What is Grid Trading?
Quick Answer: Grid trading places staged orders above and below price to capture range oscillations, but it requires strict controls to survive breakouts.
Understanding Grid Trading
Grid trading places staggered buy and sell orders at preset intervals above and below current price. The strategy attempts to profit from range-bound oscillations without predicting direction—collecting small gains as positions close within the grid.
How Grids Operate
- Grid spacing: Define the distance between orders (e.g., every 20 pips).
- Lot size: Typically uniform, though some traders scale size.
- Take-profit targets: Each order closes at a defined profit, resetting the grid.
- Optional hedges: Some systems add opposing orders or options to cap risk.
Best Practices
Deploy grids on mean-reverting pairs or ranges buffered by strong support/resistance. Use volatility filters to pause the system during news.
Risk Management
Grid trading can implode when price trends strongly or gaps over multiple levels. Set equity stops, dynamic hedges, or directional filters (e.g., disable the grid when moving averages align in a strong trend). Monitor margin utilization closely and avoid martingale escalation unless fully hedged.
Mind the Margin
Running multiple open legs consumes margin quickly. Keep leverage modest and have contingency plans for prolonged trends.
Related Terms
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