Grid trading with very low leverage

Yep it is tempting to diversify but if you are not careful it could get out of hand when several of the instruments are deep underwater. You would need advice from RLF (Fred) as he is the Masterchef of his strategy and has been trading it live since November last year with great results...... however here is my take on a few points.

1. The intent is to develop a consistent income earner. An instrument that get's into a significant drawdown obviously stops income generation so you need to launch another instrument to offset and produce income. This ultimately would determine how diversified you get.
2. Yes, historic bottoms and tops are no guarantee but 0 is (eg. on a commodity like silver, gold, indices etc etc.). Therefore prioritize your selection to identify candidates which are 1st fail-safe. After that then the historic bottom or top (eg. Forex pairs) is your next best bet using the tightest grid and lowest risk exposure.
3. You need to firstly identify your maximum risk of loss you are prepared to tolerate. This will determine your position sizing and grid spacing. Yes, there is no guarantees and when your risk target is met....that's the time you need to pull the pin and accept the loss. This target is likely to be 50%-60% of your trade capital and this will severely cap your ability to diversify.
4. If it was me (a risk nazi) I would add a long only condition as well.
5. Positive SWAP while not appearing to be material, actually is to an instrument deep in drawdown...and you will notice how your equity deteriorates quickly with negative SWAP for an instrument deep in drawdown with a large position size. With positive SWAP, you can afford to park the under-performing instrument until market conditions change and over time let positive SWAP assist in reducing the break even point. It is a slow grind but worth it in my opinion. Obviously there are not many offerings with positive SWAP so you probably out of necessity need to accept negative SWAP but make sure your instrument does not have a large negative SWAP otherwise you will pay the price.
6. Fred's idea of a 5x multiplier on the initial position is a good one based on live performance as this keeps the income churning with some good licks when you choose direction well. Also if you park an instrument and get another cracking the new instrument is likely to quickly offset the drawdown impact of the prior instrument quickly. That way you can close both positions and start again simply to remove a bit of risk steam.
7. There is definitely a temptation to diversify to increase the income churn....but you just need to be very careful that you don't overexpose yourself in doing so. Instruments are getting more and more correlated these days and unless you choose wisely....it could be your undoing.

I'll let Fred tear into this post if I have it wrong. :-)

Firstly, apologies to Xaron if this thread has been derailed.
I only set out to offer opinions on how and what to consider when trading with a Grid System.

My last comment on this:

1. yes swaps hurt but you need to consider the contribution any instrument can make and weigh up the cost if you don't trade it because of swaps. My initial view was only trade positive swaps, but my results trialling negative swaps have changed my mind. So while i would prefer a positive swap, i will still trade the best looking instrument regardless of swap.

2. diversify by all means, if you have the capital to support the venture and also open a new trading account per instrument. too many pair on one account and you'll run into the broker limit on maximum number of trades allowed, typically 100.

3. trade long only, as you wont find too many instruments that drop in value below zero, and use this as your base.

4. any grid system will spend most of its time in DD so get used to it.

As i type, my system has closed 1750 trades since Nov 2016 all of them in profit. I currently have 46 open trades and my DD has hit an all time high, but i have the maths to support my system and am ok with the risk on the table.

bye Fred

Cheers Fred. Apologies to Xaron too :-)

I think Xaron would appreciate this discussion here seeing that he now uses RLF`s system.

am convinced diversification is better.
you trade 1 instrument like GBP/CHF and if price breaks the historical low, you`re cooked.

now with 5 instruments like AUD/NZD, GBP/CHF etc it is very likely that the low of some pairs will not be breached.
of course your lot size per pair will be adjusted.
instead of 1 lot of GBP/CHF, you have 0.2 lot with 5 pairs.
cant see C. why that would not be more beneficial most likely.

Hi Y :-)

I see where you are coming from and agree with your position sizing logic. IMO if you are going to diversify (which I agree makes sense given the unlikelihood that every one of your instruments will be in drawdown) then you just need to ensure they are not strongly positively correlated (if you are always long).

