Have You Wondered What is Grid Trading?
Grid trading is similar to pyramiding where the position is built on when and if the trend moves in the right direction.
A hedged grid is a play on market volatility. There are two reasons why it’s appealing to forex traders.
The first is that it doesn’t “require” you to have a definitive prediction on the market direction.
The second is that it works well in volatile, ranging markets, where there isn’t a clear trend – conditions that are common in the currency markets.
This article gives some practical examples of grid trading setups and explains under what conditions grids work as well as their weaknesses.
You can try it for yourself by downloading this Excel spreadsheet below and test under differing trading scenarios.
- Grid trading system explained
- Worked example
- The ideal time to exit
- When does the grid reach maximum profit or loss?
- Testing a grid strategy
- Download demo spreadsheet
Classic Hedged Grid System
A “hedged grid” is made up of both long and short positions.
As the name suggests, there’s a measure of inbuilt hedging – or loss protection with this approach.
The basic idea is that any losing trades can be offset by the profitable ones.
Ideally, at some point the entire system of trades becomes positive. We would then close out any remaining positions and the profit is realized.
With this grid strategy, the ideal scenario is that the price moves back and forth across one side of the grid.
In doing so it executes as many of the orders and passes as many of the take profit levels on one half as possible.
A hedge grid can be proven to work well in “choppy” markets without a clear trend. However, you can still be profitable in a trending market.
I’ll get onto that in a minute.
A hedged grid is a market neutral strategy.
The profit will be exactly the same whether the market rises or falls.
What’s appealing with this style of trading is that you don’t need to predict either a directional trend.
However, if your set up is right, you can still profit in either a bearish or bullish rally.
Let’s have a look at a basic grid configuration.
Grid Configuration – EUR/USD Example
Let’s suppose we want to set up a grid on EUR/USD and the price is currently at 1.3500. To start, our order book would look like this:
|1||Buy Stop||1.3515||-4||Sell Stop||1.3440||-75|
|2||Buy Stop||1.3530||-3||Sell Stop||1.3455||-75|
|3||Buy Stop||1.3545||-2||Sell Stop||1.3470||-75|
|4||Buy Stop||1.3560||-1||Sell Stop||1.3485||-75|
|Maximum grid loss (pips)||-300|
To create the grid, I’ve used an interval (leg) size of 15 pips and 4 levels above and below the start. There’s no definitive rules here. You can set the levels using pivot lines or any other support/resistance indicators.
You are also free to increase or decrease the number of trades as required, and change the interval and take profits to anything you like.
A word of caution:
Increasing the leg size and adding more levels will increase the maximum loss.
The buy-stop orders trigger if the price moves above the entry-level, while the sell-stop orders trigger if the price moves below the entry-level. So we always open orders into the trend with this system.
See Figure 1.
Other grid techniques work the opposite way and open orders against the trend.
As the table shows, the trade pairs in the grid hedge each other.
Once both sides of a trading pair are open, their P/L becomes “locked-in” at the hedge amount.
When all trades are open, the hedged grid reaches maximum loss and the P/L is fixed at that point.
Running the Grid
If the price were to move in a straight line up 60 pips it would execute all of the buy orders, and none of the sell orders. So we’d finish with a profit of 90 pips (45 + 30 + 15).
Likewise, if the price moved straight down 60 pips, we’d have all of the sell orders execute and we’d again end up with a profit of 90 pips.
What would more likely happen though is that the price will swing up and down causing some of our buy and sell orders to execute at different points?
The price dips below 1.3500 and the first one of our sell orders executes.
Now, what happens if we get a reversal and a bullish rally?
Let’s say the price increases enough to hit the level for the last buy order in the grid. That’s 1.3560.
So our P&L looks like this:
|1||Buy Stop||1.3515||45||-4||Sell Stop||1.3440||0|
|2||Buy Stop||1.3530||30||-3||Sell Stop||1.3455||0|
|3||Buy Stop||1.3545||15||-2||Sell Stop||1.3470||0|
|4||Buy Stop||1.3560||0||-1||Sell Stop||1.3485||-75|
The P&L for the trade pairs at level 4/-1 is now locked-in since both are open. But we can still profit from the remaining three buy orders.
