and E as regards the Buy orders, and A’, B’, C’, D’ and E’ as regards the Sell orders - the A and A’ orders being the orders closest to the market price at the time when we set the orders. There will be a 40-pip gap between the lowest Buy order - the A order - and the highest Sell order - the A’ order. The price, at the beginning, ought to be somewhere near (not necessarily at) the midpoint between these two orders. (Try to visualize this and it should become more clear to you.)

4. We are not going to place any either stop loss (SL), trailing stop loss (TSL) or take profit (TP) on any of these orders.

5. Money management is the key in reducing risk, so we are going to use the SAME amount of money (i.e., number of lots) for each of our orders. It is advisable that initially we use the smallest lots (0.1 or 0.01) the broker allows us to use, and increase these lots as the account increases and grows. This should render the method the safest possible by limiting losses as well as drawdowns which the balance might experience.

6. We monitor the trade closely from time to time, especially right after setting the orders. If the A or A’ order - the two orders nearest the price level which was current when we set the orders - has triggered, but then the price has retraced back so that this order is now in the red, we set another TWO orders of equal size - and also without SL, TSL or TP - in the opposite direction, so as to hedge the losing order, and even make money if the price keeps ranging between the A order and the A’ order. If the price moves from the A order to almost the A’ order, or vice versa, and then retraces 20 pips towards the A order, we close one of the two hedging orders, and take a 20-pip profit (minus the spread, of course). In fact, if the price keeps ranging between the A and A’ orders, we simply use successive hedging orders to take small amounts of profit - say, 10 or 15 pips - each time the market reverses direction.

7. If the price however goes even further back in the correct direction, so that the A or A’ order which was triggered initially - as the case may be - is now in the black again, we close the remaining hedging order, and let the initial A or A’ order (as the case may be) run into a profit. If on the other hand the price retraces so much that the pending order in the opposite direction now gets triggered, we close it (this will be at a 40-pip-plus-spread loss, of course), and let the two hedging orders, plus the pending order that was triggered second, run into a profit. Alternatively, we can close both the losing order and one of the hedging orders at the same time, so that the net loss is just the two spreads on these orders: an amount small enough to not be of much concern in the larger scheme of things.

8. If the market is clearly trending, as indicated by the charts in higher time frames - say, the 12-hour, daily and weekly charts - we may, at our discretion, initiate additional market orders in the direction in which the market is trending. Each of these orders, like all the others, will have no SL, TSL or TP. If the trend reverses more than about 20 pips for a time, we hedge these orders with orders in the opposing direction so as to minimize losses during the reversal.

9. When the sum total of the orders shows a certain level of profit (which we ought to have in mind beforehand: say, 50 pips, or 75 pips, or 100 pips, or 150 pips, or 200 pips, or anything like that), we close all the trades - both pending and open - and start the process all over again. The larger this level the greater the risk, but then, the greater the chances of profit also. We must be comfortable with whatever level we choose: it’s likely to be an individual preference, differing from person to person.

INITIAL ANALYSIS:

Remember that every losing order is hedged, either at the time the A or A’ orders go into a loss, or (with regard to the other orders) once they reach 20 pips of potential loss; so the losses from any given losing order are minimized - namely, 20 pips during a bad a day (plus two spreads: one spread for the original order, and one for the hedging order), as long as the trades are monitored on a regular basis - like, say, every minute at the start and subsequently, every five or ten minutes during the day. (With cell phone apps available widely these days, this should be possible from wherever one happens to be.)

Remember, too, that at any one time, only ONE order will be running at a loss; if any of the other orders have triggered, they will be running at a profit!

And if the market ranges for a whole day between the A order and the A’ order, we make profits from the hedging orders.

