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Manual Grid Trading In Choppy Low Volatility Markets

When markets are quiet, we look for strategies that will thrive in low volatility. While this strategy was developed for the Forex markets, it would work when any price moves up and down with little direction.

See the below screenshot for the type of market ideal for this trading strategy:

This is a daily screenshot of the USD/JPY which is contained in a range 77.10 - 79.67 or roughly 250 pips.

There is a type of trading system usually automated that evolved in spot Forex trading called 'grid' trading, because you simply buy and sell every x pips (for example every 20 pips) creating a 'grid' on the chart. Conceptually the strategy appears to be flawed because you are always one trend away from losing. However some traders have found certain ways to use Grid trading successfully, and this is one that works exclusively in low volatility markets.

Manual grid trading

This will require many orders so while it will take awhile to load the Grid once loaded nothing more is required.

If this is being done manually, lot sizes should be calculated such that if every trade loses your account will only suffer a manageable loss. Grid strategies work on the basis of 100% successful trades until one day a big loss occurs. When using automated systems this can be solved by having account protection that will kick in when the account reaches a certain loss. In this sense it's similar to options trading that you have the limited risk with unlimited profit potential.

Example trade

Using both buy and sell limit orders, enter 30 orders below and 30 orders above the current market price every X pips for a total of 60 orders. Each order should have no stop loss and a take profit of X + 1/2X pips (so if x=10 take profit should be 15). Buy limit orders would be placed every X pips below the current price and sell limit orders every X pips above the current price.

If you were going to do this for USD/JPY (currently 78.00), and X = 20, then you would place sell limit orders at 78.20, 78.40, 78.60, 78.80 and so on. The same would apply to the buy limit orders below the price.

What this creates is a number of orders that will be triggered in either direction. As the market retraces, the orders placed become profitable. As long as the market is moving straight up or down, new orders are being triggered and losses mounting. So it's important to calculate lot sizes accordingly.

No take profit variant

A variant would use no stop loss and also no take profit, giving the trader the ability to decide when to take profit. The concept of the strategy is buying into weakness and selling into strength against the trend, so during any reversal orders become profitable.

Manual vs. automated

While we have developed strategies based on this method algorithmically, it could also be executed manually as explained here. For a sample use of this strategy via automated algorithm see this video. Seeking Alpha readers are eligible to receive a basic version of this automated system for testing and educational purposes by contacting EES.

Risk Warning

This is an unusually risky and complex strategy that should only be used by sophistocated traders. The strategy does have limited controlled risk if executed properly, however failure to do so could lead to severe losses.

(Forex Risk Disclosure - Click here to read)

The risk of loss in trading foreign exchange markets (FOREX), also known as cash foreign currencies, or the FOREX markets, can be substantial.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.