Grid trading system is considered to be one of the most profitable trading systems in the world since profit is made by compounding the floating profit in a running trade. Though the system is very profitable yet the trader should be extremely cautious about proper money management and lot-size scaling.
Lot size scaling is the phenomena by which a trader can trade a certain portion of their account size in different pip range. Professional traders use two 8 days and 21-day exponential moving average to trade the grid system in the major currency pair. Let’s see how the professional trade the AUDUSD pair using grid method:
Figure: Trading the AUDUSD pair by Grid trading system
Identifying the bullish or bearish crossover is the first condition to trade this system. When the 8 day EMA crosses over 21 days EMA its termed as the bullish crossover and bearish crossover happens when the 8 EMA crosses below the 21 days EMA. Once the bullish crossover is identified traders will risk 3 % of their account equity in three different long trades. After the bullish crossover traders will enter their first long trade when the price hit 21-day moving average. After hitting the 21 day EMA price will rally and again retrace back to the 21 days EMA where the second trade will get executed. The third and final trade of the grid system is executed when the price hit 21 days EMA for the last time.
Tight 25 pips stop loss should be placed after opening each and every single trade. Take profit level should be placed once the trader opens all the three long trade in the market. For the three open long positions trader will set a fixed take profit zone which is 25 pips above the third entry point. For the bearish crossover, similar rules should be followed while taking the three short trades.