When to “Close” the Grid
To keep things simple, I prefer to close out the entire grid once the sum of trades has reached my chosen profit level.
In the grid above, the maximum loss is 300 pips. So we could have say 350 pips as a target profit and leave the grid to run its course.
With grid trading, in general, it’s best to consider the entire set up as a “single system”. Rather than attempting to manage each trade in isolation. This approach makes for simple trade management.
With this hedged configuration, the ideal outcome is for the price to reach the levels on either the top or bottom half of the grid, but not both.
So if the price trends in one direction, you then have to consider if a reversal is likely which would “take back” your profit.
Another choice would be to dynamically close out trade pairs once they reach a certain profit target.
The advantage of this is that you can potentially reach a higher profit target by running your profits.
The disadvantage though is that you will have to wait an unknown time for the trades to run their course and this ties up your capital and margin in your account.
When implementing a grid it’s good practice that once a level is “knocked-out” the order on the opposing level be canceled.
This avoids the unnecessary cost (in spread and swap fees) of having two opposing trades open at once when the profit outcome is fixed.
Opposing pairs cancel each other there’s no benefit in holding the two sides open.
Say the buy at level 1 opens, then the price falls back to 1.3440 and the sell order at level -4 is reached. The open “buy” would then be closed, and the sell order canceled prior to execution.
Manage Your Risk
Our maximum loss for this grid set up is -300 pips.
This occurs when the price reaches all levels and the complete set of trades are opened.
However, the grid’s upside profit potential is unlimited.
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With the hedged grid, the downside risk is always limited provided all trade pairs are kept in place.
Be aware that if non-opposing trade pairs are closed independently of one another, this can cause the system to become unhedged and can cause run-away losses.
This is why it’s good practice to place wide stop losses on all trades – for safe measure.
In runaway markets or in currencies with low liquidity, your trades may not execute exactly at your grid levels. This can leave you with much greater exposure than planned.
It is also essential as part of the grid setup to have a clear idea of the likely market range so that your exit levels are set appropriately.
Another thing to bear in mind is to make sure when setting your lot sizes and grid configuration that your account won’t be overexposed at any point that could cause a margin call.
The main advantage of using a grid is in averaging the entry and exit prices. This method should never increase risk, but rather reduce it.
With grid trading, it’s imperative not be tempted to multiply order volume and exposure to any market beyond your accepted risk limits.
Grid Maximum Profit/Loss
A hedged grid reaches its maximum loss if all trades in the grid are opened and at that point, the P/L of the grid system cannot change.
The best-case scenario and maximum profit occur when the price ascends or descends through all of the grid levels on one side of the grid alone.
For this reason, when market conditions are excessively volatile, it is often better to use a grid system that opens orders against the trend rather than into the trend.
This type of grid maximizes its profit when the price reaches all of the grid levels.
When using this method, I’d encourage you to test out as many setups as possible.
This will give you a feel for how it works. You can download our Excel spreadsheet and try out any number of different scenarios and under different market conditions (see below).
The Excel workbook uses a highly realistic price data model, so you can be sure the results are as “real” as you can get.
The advantage of simulated data over “back-testing” is that you can generate an infinite number of scenarios – as well as simulate different levels of volatility and bullish or bearish trends.
The download link is at the bottom of the page.
The first simulation gave a near-ideal test case.
The price initially increases triggering all of our buy orders.
I’ve marked the order levels on the chart with dotted lines.
Those above 1.3500 are buy stop orders, those below are sell stop orders.
That is they trade into the prevailing trend.
See Figure 2.
None of the sell orders were reached as the price remained in the top half and reached only those levels.
Our grid ended up with the following profit:
This demonstrates the worst case.
In this run, the price action is very choppy and manages to reach all of the levels on the grid (see Figure 3).