On the other hand, if the maker trends and the wins are allowed to run to their maximum profits - and with pairs like the EURUSD and USDGBP, that can easily mean 50-100 pips in a day in either one or the other direction from where we initially found the market price; and it might even move as much as, or even more than, 100 pips in a single day - we stand to win a lot. (A study of the ATR(1) for the daily chart reveals that the price can move as much as 250 pips for EURUSD in a single day; the minimum is around 40 pips, and the mean is around 100 pips.) Since we are setting multiple pending orders, a 100-pip move of the market price in one or the other direction would mean a total win for us of around 170 pips (i.e., 80+60+40+20-20-pips-minus-5-spreads: the first four wins corresponding to the four pending orders that have been triggered one after the other (closed by their TSLs), and the last - the 20-pip loss - corresponding to the order which was closed manually, which was originally the last or fifth pending order). Or alternatively, in a single day the market could move, say, around 70 pips in one direction and then retrace and move around 130 pips in the opposite direction: this could still result in a total win of around 120 pips: 90-100 pips or so in one direction and about 30-40 pips in the opposite direction. Even on a bad day, when the market ranges only about 70 pips in total (i.e., from the day’s high to the day’s low), we would still stand to gain 20 or 30 pips. Some days of course there would be zero gain, or even a loss; but if what I envision is right, the losses on bad days should be small in comparison to the wins on the good days.

Thus the Risk-to-Reward Ratio (RRR) of this strategy seems to be very favourable; indeed, I can’t think of a better RRR in any other strategy.

As you can also see, this is a fairly simple and easy system to work with. The only problem, as I see it, is monitoring the trades pretty much constantly, 24/7. Obviously that’s impossible (one has to sleep, at the very least!) So I am hoping an EA can be coded to automate it. I am no good (as yet) at coding EAs, so I was hoping someone else who might find this system attractive could do it.

Go on and back-test this method, and also have some weeks of practice on a demo account to gauge the profit potential of this method. Please share your experience and suggestions to improve this simple method. Comments are warmly welcomed: even adverse comments (hey, we want to make sure the strategy stands up in live trading, don’t we.)

Cheers,

“Absolutely”.

P.S. I am a complete newbie, having started studying Forex only since last December (and that was at the EXCELLENT Babypips School), so please excuse my ignorance if what I have said above seems to you to be total nonsense. I am also new on babypips.com. I have introduced myself separately on the “Newbie Island” and “Introduce Yourself” sections of this forum.[/QUOTE]

[harisbinh]

Can anyone get around this strategy. I can’t quite understand the 6. and 7 para.

At 6. “set another TWO orders of equal size” // Where would we set the TWO orders ?

If anyone understand this method could you please explain this…

[Trendswithbenefits]

If anyone understand this method could you please explain this…

Para 6. Say you have a buy position and it starts to go bad and the price pulls back to the entry point of that buy, you estimate the price to pullback further… You open 2 sell positions at the original entry point and of equal lot size to the buy (Say buy is 0.05) you now have two sells at 0.05.

So as price moves downward against your original buy position, you have one position which is hedging the trade (locking the loss) and the second position attempting to make a profit.

So if both sell trades move say 10 - 20 pips down, when you -close all- at a set point (lets say 12 pips). You have negated the losing buy position (minus commision/spread) with one of the sell positions and have made a 12 pip profit (minus commision/spread) with the second.

It’s a technique that is used so you don’t require a tight stop loss (use a long catastrophe stop) and to convert a losing position into a profit.

Hence in the US hedging like this is banned because if the trade goes against you… well… they want your money…

The OP’s details are more comprehensive than my explanation, allowing you to continue to stay in the market. I have shown a simplified version of part of the strategy.

Can it work?.. a skilful trader can make it work… I have used it before and it does work… highly stressful and can turn a small loss into a bigger loss quite easily… I notice this is a very old thread, so maybe search other sites like ForexFactory or Youtube for maybe a demonstrated version… The FX elite on BP will vomit all over this… just watch.

Go on and back-test this method, and also have some weeks of practice on a demo account to gauge the profit potential of this method. Please share your experience and suggestions to improve this simple method. Comments are warmly welcomed: even adverse comments (hey, we want to make sure the strategy stands up in live trading, don’t we.)

