The grid hedge - the core version

OK, let me start by saying that this is a purely mechanical system. There are many versions which I will later post but this one is the core concept.

It is based on the principle that the market has to move, so we are counting on volatility to help us out. No indicators, no continuous monitoring needed.

1. Oanda is your best choice if you plan to try this out. They have a good spread, you can trade directly from the charts, and your positions can be as small as your money management can afford.
2. Oanda cancels a buy and a sell on the same currency pair (hedge) so you need to open a sub-account, and divide your money equally among them. So if you have a $10,000 account you would have $5,000 on the primary and $5,000 on the sub-account.
3. For this system I only trade the EURUSD since it has the lowest spreads, which is very important.
4. Anytime between 22:00GMT or 0:00GMT place your orders. Let's say your primary account will manage the long trades and your sub-account the short ones.
5. Primary account.- Place your limit buy order on the next multiple of 20 and 4 more to follow 20 pips apart from the previous one. NO stop loss, NO take profit. e.g. if the price is 1.4572 you would enter 5 orders to buy at the following prices, 1.4580, 1.4600, 1.4620, 1.4640, and 1.4660.
6. Sub-account.- Do the same as above but to the short side with sell orders. e.g. 1.4560, 1.4540, 1.4520, 1.4500, and 1.4480.
7. Money management.- VERY important, each of your orders has to be exactly for the same number of units and it should be allocated as follows: 300 units per $100 dollars on the account, that is a 3 cent pip. So in our example, our account after splitting it is $5,000 so we will buy and sell 15000 units per order.
8. Wait for a big move. You will have several scenarios when you come back next day at the same time. Maybe, only one side of your orders were triggered and you only have positive pips. Maybe one order on one of the sides was triggered and two on the other side.
9. You will most likely have positive and negative pips or only negative pips. But only close all your positions when in profit. e.g. you have a 100 positive pips on the long side but a 50 negative pips on the short side, you should close all for a profit of 50.
10. If the market went 100 pips up and 100 pips down and then came back to 1.4570ish, you will have 200 negative pips (hence the Money Management) DO NOT CLOSE your positions until you are in profit.
11. When and if you have taken your profit, repeat the process.

Important.- sometimes you need to take a loss, especially when you have open positions before big news such as NFP, I prefer to close my positions on the weekend as well due to excessive widening of the spread.

I know you will have many questions and I can almost bet that I am missing something that I don't remember now but that's why we are all here to help each other. So don't be shy and ask away. Also if you see any room for improvement I'd be more than happy to hear it.

Hope you all like it!! Will be posting the advanced versions later.

Could you post some statistics since you have been trading this live? A copy of statement would be nice. Blank out any personal info of course.

With the money management you are using, what is the maximum draw down and what is the average annual return? The ratio of these two numbers will give us a pretty good idea of where the system stands.

Thank you for sharing.

lets say all 5 positions of long n shorts are triggered. do u add more orders the next day? Do u add above and below the bottom n top most orders or from current prices?

If no positions are added then all positions are hedged and your P/L would be the same

...just when you thought it was safe to hang out in the graveyard, a shape emerges from a fog shrouded crypt, queue the theremin... the GRID MONSTER!!! This has been done to death on so many forums, the market trends and you get hammered. There is no free lunch, you need an edge.

How could you get hammered? I dont know if this could work or not, but once market trends you are in on the one side, so even if all trades were hit you have hit max loss at that point. It would seem to me that once all trades are enterred you just close for the loss.

trading in the two opposite directions of the market always makes me laugh. Why don't you choose one direction and try to follow it, instead of making total mess with opposite positions?

Jeta, I do not have all these statistics as of yet, but let me put them together and I'll get back to you. The ROI is between 15 to 30% per month, on the months that I have traded it, I started out in October last year.

It depends Autumm, there are many scenarios to expect from this. I don't add to these positions. It is possible that all your orders get triggered but it is not that common, the market would have to move 400 pips in a day, I know stranger things have happened, I would wait for the market to go 100 pips either way and close positions with a small loss, at breakeven or even with a profit.

It is important to note that, you do not take profits on a daily base, its usually once a week when we see a big movement that allows you to be in profit.

Hope this is clear.

Hello Craig, thanks for your comment. I think you don't get the full picture, if the market trends your profit will be bigger than your loss (depending on the number of orders that have been triggered) this is what I like to consider as the edge.

If I misunderstood your point please elaborate on your thought.

Thanks

You are absolutely right Ceco-Ku4ev, if you are a good chartist, fundamental trader and have all that it takes to profit from the market from your own in-depth analysis this is not for you. You can make a lot more money analyzing markets all day, and only trading in one direction with a small stop loss and huge take profit.

This is for the ones who don't find the time or don't have an interest nor intellectual or emotional capability of doing so.

But thanks for your comment nonetheless.

15 to 30% a month? That's crazy. Please get those numbers whenever it is convenient for you...

180% to 360% is just crazy. Assuming you never hit margin (meaning 100% max dd), that will be at least a 2:1 if max DD is 90%...

Hello, this is an excel file that will calculate your max dd following the money management parameters and assuming that the 10 orders were triggered and the price is back to where it started which would be our worst case scenario.

Fields are not blocked so I recommend you to only change the fields in yellow so you don't mess up the formulas, feel free to play with it anyway. And I appreciate to hear any comment or improvement or flaw that you might find and that I may have overseen.

Thanks

http://rapidshare.com/files/103622105/The_Grid_Hedge.xlsx

Or you trade EUR/USD and USD/CHF at the same time. They are almost fully correlated.

Oops, I think somebody doesn't understand this system . You are probably thinking of the typical grid, rather than this method.

No Alderlug, this system has to be hedged to the pip and USDCHF does not correlate 100%. You have to hedge it against itself to have the mirror effect. There are other hedging strategies that use the USDCHF especially to collect interest, but is not the case here.

Here is the file again. In a more compatible version.

Remember that is one only calculates your max dd, so if you see, once all the orders are triggered, no matter what, your dd will always be the same 7.8%. Because your loss is growing exponentially as well as your profit. So your loss is somewhat controlled.

Thanks for the grid system, if I understand your sysytem well I think it is praticable also on a metatrader platform and one don't necessarily need two accounts but only one will suffice preferably a micro mini lot account.

Hedging is fully possible with most mt4 brokers I believe.

That's right juxta, but I do not know of any broker using mt4 that offers a .9 pip spread which in my opinion is very important. But yeah any broker will do, I just prefer oanda for this system that's all.

Currently have 2 sell orders triggered (1.5800 & 1.5780). So just need to check back in 24 hrs and close all positions if in profit and repeat buy and sell stops (using 5 positions above and below price at time of placing orders)?

isydeb, if all the orders get filled, you'll always have -200 pips. how would you close the positions in profit?