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Grid trading research continues…

I have spent some time doing some research into Grids in an attempt to find ways to hedge the grid against the dreaded draw-down. Sadly, I couldn’t find any site that appears to have analyzed grids as much as I have. If you know one, please let me know! The rest of the sites I found were just introductions to Grid Trading, or Grid Trading scams, didn’t exist or haven’t been updated since 2008… I wonder why? J

Well, that isn’t a good sign, but I’m not going to give up yet. It seems the belief is that Grid Trading will eventually blow your account. As we have researched, this will only happen if you bet too much, or the price goes way out of the pre-planned range. So it seems there are three approaches to successful grid trading…

1) Trade with small trade sizes and large account balance.

That sounds good but if we do that the returns are not going to be sufficient either.

2) Limit your losses using smaller accounts.

So suppose we have 30,000 to trade with, let’s only put 10,000 in the account and start the grid with a reasonable trade size. Now, let’s say for arguments sake that the 10,000 can absorb a 2000 pip slide in prices…. Well, that kind of slide doesn’t happen very often so you start trading the grid, and because you are using a reasonable trade size, you get reasonable returns.

The idea is that hopefully as you make returns, you withdraw those wins from the account to keep them safe. If you are lucky, by the time the big draw-down comes, your account gets wiped out but that’s ok because you already tripled it and moved the money somewhere else. Of course, we didn’t use all 30,000 from the start because the big draw-down might come early if we are unlucky, so just wait and try again later when the markets have settled.

3) Use a Martingale system to prolong your losses.

Similar to number 2) however you use a Martingale system, or double-down every time you make a loss. A classic martingale system effectively prolongs your losses, so the majority of the time you will win and be alright.

Again, like number 2), the idea is to make a bit of money and move it out of the account because eventually the Martingale will blow your account when you get that long losing streak.

I did find a review of many Grid strategies by Scott Wang from ForexVerified (http://www.getresponse.com/archive/forexverified/Scotts-Favorite-Grid-Trading-Strategies-10947759.html) however a lot of those Grids appear to have already gone bust. Nothing detailed in here but an interesting read anyway if you are interested in Grid Trading.

Otherwise, I didn’t find much else. However, I know somewhere where I can see some Grid Trading profiles – MyFXBook. MyFXBook is a great site that allows you to see strategy and trader profiles, trade histories, their balance curves etc.

Generally I was surprised by the number of EURUSD grids given the calculations we did in a previous post of the currency’s range. I guess this currency pair being very liquid fluctuates up and down more to make it more worthwhile? All of them are doing well but most of them started after the last GFC (For example: http://www.myfxbook.com/strategies/-gridea/47845).

Ok so here are some of the ones I checked out.

The HY-Grid: http://www.myfxbook.com/strategies/hy-grid/10831
Now from what I can gather from the trade history, this grid attempts to bet against the trend expecting a reversal on GBPUSD only. It is not a hedged grid but can change its direction as it appears to gauge the trend has change direction. It also appears to increase the lot size, similar to martingale. Specifically the amounts start at 0.1 then head to 0.16, 0.26, 0.41, 0.66, 1.05, 1.68, 2.68, 4.29, 6.87 and so on.

Initially if you check the page it says it has a +96% profit and a lovely balance curve. However, if you switch the Summary to pips view, you’ll see that both short and long positions kept accumulating loss trades, so I believe this grid failed. Here’s the screenshot

HYGrid

The RSI Grid (4144% Growth!!): http://www.myfxbook.com/strategies/rsi-grid/58388
This Grid has a link to what sounds like a scam page http://www.lifesdream.org/ but all the EAs are free for download and it appears to have some good ideas. Looking at the (very clean) code, it appears it is using RSI to establish a weighting on particular directions.

It also uses a martingale system as we can see from the trade history sample below, specifically on those SELL trades, and more importantly it is only on the losing trades. However, the buy trades look interesting too as it looks like it takes profit and re-enters at the same price, I guess this must be where the grid is defined. However, the profit values are not consistent implying a different sized grid.

The whole logic of the strategy is contained in the Robot() method, and appears to go like this

IF the number of open long trades equals zero AND RSI is less than overbought
—-Enter Long using Starting Volume
ELSE
—-IF the current long trades are making more loss than the stop loss for all positions AND RSI is oversold
——–Enter Long using martingale calculated volume
—-IF we are in profit, and more profit than the last check
——–Set an internal take profit at 60% of the current profit level
—-IF we are less profit than the previous 60% profit level
——–Close All Long Trades.
END IF

Reverse conditions for Short trades. So it looks like the Buy trades were closed on a reversal to 60% profit, but almost immediately re-opened as the RSI may have been below overbought. There is obvious room for improvement here. Their rolling take profit is interesting too, I’ll think about that.

Using a Classic Martingale alone is risky, but I guess in this case it is combined with the RSI which may we can increase our chances of winning. Although, looking at the trade history of this strategy in detail I can see times where the initial trade size of 0.1 lots increases right up to 29.30 lots (Trade opened 09.12.2013 01:43).

Looking at the MyFxBook PipChart, it looks like it made significant returns, but as we can see with great risks.

RSIGrid

Grid Pacer: http://www.myfxbook.com/strategies/v2k-fxm-gridpacer-2012-gu/16520
From the Trade History of this grid, we can tell it is a 20-pip grid that trades in both positions but not at the same time, so it must have some way of weighting itself with the trend. It does increase its lot size when it loses though. It does not do a classic Martingale though and the lot sizes are: 1, 2, 3, 4, 6, 8, 11, 15 – but that’s the highest it got. This strategy seemed to work for it.

