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The no stop, hedged forex trading grid system uses the rule that one should be able to close a transaction at a profit no matter which way the market moves. The only way this is logically possible is that one would have a buy and a sell deal active at the same time. Most traders will say that doing this is trading suicide but let’s look at this in more detail. We are going to assume a grid with grid gaps of 100 pips. We are going to use the simplest formation to show the principles involved. This formation is the 100% retracement formation where the price moves up to a grid level and then returns back to the starting grid level. Unfortunately things become quite mathematical from here. We are also ignoring broker spreads to keep things simple. Let us assume that a trader enters the market with a buy (buy 1) and sell (sell 1) deal active when a currency is at a level of say 1.0100. The price then moves to level 1.0200. The buy will then be positive by 100 pips. The sell will be negative by 100 pips. At this point we would cash in our positive deal and bank our 100 pips. The sell is now however is carrying a loss of -100 pips. The grid system requires one to ensure that the trader can cash in on any movement in the Forex market. To do this one would then enter into a buy (buy 2) and a sell (sell 2) deal at this level (level 1.0200). Now, to illustrate our point let us say that the price moves back to level 1.0100 (the starting point). The second sell (sell 2) has now gone positive by 100 pips and the second buy (buy 2) is carrying a loss of -100 pips. According to the grid trading rules you would cash the sell (sell 2) in and another 100 pips will be added to your account. That brings the grand total cashed in at this point to 200 pips (buy 1 and sell 2). At this stage the first sell that remained active has moved from level 1.0200 where it was -100 to level 1.0100 where it is now breaking even. The 4 transactions added together now incredibly show a gain:- 1st buy (buy 1) cashed in +100, 2nd sell (sell 2) cashed in +100, 1st sell (sell 1) now breaking even and the 2nd buy (buy 2) is -100. This gives an overall a profit of 100 pips in total. We can liquidate all the transactions and have some champagne as we have made a profit of 100 pips. Please ensure you understand the calculations behind the activities discussed above. You may have to reread and draw the movements on paper to make sure you have mastered the concept. This formation is the 100% retracement formation where the price moves up to a grid level and then returns back to the original grid level and results in a nice profit for the forex trader. There are many other market formations that turn this strange Buy and Sell at the same time activity into gains. The next article will cover the 50% retracement formation which produces the same amount of income. There will be much more on the no stop, hedged grid trading technique in future articles in this directory. Do not miss them, whatever you do.
In the face of volatility in the financial markets and the continued impact of the credit crunch, it is important for motorists to take steps in reducing pressures on their spending.
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