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In the forex industry, the grid trading strategy is a technique that takes advantage of market volatility. It requires less forecasting and can easily be automated. By acknowledging the movements of prices, a trader benefits. At one point, he may not profit but eventually, from the pip intervals, he will. As the objective is to base results on the rise and fall of prices, owning two trading accounts is recommended.
The Blueprint
The concept behind the grid trading strategy is that orders are initially priced above normal values to be sold below any expected worth. As it continually handles transactions, the forex market is known to "catch profits". Should he allot sufficient time, a trader will see positive results. Though seemingly simple, this approach can be difficult to see through. That said, it is meant for advanced and strong-willed traders. Only after understanding the fundamentals of the industry should a beginner take a shot at using the technique.
The Losing Position
A downside to the grid trading strategy is the chance of being stuck in an open position. On that point, a trader will notice winning streaks made by another trader. At his state, he is supposed to wait until market prices will go in favor of him. Sometimes, he has to stay still for a long period. During which, he may not profit at all and he would need to add more funds to his account. Should he be discouraged and give in to the temptation of discontinuing his progress, he may not get to recover his loss.
The Pro
As it works around the basic idea of placing orders differently, the grid trading strategy is a popular technique in the forex industry. Also, it can guarantee a win as the market doesn't stop moving back and forth. Especially with a load of finances to back him up over time, a trader may find this his preferred strategy. Provided he is able to avoid limitations and being issued a margin call by his broker, he may be looking at bigger profits.
Example
A trader sets prices for a stock that is originally valued 2.15 at around 2.16, 2.17, and 2.18. Following the grid trading strategy, he sells the stock for 2.12, 2.13, or 2.14. Though he lost at the beginning, it wouldn't be a problem for him to gain the percentage back over time. As prices constantly change, he may end up selling a stock at 2.20.
Content credit: http://www.mtrading.in/
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