What is Grid Trading
Grid trading is a killer of many traders and should be avoided - so here is a run down to explain what it is so you know what to look out for when it comes to strategies to avoid.
Grid trading is a popular trading strategy in the financial markets, particularly in the forex market. It involves placing a series of buy and sell orders at predetermined price levels or intervals, creating a grid-like structure on the price chart.
In a grid trading strategy, the trader places a series of orders at fixed price intervals, with each order opening a new position in the market. These positions are typically placed at regular intervals above and below the current market price, creating a grid of orders that looks like a ladder on the price chart.
As the market moves up and down, the grid of orders is filled with buy and sell positions, with profits being made as the market moves in one direction or the other. When the market moves up, the buy orders are profitable and the sell orders are negative. When the market moves down, the sell orders are profitable and the buy orders are negative.
The objective of grid trading is to make a profit regardless of the direction of the market movement.
Because the trader is hedging their positions with opposite trades, the overall risk exposure can be minimized but the problem is most traders will be way over leveraging in doing so.
Grid trading involves significant market exposure and requires a trader to have a deep understanding of the market they are trading in but thats not always going to be enough - the bottom line - smaller account traders should not be grid trading - it will eventually lead to loss.