January 29, 2018
This no stop, hedged grid trading system uses the principle that one should be able to cash in at a gain no matter which way the market moves. The only way this is logically possible is that one would have a buy and a sell transaction active at the same time. Most traders will say that doing this is trading suicide but let’s investigate this in more detail.
Let’s say that a trader enters the market with a buy (buy 1) and sell (sell 1) active when a currency is at a level of say 1.0100. The price then moves to level 1.0200. The buy will then be positive by 100 pips. The sell will be negative by 100 pips. At this point we would cash in our positive deal and bank 100 pips. The sell is now however carrying a loss of -100 pips. The grid system requires one to make sure that the trader can cash in on any movement in the market. To do this one would again enter into a buy (buy 2) and a sell (sell 2) transaction at this level (level 1.0200).
Now, let’s assume that the price moves back to level 1.0100 (the starting point).
The second sell (sell 2) has now gone positive by 100 pips and the second buy (buy 2) is carrying a loss of -100 pips. According to the rules you would cash the sell (sell 2) in and another 100 pips will be added to your account. That brings the total cashed in at this point to 200 pips (buy 1 and sell 2). Now the first sell that remained active has moved from level 1.0200 where it was -100 to level 1.0100 where it is now breaking even.
The 4 transactions added together now magically show a gain:- 1st buy (buy 1) cashed in +100, 2nd sell (sell 2) cashed in +100, 1st sell (sell 1) now breaking even and the 2nd buy (buy 2) is -100. This gives an overall a gain of 100 pips in total. We can liquidate all the transactions and have some champagne as we have made a gain of 100 pips.
Please make sure you understand the mathematics behind the movements discussed above. You may have to reread and draw the movements on a piece of paper to make sure you understand the concept.
This formation is the 100% retracement formation where the price moves up to a grid level and then returns back to the starting grid level and results in a nice gain for the forex trader. There are many other market movements that turn this strange “buy and sell at the same time” activity into gains.
If you have missed any of the previous articles on no stop, hedged, forex trading using the grid system please contact the authors Mary McArthur at expert4x com For a free course showing you how to double your trading account in 3 trades go to forextrading-alerts com We look forward to any feedback, questions or comments on this article.
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