I always err of the most conservative proposition which is probably too conservative for a strategy such as this. I therefore take a worst case scenario where over time a scenario may emerge where you find that all instruments are in drawdown with very little income generation to offset. Unlikely....yes....but possible. I hate losing Y in the long term. So much effort for so little gain.....but I think the risk nazi is rearing it's head and your logic does make sense :-)

that clears up the diversification. you are not a beginner, so I started to think there must be flaw in my reasoning.
thank you for that.

another subject is you`re saying "very little income generation to offset" the drawdown.
dont think that is entirely true.
even closer to the historical low with a drawdown, price will still go up and down.
unless the decline is not gradual of course.

hi Xaron,

if you use RLF`s system, you might as well TP differently.
I see you entered GBP/CHF @ 1.2300 with TP @ 1.2325
would it be better to TP @ 1.2337 if the spread is 3 pips?
you would have 1 more dangler if it just wont reach 1.2337 and price goes down afterwards.
would it matter to have 100 or 101 trades in drawdown?

No problem guys, keep it going! As long as it's somehow grid related I'm fine. Thanks for all your valuable input!

I've dropped EUR/USD and take USD/CAD (short) into the grid.

Hi to everyone

To me this thread is one of the best strategies in this business and I have been utilising it for more than 4 years now.

My contribution would be as follows;

1 = Find price_landscapes where the price_flow is strongest and one-way. (more like a river)
2 = Confirm with higher timeframes (DI same direction as WI)
3= To locate (1) use channels 90 and 30 all sma
4= To locate (2) use W1 previous Close and D1 previous Close ( and D1_Close line to be above the W1 for buy entries and vice-versa for sell entries)
5 = Strictly trigger ALL entries(orders) OFF the 30 channel as price bounces off it.
6= For profit taking use round numbers 100.....50. (also as SR)

TF = H4 or H1

If possible, slot in a grid system ( I use 10) and an EA to trigger entries on those grid lines as per items 1 to 5

I have attached a rough pic of this idea

Am sorry if in any way I am derailing this thread but I am a fan of what you have started here.

Thanks
56

I dropped AUD/JPY, I think this has run somehow hot, and because it's strongly related to the stock markets which are at ridiculous levels this might cry for a heavy correction.

I've added EUR/GBP short. Euro in general is not in a good mood and GBP was punched too hard.

Sorry just curious why wouldn't Eur/Usd be the best pair at the moment? Yellen seems dead set on hiking interest rates to the roof matched with the instability in Europe at the moment (BREXIT, Immigration, political unrest, rise or the right) I don't see how the EUR will ever be able to reach previous highs and can only see it going down in the long term. (Take this with a grain of salt I may be a little biased I have started opening up shorts on the 1.135, it will probably reach 1.16 like last year but I will keep these shorts unless it breaches the 1.2)

You are right. Euro might go down but for sure not against the Dollar which is doomed as well. It's just the question which of both will crash first.

If I could take a bet I'd go all in in metals like Gold and Silver.

Little update. I stopped my AUD/JPY long grid and started a new EUR/JPY short grid. It's not that bad related to swaps but I think we might see some ugly months ahead in the stock markets which will lead to some unwinding and probably Yen strength.

I'm very bullish in Gold and Silver, and very bearish for the US dollar for the next few years to come. EUR/USD might see 1,20 levels again, not because the Euro is in a good shape but because the Dollar will suffer.

I know this Gold trade is not grid related but I let this one run to at least 13xx levels if not even higher:

Reloaded my grid for GBP/CHF:

Hi Xaron!

I see We trade quite similarily. I also trade with Oanda, low leverage, also grid alike trading (I put a grid in relation to BBand).
I'm curious: Do You hedge some of the positions (might also be grid hedge) on other accounts?
If so - is it more or less the same size of positins or You regulate it with e.g. swaps?

BR!

I have been trading this way with a similar approach for several years (the first table that I did on excel for this grid dates from 2013),...... typically in each broker account I will follow 4 different currency pairs each with positive swap.
No SL, no set TP
I study the historical movements to find base levels and median to help choose the currency but ultimately needs positive swap
Prefer also the Buy side where possible
Not a set grid but I know my approximate distances between trades
Low lot size and money management is everything

But swaps chnage over time and must be watched: an example is the AUDUSD, used to pay great swap, now alot of brokers are already putting it on negative for the Buy so less opportunity for me.
But currency pairs such as NZDCHF are still in great position.

Also word of caution on the DD, as sometimes this can rise to high levels (at the moment DD is low for me) I use several broker accounts..... if your broker goes bankrupt (eg Alpari.co.uk) or they have to shut trades..... your DD is considered as losses..... so money management and risk management is everything.

Trading done almost always using the phone MT4, and does not a lot of time.