How You can Make Gains from Using the Forex trading Grid Technique
In this forth article in the series you can learn how to
make money trading the no stop, hedged Forex trading system by having a buy and
a sell active at each grid trading level. A mathematical calculation is shown
of the basic 100% retracement formation.
The most important part of how to make money using the no
stop, hedged, Forex trading strategy will now be covered. In the preceding
articles in this series we reviewed trading without stops, not being concerned
about which way the price moves and places to cash in on profitable
transactions. We are now going to show how you would make money buying and
selling simultaneously using the grid strategy.
The no stop, hedged currency trading grid system uses the
rule that one should be able to close a transaction 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 simultaneously. Most traders will say
that doing this is not recommended but let’s look at this in more detail.
Assuming a grid with grid gaps of 100 pips
We are going to
use the simplest formation to show the principles involved. This formation is
the 100% retractment formation where the price goes up to a grid level and then
returns back to the starting grid level. Regrettably things become quite
mathematical from here. We are also ignoring broker spreads to keep things
simple.
Let Us Say That a Trader
Enters the market with a buy (buy
1) and sell (sell 1) deal active when a currency is at a level of say 1.0100.
The price then goes to level 1.0200. The buy will then be positive by 100 pips.
The sell will be negative by 100 pips. Now we would cash in our positive deal
and bank our 100 pips. The sell is now however is carrying a loss of -100 pips.
The grid system requires one to ensure that the trader can
cash in on any movement in the Forex market. To do this one would again enter
into a buy (buy 2) and a sell (sell 2) deal at this level (level 1.0200).
Now, for convenience let us say 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 making a loss of -100 pips. According to the grid
trading rules you would cash the sell (sell 2) in and another 100 pips will be
added to your account.
That brings the grand total cashed in at this point to 200
pips (buy 1 and sell 2). At this stage the first sell that is 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 incredibly 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 deals and have some champagne as we
have made a profit of 100 pips.
Please make sure you understand the mathematics behind the
activities 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 goes up to a grid level and then returns back to the starting grid level
and results in a nice profit for the forex trader. There are many other market
movements that turn this strange Buy and Sell at the same time activity into
profits. The next article will cover the 50% retractment formation which produces
the same amount of profit.
There will be much more on the no stop, hedged grid trading
system in future articles in this directory. Do not miss them, whatever you do.
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