GridPacer

Grid Stoch: http://www.myfxbook.com/strategies/grid-stoch/14597
This appears to make money and took me a while to figure out what it was doing. It looks like it does not apply a Martingale which is good, but instead chooses to space out the grid. There is a strange spike in the balance curve around October 2011 so I’ve tried to analyze this data.

GridStoch

The grid/pip sizes around then appears to increase in the following order: 3, 6, 7, 11, 12, 16, 19, 21, 27, 32, 37 or something along those lines. What’s also interesting here is the price trended one way, and then reversed a little, and the grid continued. From my analysis, it looks like this strategy hangs on to losing trades much like my Unrestricted Grid but treats the overall grid as a single trade and terminates the grid (closes all open positions) when the total profit of the grid reaches 20 pips, so effectively this large restricted Grid.

At the close of the spike, there was 2800 pips in loss trades open. Luckily, the price retraced to make the overall grid profitable – this would only happen because the strategy does NOT apply martingale. If martingale was applied, the last trade would outweigh the compounded effect of the losing trades, so a retracement would only lead to further losses. So that’s something to keep in mind.

Cable Gridder: http://www.myfxbook.com/strategies/cable-gridder-money-management/15670
A very impressive set of results. The results are skewed though as the lot sizes are very big. Also suspiciously this started in January 2009 and I’m sure in 2008 it would have been wiped out. This grid strategy is on MyFXBook in another instance and the total number of pips won is about the same but this one has more appropriate lot sizes: http://www.myfxbook.com/strategies/cable-gridder/15669

CableGridder

There’s also another one that appears to have bombed out: http://www.myfxbook.com/strategies/cg-201001-20121026/26433

Anyway, Cable Gridder appears to be very established and has a lot of detailed documentation available here describing the strategy here and you can tell from the configuration options on the MyFXBook pages that it has a lot of functionality: http://www.jtatoday.info/wiki/index.php?title=Cable_Gridder_Manual_v1.1

Interesting features

  • Amounts increase linearly
  • Uses Adaptive RSI to determine the start of the grid
  • Uses an RSI moving average to determine the direction of the trend
  • Uses another RSI to ensure entries are only done between oversold and overbought levels.
  • The trade sizes can be configured as a percentage of the balance.
  • The Grid size, or spaces between lines, can be configured as a static number some variable of using standard deviations, with a minimum of the set static number.
  • Appears to have functionality to control if it will be bi-directional or not – Trend Spacing. If this is enabled it opens trades in the position of the trend, otherwise, it is a directional grid against the trend expecting a reversal.
  • Is able to tread Long and Short trades as separate baskets of trades, and can define profit targets for each basket and close only that basket out when profit is reached.
  • Supports time based filtering so the Grid starts only between particular time ranges
  • Supports automatic shutdown so once the Grid has completed one instance, it will shutdown.

Also this strategy has functionality called Equity Protection. This allows you to define a global stop loss / max draw-down so all open trades are closed when the equity reaches this value. This would be equivalent to leaving only a small amount in the account. A minimum balance can be defined such that if the balance is lower than this, the grid will not start. Stop Losses are set on the broker side just in case your connection drops.

Well, there are some interesting ideas there, food for thought and more things to look into.

Here are some more Grids that I have not yet looked into in great detail, but if you do please let me know!

SafeZone: http://www.myfxbook.com/strategies/safezone-131-bugfix-2008-2012/21801
This actually looks pretty good. Stop and Limits are easily visible so we can figure out what it does.

FxGridTraderEA: http://www.myfxbook.com/strategies/forex-grid-trader/35046
This appears to be successful on MyFXBook but the vendor has gone out of business – another “scam” apparently though the vendor did appear to be legitimate and answering support questions on forums. I guess the Grid just went bust. This strategy also shows you the Stop and Limits which is useful for analysis. Here is another one: http://www.myfxbook.com/strategies/grid/26563

GBPJPY Grid: http://www.myfxbook.com/strategies/freyr2-gj-grid/44547
Some kind of Directional Grid.

Expert Bee 2: http://www.myfxbook.com/strategies/hidden-grid/45293 and http://www.myfxbook.com/members/sunshine_fx/expert-bee-2-fx/630093

This turns out to be a Russian commercially available strategy on a number of Russian sites: http://tradingrobots.ru/products/6981980 and http://finans-plus.ru/index/expert_bee_2fx_pribylnyj_ehkspert_forex/0-78


So, in summary, the best ideas we have found are:

  • Using some kind of indicator to improve entry (for restricted grids) or introduce a directional weighting (for unrestricted grids)
  • Using time-based filter for the start of restricted grids.
  • Use martingale to prolong losses.
  • Space out the grid without martingale so it becomes profitable when it turns around.
  • Spacing out the grid dynamically using some kind of dynamic value like standard deviation.
  • Ability to net trades out and close them out if the overall basket is in profit – for example, if the combined total of short trades is in profit, close them out – a larger Restricted Grid.

Also, the majority (all?) of the above grids close out their loss trades out at some point. This is quite different to my proposed Unrestricted Grid strategy where the losses are never closed out ever. Of course this would be a problem if the market was to move completely against you, but we have already talked about currency ranges in a previous post. However, the last post where we discussed never buying and selling at the same time might cause me to re-think this strategy.

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