The final P&L is -316 pips.
The maximum loss of the grid is 300 pips.
However, the additional 16 pip loss is due to the spreads.
In very choppy markets, when all levels are likely to be hit, the reverse strategy – the “single down” grid is preferred. For more information and comparison see here.
For trending markets, an alternative option is to use a vertical grid which aggregates the price to take advantage of a trend.
|Basic grid demo (Excel)|
|Advanced grid demo (Excel)|
Pros and Cons of the Hedged Grid System
- A systematic way to make profits under typical market conditions
- Increase the position size as a trend strengthens without risking all in one hit
- Doesn’t rely on strong trends. Grid trading can generate profits in trendless, sideways markets. Conditions that are common in forex.
- Using multiple entry/exit levels means you’re less likely to be “taken out” by price spikes, market noise, or abnormally wide spreads.
- Multiple entry points allow you to benefit from cost averaging.
- It’s doesn’t rely on a single “absolute view” of the market direction.
- Easily automated to execute and manage the order flow.
- To realize profits quickly, traders are often tempted to cash in winners too early but losing trades are left to ride out with resulting deep drawdowns.
- In difficult markets, a grid may be stuck in a loss for a long time.
- In fast-moving markets, slippage may cause your trade orders to execute far away from your desired grid levels. This can leave you un-hedged.
- Technical issues: For the grid system to work properly, it’s important that orders, stops, and limits execute correctly. If some of your trade orders fail it can result in accumulating losses. Thus there’s a high dependence on the software and faithful execution on the broker’s end.
This is not supposed to be a stand alone strategy. It´s actually a trend management system… What I mean is you have to define when to open the grids, ie, you need a trigger. You also need to close the grids. The ADX and bollinger bands mentioned above are good triggers (but for automation I´d use moving average crossovers instead of bollinger bands).
Helo Steve, I don’t see a big difference between this strategy and having 4 entry points and 75 pips Stop losses. Of course it´s bit better, but does it really make a difference on profits or risk?
In the GRID Trading Guide, Can we get full access to Excel file with explanation of each and every field and appropriate value to fill in so that i can test it on some stocks data for its accuracy.
good article about hedge grids, i strart to study grids last year because i don’t believe the indicators. i using “hedgestrategy1” and still work good. but with no many money (i’ve fear).
Exact tool you need to multiply your trading profits!
Great article. Thank you. Why do you think it doesn’t relay on strong trends? This hedging strategy could give you very good return if used properly to trade downtrend. Or from very strong resistance/support level will give you very good leverage when it jumps to a proper direction.
I tried the grid demo and got it to work now. Have started a test on a demo account with a 5 leg grid and the results are quite promising. I use 3 candle method to start the grid. Then only put pending orders in at the opening. i cancel the orders if there is a change in direction on the candles and with some other checks. That is less risky nearly every time. I close all trades at fixed profit or when a total stop reached.
I like the idea of hedging grid. Is there some place I can get the EA code?
I cant download Basic and advance grid demo (excel)
You need to log in
You need to log in to download. The file is really good. It´s worth the effort.
Firstly thank you so much for your excellent high level grid strategy . Secondly i am trading for 7.5 years now and after this long perid and lost thousands of dollars and tried thousands of strategies and trading systems and fail to make consistent money in marketplace i finally made a hedging system and a grid system that they are both can make consistent profit . Yes your systems are the best i also found a profitable signal service that it uses grid strategy with more than 2 years of consistent profit with
More than 1 million percent profit. You can email me if you want more info.
please send me your email address.
what is your email address.
Can you send me info on your grid hedge system
what is your email seyed??
I have written an EA to test this concept. I am surprised how well it actually does.
Which pairs do you suggest are better than others?
Thanks. All of the majors (EURUSD, USDJPY, GBPUSD) can be tackled with grid strategies other than that it is down to preference and spread costs.
hi steve what is the “limit” column stand for?
Re Hedge grid system.
