Anyone who ever placed a trade in Forex knows that finding accurate entry and exit is not an easy task. Doing so consistently for prolonged time requires genuine mastery. Directional grid strategy can be used, when trader has good idea of general market direction but is unable (or unwilling) to pick an accurate entry.
Each time you leave the strategy to perform in the chart, you will look forward to be coming back. The question is not if, but how many profitable trades will it close while you are away. Coming back to your trading then usually feels like opening a present.
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This is the methodology for placement of directional grid in forex market. It is applicable for any major currency pair. Where done correctly it can produce amazing results. It also aims to minimize risk by defining it and using fundamental market structure to prevent worst case scenario.
Grid is mechanical trading style that doesn't require clear price prediction. All trader has to do is to not be completely wrong and manage his risk well.
Grid forex strategy: Hiding behind Supports and resistances.
The key for placement of directional grid is to not place it just before sharp price reversal.
To avoid this type of situation, we need to place our grid in consensus with the market (and smart money). This might sound complicated, but it is not. We just have to find historically significant SR zones (professional support and resistance for the price).
Forex strategy rules
We find 2-3 historically significant SR zones in 1H or 4H chart and place our grid accordingly. To calculate the range for the grid we use distance from current price to more distant S/R level (of the group). The total grid size is calculated by multiplying this distance by a factor of 1,3 (we explain why). Grid spacing (interval) should be between 10 to 50 pips with target profit that equals grid spacing.
Placing short grid
In 1H or 4H chart we find 2- 3 major resistances above the price. Those will limit sudden price rally and create corrections when price moves upwards.
Placing long grid
In 1H or 4H chart we find 2- 3 major supports below the price. Those will limit sudden price decline and create corrections when price moves downwards.
Calculating total grid size
We calculate grid size by measuring the distance from current price to the furthest resistance/support. We then calculate total grid size by multiplying this value by factor of 1,3. This extra distance (30 percent) will help us to close the grid on correction once last of ours resistance/support fails. Extra distance will also work as a bumper when price moves further in positive direction.
Grid spacing and take profit points
Grid spacing (interval) and take profit for each trade should be equal. Spacing depends on total grid size and the risk we are able to tolerate.
Calculating risk for the grid and grid spacing (interval) :
To calculate the grid spacing, we need to estimate the risk first. We do so quickly, by multiplying average loss for the trade by max number of trades in the grid.
Example: Short grid on USDJPY
Lot Size: 0.01 lot (10 pips equals 1 USD)
Total grid size: 1000 pips.
Grid spacing: 50 pips (take profit also 50 pips)
Max trades: 20
Average loss for the trade when grid fails: 50 USD
Max risk: 20*50=1000 USD estimated max loss
Example 2: Long grid on EURUSD
Lot Size: 0,01 lot (10 pips equals 1 USD)
Total grid size: 400 pips.
Grid spacing: 20 pips (take profit also 20 pips)
Max trades: 20
Average loss for the trade when grid fails: 20 USD
Max risk: 20*20=400 USD estimated max loss
Note: This is the worst case scenario. There would be plenty of opportunities to exit unsuccessful grid with much less damage.
Values can be manipulated so the trader creates the grid that suits his risk appetite. Yet to take advantage of market volatility grid spacing should be kept in range between 10 to 50 pips.
When to close the grid
Closing the winning grid.
We close the winning grid once price moves much further away from our defined S/R zones (in positive direction). This is true unless there are new, strong S/R zones created in the trend. In this case we can recalculate the risk for the grid and let it roll with the trend. While following the trend we make sure that there are new extremes created in the direction of the trend (lowest lows, highest highs). We should also make sure that our grid easily covers corrections against the direction of trend. Time is the friend. We want to let the winning grid run for as long as possible. Correctly adjusted grid can last through the whole trend, generating cash flow every hour of it. We exit the grid once trend fails to produce new lowest lows/highest highs, or hits significant price S/R
Closing the losing grid
We close the losing grid once the price moves beyond the furthest S/R zone. But we do not close it immediately. Instead, we wait for correction back to the surpassed S/R zone. Therefore we start the grid with extra 30 percent of total range.
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Disclaimer: Expert advisor was tested for profitability on historical data. All screen shots provided are displaying real results of the test. However past data will never guarantee future success. Every expert advisor needs to be tested properly on demo account. LIVE use only on your own risk. Read full disclaimer. TheForexKings Team does not give any financial advice. TheForexKings does not take any responsibility for any user’s investments and investment decisions. All rights reserved. Strictly for personal use.