Is Forex Grid Trading a Viable System for Forex Traders?
Foreign exchange grid trading is a system mainly based on price movement above and below a predetermined base price. The theory is to open stop orders both ways at certain intervals. Most grid traders use 10 pips as the gap between fresh orders, but the real problem occurs in deciding stop-loss levels. Each fresh order is placed with the assumption that the price would move another few pips (equal to the gap between adjacent orders) in the same direction.Foreign exchange, or forex, grid trading on its own is a risky strategy to be implemented on live accounts. But combined with more reliable indicators and systems, grid trading can increase potential profits of those other systems. For example, if you are using a forex trading system based on trend-following indicators, using grid strategy on confirmed trends could boost your profits of the original trend-following system. Having said that, it's important that you take precautionary measures when adopting such improvisation. The nature of the forex market suggests that if you already have a winning system, then don’t try anything beyond its potential.
As a responsible forex trader, you might need to back and forward test certain strategies before implementation. But there is a problem with strategies using forex grid trading. The strategy might look perfect, depending on the mode of testing (back or forward) the forex broker tested with, time frame used and period of testing, but blow the account into pieces when trading live. In short, forex grid trading strategies are very difficult test, or even worse to assume similar performance at both testing and live trading.
Taking into consideration the risk factor, difficulties in testing and volatile nature of the forex market, forex grid trading alone does not constitute a viable forex trading system.