The Forex Double Grid Strategy

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A double or dual grid strategy is where a trader uses two different types of grid at the same time. Usually this is a directional up grid combined with a directional down grid
Dual grid strategy, how it works.
Dual grid strategy, how it works. © forexop

With this approach the trader can be both long and short at the same point.

With the dual grid, at each leg there is one position trading into the trend and the other position which is opened against the trend. This results in a bi-directional system of trades.

The double grid is a strategy for choppy, volatile markets, where there is no clear direction.

One of the things that traders like about this strategy is that it is market neutral. That means there is no need to forecast the way in which the market is going to move. This is one of the key advantages of this approach.

The one important difference between this and the hedged grid is that a double grid system will return a loss if there’s a strong rally on the down or upside.

A double or dual grid trading system
Figure 1: Double grid order entries. © forexop

This type of grid system needs careful management of stop losses and take profits. There is an amount of inbuilt hedging from the offsetting positions.

Nevertheless the trader will still need to manage the losing trades in a strongly trending market to prevent any heavy drawdown. The scenarios below demonstrate this.

A double grid is best explained by example.

EURUSD Double Grid Configuration

Let’s assume EURUSD is currently trading at 1.3500. To start the grid at this point, my order book would be made up as follows:

Order Entry Take Profit Order Entry Take Profit
Buy Stop 1.3562 1.3587 Sell Limit 1.3558 1.3533
Buy Stop 1.3547 1.3572 Sell Limit 1.3543 1.3518
Buy Stop 1.3532 1.3557 Sell Limit 1.3528 1.3503
Buy Stop 1.3517 1.3542 Sell Limit 1.3513 1.3488
Buy Market 1.3502 1.3527 Sell Market 1.3498 1.3473
Buy Limit 1.3487 1.3512 Sell Stop 1.3483 1.3458
Buy Limit 1.3472 1.3497 Sell Stop 1.3468 1.3443
Buy Limit 1.3457 1.3482 Sell Stop 1.3453 1.3428
Buy Limit 1.3442 1.3467 Sell Stop 1.3438 1.3413

If you read up on the hedged grid, you’ll recognize that this is basically a combination of two grids: a hedged grid plus an “inverted” hedged grid.

The hedged grid is a “single up” system as it opens trades into the trend, or “averages upwards”. The other, trades against the trend, and is known as a “single down” system because it “averages downwards”. These two grids are mirrors of one another.

When one side is in profit, the other is in loss and vice versa.

How double grids make a profit

There are several ways to trade with this system. One involves managing the two grids as two entirely separate systems. Each side has it’s own profit target and stop loss. For an example of how this system works, see the spreadsheet below.

The second option uses a swing strategy, and involves managing trade pairs individually. This can work if volatile, whipsaw price action is expected. In this case, profit targets are set on each trade pair.

In the scenario above, I’ve used an interval of 15 pips and a take profit of 25 pips, with a 4 pip spread.

Experimentation is the key to success with this strategy: The precise setup of the grid will depend on market conditions and the time frame being traded. For longer time frames, the grid interval, stop loss, and take profit all increase.

The Dual Grid – In Action

The buy market and sell market trades start off the dual grid system. These execute immediately as they’re already at the current market price level. So from then, on the long side our stop orders execute when the market rises above the current level.

These orders open into the trend. Our buy limit orders execute if the market goes below the current level. These trade against the trend.

Schematic of a how a typical dual grid works
Figure 2: Chart showing dual grid buy/sell legs open and closes. © forexop

The opposite happens with the sell orders. The sell limit order fires when the market rises, and our sell stops trigger if the market falls. See Figure 2 for how this plays out in a typical situation.

As you can see from the test results in the table below, I tested both with and without stop-losses with mixed results.

Simulation Result (10) SL=80, TP=50 SL=40, TP=50 No SL
Total 184.1 1373.3 -838
Average 18.41 137.3 -83.8

I ran 10 simulations of the strategy, with SL/TP, and no SL/TP. I also included a cut-off so if the grid fell below -600 pips, where I closed all positions.

If you want to try your own scenarios you can download the Excel workbook. The workbook generates all price data – just enter in your trading set up and press F9 to run the scenario.

Risk Control with the Dual Grid Strategy

Trade management is easier when the two grids are treated as separate systems. This is because they have well defined profit and loss boundaries. This helps in deciding if one side of the grid should be closed, either at a take profit point or at a stop loss.

As the two grids are mirrors of one another, conditions where one side profits will cause the other side to suffer and vice versa.

My preferred option is to have a profit target and maximum stop level for the two sides. I close out once the profit target is reached on one side, regardless of the P&L of the individual trades. Likewise, I have a stop loss for the group – usually about 2/3 the target profit, and close it if it’s exceeded.

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Stop losses and take profits

When managing the trades individually, the question comes as to where to place the stops and take profits.

This method doesn’t “assume” any prior forecast on market direction. There shouldn’t be any better than average odds of a single trade ending up in profit, given that it opens. Actually it’s slightly less than this because of the spread, but to keep things simple just assume its 50:50.

Whipsaw price movements will often make “at the money trades” flip between profit and loss within minutes or seconds.

If your stop losses are too tight, there’s a higher probability of the price crossing the stop thresholds too quickly, and the trade ending up in loss. Simply because the stop loss is a nearer threshold to cross.

When this happens trade pairs in the grid can get taken out by “market noise” before either of them reach their profit levels.

