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