Is the initial order placed first then the 4 buy stop orders and 4 sell stop orders follow on?
Yes. Typically you have some trigger to start the grid – either a price level being reached or other technical condition being met. Then the placement of the other order legs is defined by the price level of the first one. So they would be entered only once that starting level is known.
how do i purchase this book with paypal ?
Sure: please use this link to get it with paypal:
Hi Steve, great piece of article, benefited greatly. Can you please advice some leg width guidelines with regard to the chart periods (15m, 1H, 1D?) and typical ATR at any point of time?
Sorry, I’m not english-speaking..but “limit” in your table is the take profit to set in the buy stop or sell stop order? Thank you very much, it’s seems to me one of the best strategies…
I used “hedged grid” for a few years.
If you have an EA, i would advise to turn it on and off. The one I used, was used in conjunction with certain “patterns” in the market. You hit upon that a little when you wrote about configuring the legs at pivots, levels..etc.
By using it as it is, a tool to be used and then put away until the next time, you eliminate some of the risk above.
Also, if you are an American citizen only, you cannot open opposing orders in the same pair anymore. The NFA has put an end to that. That was the reason I stopped working in FX, having 2 accounts closed in and outside of the USA. There are ways around it, using multiple brokers to open opposing legs for example.
I agree entirely. With any automated trading it is always preferable to have a manual overlay and not let it run “blind”.
Regarding your second point. You could avoid ever opening opposing trades by using a knock-out system and placing market orders when the levels are hit. Though it does make the trade management a bit more complicated.
This hedge strategy is interesting.
I use MacBook laptop and It would not open .exe files.
Is it possible to download the hedge spreadsheet files in excel format?
Thanks for your interest. The trading tools are being reworked and will be available in a new format soon. This will be a tool that runs directly on the website so it won’t be a download anymore. This is quite a complex development task and will take around 1 or 2 months so please check back later.
Promising technique, great article. Would like to experiment with the grid. Could I get your EA to test it?
Sure, I will make the Grid EA available shortly on the site, please check back.
I want to know in the example Simulation#1 If only all the buy stop orders were hit and the price extended beyond 1.3560 above at what target I should close all the trades and close all at take profit. That is I want a specific target so that I can sleep or I have to come back at the end of the day and see whats the situation after setting it up in the morning? I like the idea but I am not clear of the execution. Lets say I place take profit at 100 pips up for all the Buy orders that is 1.3600 and a program to close all at 1,3600 or 1.3400 in case the sells were triggered.
I recommend you see my separate article on setting stop losses and take profits (here). That’s equally applicable to grid trading.
Unable to load the .xlsx spreadsheet properly in Win-7 Excel 2003. Unicode chars appear all over the sheet.
Should I upgrade my Excel app?
Thanks for your feedback mate. Spreadsheet should be compatible with Excel 2007 onwards.
Interesting concept but where are the stop losses for orders? I can see where are take profits, they are at 15 pips interval right? What about SL then?
This grid arrangement creates the stop losses. Each grid level has an opposite order, so for example level 1 is a buy and that has an opposite sell order which is triggered at level -4 in the grid. When trade 1 and trade -4 are both open, they have a fixed loss of -75 pips. This is the stop loss. Of course, it would be normal practice to put in safety stops just in case for some reason one of your grid orders does not execute for whatever reason.
I love the idea of this. My question to you is: have you actually done this and used this for an extended run? How were the results?
Yes, I’ve applied this over extended runs both with real money accounts and with demos. Although you don’t need to predict the price direction, whether it profits or not depends on identifying good entry points – for the type of conditions as I mentioned in the article. I’ve done some long-term back testing with various Expert Advisors. An entry signal I found useful was changes in the Bollinger bandwidth combined with the ADX indicator. I found using these two together gave good entry signals. While the strategy tester in MT4 isn’t perfect, it was showing long-term profitable results over about 80% of pairs that I tested with.
Can I indicate an EA for this strategy?
Hi Steve. Thanks for the content. Could you also share EA with us?