Each trade pair is hedged up until the point one side is closed. So if your stop losses are wider than your take profit, this can mean a higher percentage of your trades end up in profit simply from swings in the market. But the risk to this is that the grid can suffer greater drawdown.

When doing this, it’s a good idea to keep account of your overall grid P&L to keep drawdowns to reasonable levels. Average entry rates can be calculated at each step each time a new trade is opened. From these you can calculate the P&L at any point.

The stop and profit levels will depend on risk limits and that’s part of a basic money management plan.

Test Results

Simulation #1

I started each run at price level 1.3500. A take profit target of 100 pips was set. No stop loss was used.

My first run of the strategy gave a positive result. As can be seen from the chart in Figure 3, the price bobs up and down across most of the grid levels in the top half, and we achieved 2 take-profits on the trades. The others ended with mixed profits and losses. Overall the net profit was 185.1 pips.

First run of the dual grid strategy, profitable result
Figure 3: Favorable results, where the price swings across the top area of the grid. © forexop
Order Entry Limit O C Net Order Entry Limit O C Net
Buy stop 1.3560 1.3660 Y N -30.1 Sell limit 1.3560 1.3460 Y N 30.1
Buy stop 1.3545 1.3645 Y N -15.1 Sell limit 1.3545 1.3445 Y N 15.1
Buy stop 1.3530 1.3630 Y Y 100.0 Sell limit 1.3530 1.3430 Y N 0.1
Buy stop 1.3515 1.3615 Y Y 100.0 Sell limit 1.3515 1.3415 Y N -14.9
Buy limit 1.3485 1.3585 N N 0.0 Sell stop 1.3485 1.3385 N N 0.0
Buy limit 1.3470 1.3570 N N 0.0 Sell stop 1.3470 1.3370 N N 0.0
Buy limit 1.3455 1.3555 N N 0.0 Sell stop 1.3455 1.3355 N N 0.0
Buy limit 1.3440 1.3540 N N 0.0 Sell stop 1.3440 1.3340 N N 0.0
Net P&L 185.1 Pips 154.9 30.3

Simulation #2

Here’s a good example of where trending can ruin profits in a grid strategy. In this run, the buy orders at the top of the grid were executed. But the profit on the longs were offset by the short positions on both sides of the grid. So the overall loss was -658 pips in this case.

Example of where dual grid loses in bullish trend.
Figure 4: Negative scenario with trending conditions, and fewer swings. © forexop
Order Entry Limit O C Net Order Entry Limit O C Net
Buy stop 1.3560 1.3660 Y Y 100.0 Sell limit 1.3560 1.3460 Y N -167.2
Buy stop 1.3545 1.3645 Y Y 100.0 Sell limit 1.3545 1.3445 Y N -182.2
Buy stop 1.3530 1.3630 Y Y 100.0 Sell limit 1.3530 1.3430 Y N -197.2
Buy stop 1.3515 1.3615 Y Y 100.0 Sell limit 1.3515 1.3415 Y N -212.2
Buy limit 1.3485 1.3585 Y Y 100.0 Sell stop 1.3485 1.3385 Y N -242.2
Buy limit 1.3470 1.3570 Y Y 100.0 Sell stop 1.3470 1.3370 Y N -257.2
Buy limit 1.3455 1.3555 N N 0.0 Sell stop 1.3455 1.3355 N N 0.0
Buy limit 1.3440 1.3540 N N 0.0 Sell stop 1.3440 1.3340 N N 0.0
Net P&L -658 pips 600.0 -1258.0

Basic dual grid demo (Excel)
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Pros and Cons of Double Grids

Pros:

  • You don’t need to be able to forecast which way the market will move.
  • Works well in volatile, directionless markets.
  • Can be highly effective under right conditions – especially rapid price swings across the grid.
  • It is relatively simple to automate the strategy and to calculate the overall grid P&L.

Cons

  • Multiple grids means more complex trade and money management are required
  • The dual grid suffers when there are strong directional trends and few price swings.
  • It can return a loss if the TP/SL are not properly managed or if orders execute at wrong prices.
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7 Comments
  1. Hi my broker has no hedging rule so my question is it possible to for such a grid or not?
    when i have long eur/usd and then try to open a short eur/usd it gives an error.

    • It’s possible to work around no hedging policies but there has to be some changes to the grid setup. With no hedging in place you have to make sure that you don’t have two opposing positions running at the same time. You can easily simulate two opposing positions just by netting all totals together and then open a single position of the required amount. It does make the concept a bit more complicated but in most cases you can get around it entirely by doing this – and actually could save on trading fees as well because there will be fewer orders overall.

  2. Hi Steve Connell

    I’m interested in the Grid.

    I have a question about Grid.

    Do you can calculate the grid On the basis of nothing?

    thank you
    pete

    • Not on nothing, no. The basic choices: when to enter, the stop/profit levels, and the grid setup (which grid) will depend on several factors. The most important being whether the market is trending or ranging, and the volatility levels that are anticipated. Please see this article for a full explanation of this.

  3. Hi Steve,

    I’ve just come across your blog and find it very interesting, especially the articles on grid trading. I’ve downloaded your “Excel simulation workbook”, but unfortunately my corporate antivirus software does not like it at all. It’s in the form of a zipped executable file (.exe) which is a bit strange for Excel? Do you have a native Excel file for download (or maybe you’ve been hacked and this is a virus!)?

    Thanks, Nigel

    • Update: The examples are now all in native Excel format so you should not have any problem running them. They are also “macro free” so there should be no issue at all with anti-virus software. If you have any difficulty please contact support.

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