As the OP says, give it a go on a demo… try everything on a demo… don’t let muppets on BP hold you back…

[Falstaff]

I’m struggling to understand - but I expect @Martin_K will be along in a few minutes - to help us out

[Trendswithbenefits]

The OP’s details are more comprehensive than my explanation, allowing you to continue to stay in the market. I have shown a simplified version of part of the strategy.

I’m struggling to understand

What part are you struggling to understand?

[Falstaff]

What part are you struggling to understand?

How up and down bets on the same movement can result in positive monetary results. Surely , at some point - a “Gamble” needs to be taken ?

[Trendswithbenefits]

Pure math… 1 loss (1 x -12 pips) + 2 wins (2 x +12 pips) = +12 pips

( 3 x (say)1.5 pips spread ) = -4.5 pips | 12 pips - 4.5 pips = Profit of +7.5 pips

The “Gamble” is taken every time you take any position in FX, hence why I stated it adds unwanted stress to trading and has to be managed carefully.

[stop_runner]

[quote=“Trendswithbenefits, post:5, topic:51003”]Can it work?.. a skilful trader can make it work… I have used it before and it does work…

The FX elite on BP will vomit all over this… just watch.[/quote]
Of course they work, providing, as you correctly note, they’re being developed & managed by sufficiently skilled & experienced operators. One such practitioner (an ex-retail & institutional algo developer) rocked up on here a couple years ago answering a few questions & explaining how they could enhance a risk portfolio but was shouted down by the very folk you mention above.

If they’d just peeled back the cover & conducted even the minimal basic due diligence on him they’d have discovered precisely how very different a successful grid/hedge operation differs from the sub-par rubbish bandied around by amateur chancers looking to fleece naïve grail chasers.

He was even offering the chance for those with limited cash to get aboard via a copy arrengement via a choice of his 2 most successful engines before transferring the profits across to the higher minimum threshold managed fund/s.

Sometimes folks just can’t spot a gift horse even when it kicks them hard between the legs.
Trouble is, they’re so conditioned in these joints to getting legged by pseudo-experts & jaw flapping fantasy guru’s they automatically drop the genuine articles into the spoofers, trolls or spammers camp.

[Martin_K]

@Falstaff
I’m here…

I was going to ask “What exactly are you struggling with” but @Trendswithbenefits has already asked and explained it.
so … that’s that.

[QuantumNinja92]

How do you cash your money if you don’t have TP ?
is this gonna be an EA ?
also what is your market entry ? do you check for some event or you begin at some hour of the day ?

[rrram2]

you close the trade manually when it is in profit? there are several EA’s that do something quite similar, but key is if you dont understand the process and logic of trading this way using an EA may not help at all and may end up costing you $ in the long run, the key is in the understanding, and the testing in demo.

[rrram2]

waking up late in the morning is a gamble, the market trades on without you…

[rrram2]

I am a grid trader, the hedging is great and does work, it is effectively a soft stop, the more trades you put on the better, but the key is in the managing of the exits, if you use no SL, and set TPT’s of 50 pips each way on shorts and longs and wait, I bet they all close in profit. key is your entry point, the center, this should be very near or at equilibrium in a longer term than you are currently trading. if 50 doesnt work, try 25, or 15 or 5 or 2.5 or 1.7 or 1.2 (EVIL GRIN)

I find it far better to stick to buy side or sell side only even if running both sides of the buy or both sides of the sell. and going +swap only, manage the positons wider and smaller until you get better, and nothing wrong with shooting for 100% winners, failing and getting 98% will be fine.

[rrram2]

The FX elite on BP will vomit all over this… just watch.

show me the FX elite, are they the jawboners or the live equity curve builders? I forget, I too am getting old!

[mtb_rex]

key is your entry point, the center, this should be very near or at equilibrium in a longer term than you are currently trading.

Hey rrram2, do you mean equilibrium between bid and ask, or something else? Seems like an interesting strategy but would require constant monitoring. What’s the highest time frame you would try this on?

You also mention you’re a grid trader. Are there other grid strategies out there you’ve used with any success. I’m a newb, but willing to learn. First time I’m hearing of this. Thanks!