[0:00]In this video, we will be exploring one of the most popular trading strategy known to many. This is the grid trading strategy. This strategy is very popular and we can find many videos on YouTube that explain how it is being used. We have conducted an extensive back test on this strategy and we are excited to share the results with you. Stay tuned to find out.
[0:35]Hello everyone and welcome to the Meta Exchange. In today's video, we will be going through the grid trading strategy. This strategy follows a grid and has a set of rules to set up the trades. The strategy is easy to follow and it can be used on crypto and forex markets. We have grouped the content into four informative sections for you. In the first section, we will go through how we use the grid trading strategy. Next, we will go through some examples on the crypto and forex market. In the third section, we will back test this strategy throughout 2021 and share with you our observations from using this strategy. Last but not least, in the fourth section, we will be sharing with you the observations and potential pitfalls to take note while using the grid trading strategy. We will be sharing profitable strategies and best settings on our YouTube channel. Remember to click the subscribe button and notification icon so that you will not miss out on it. First, let us share with you how we utilize the grid trading strategy. Over here we have a price chart from TradingView. We will divide the chart equally based on the price distance. In this instance, we will be using a gap of 50 pips. The grid strategy is easy to follow. We will first enter a buy and sell trade at the current price level. Both trades will take profit at the next grid line. In this example, it will be a 50 pip take profit. We will not assign a stop loss to it as all the trades will be closed at the end. Next, the price went up and reached the next grid line. This will cause the previous buy trade to take profit and we will start another buy and sell trade at this level. Take note, our previous sell trade is still open. The price continued higher and reached the next grid line. This will cause the previous buy trade to take profit and we will also start another buy and sell trade at this level. Take note, now we have two sell trades that are still open from previous grid and two newly added buy and sell trade at this level. Next, the price continued downwards and reached the previous grid line. This will cause the sell trade to take profit, leaving our previous buy trade still running. Most importantly, since we had a sell trade that was entered previously and yet to be closed, we will only enter a buy trade at this level. Remember, we will only enter a buy or sell trade when the price reaches that level and it does not have an existing buy or sell trade running. We continue this strategy of buying and selling at each grid line for some time, and we will keep taking profit along the way. The last buy and sell trades were ignored as they balance out each other. Let's add up the result. We have a total of 10 wins. We subtract the first buy, which is two grid level away from our closing. Next, we subtract the second buy, which is one grid level away from our closing. After that, we subtract the one cell, which is one grid level away from our closing. Lastly, we add up everything and concluded this exercise with six wins. So how much pips did we earn in total? We have six wins multiplied by 50 grid line, that will give us 300 bits. We have earned 300 pips even though the market did not fluctuate and move as much. By now, I believe you are familiar with how we use the grid trading strategy. Let us proceed to the next section. In this section, we will be back testing this strategy on the crypto and forex market. We will show you how this strategy can be used on cryptocurrency pairs. Over here we have the BTCUSD pair. We will use the date range between the 1st of September 2022 to the 30th of September 2022. Of course over here, we cannot use 50 pip spread for the grid line. Instead, we will be using 50 grid level. After dividing the chart into 50 grid level, we will use the grid trading strategy. Same as we have shared in the previous chapter, we will enter a buy and sell trade as the price reaches each grid line, and only if the grid line does not have a buy or sell trade running. The yellow arrow lines indicate that the trade has hit the take profit level. Feel free to pause the video to verify the trades. In total, there were 44 winning trades. After adding up all the winning trades, we need to subtract them from the remaining open trades. In this example, we have eight buy position trades and one sell position trades, in total they add up to 37 losses. So after subtracting from the 44 winning trades, we have a positive seven winning trades balance. We multiply the seven winning trades with 50 level and we will get a profit of 350 level. Moving on to the next example, over here we have the GBPUSD pair. The period will be between the 1st of July 2022 to the 31st of July 2022. We have divided the chart into 50 pip grid line and we will test the grid trading strategy here. Same as before, we will enter a buy and sell trade as the price reaches each grid line, and only if the grid line does not have a buy or sell trade running. The yellow arrow lines indicate that the trade has hit the take profit level. Feel free to pause the video to verify the trades. In total, there were 52 winning trades. After adding up all the winning trades, we need to subtract them from the remaining open trades. In this example, we have seven sell position trades and one buy position trades, in total, they add up to 29 losses. So after subtracting from the 52 winning trades, we have a positive 23 winning trades balance. We multiply the 23 winning trades with 50 pips and we will get a profit of 1150 pips. After you are familiar with the strategy, let's move on to the next section of the video where we will be back testing this strategy on the EURUSD for the whole of 2021. In this section, we will back test this strategy on the Euro USD using the tick data from the whole of 2021. We want to see if this grid trading strategy is profitable throughout the year of 2021. As this strategy uses price level to enter a buy and sell trade, we do not need to be too concerned on which time frame this strategy is applied on. For demonstration purposes, we will use this strategy on the four-hour time frame. Similarly, there is no risk to reward ratio to be applied on this trading strategy. Instead, we will only need to set the lock size used for each trade. We have coded an expert advisor to help us automate the back testing of the grid trading strategy. We will set the range to default 50 pips grid line to test the results. Let us start the expert advisor. While our expert advisor is running, if you are new to this channel, please tap the like button and follow us for more in depth analysis of different trading strategies. Please also comment down below if there are any back testing settings that you would like us to include. After some time, the expert advisor has completed the back testing of the grid trading strategy. Of course, we have verified the trades executed by our expert advisor and we are certain that it is trading according to our strategy.
[7:38]After going through all the results, it seems like the grid trading strategy is only profitable at the start of the year, during January to August. From the equity curve, we can see that the grid trading strategy starts to decline in September. Let's proceed to the next section where we will analyze the result and understand why this strategy is not working for Euro USD in 2021. In this section, we will share with you how we analyze the results from back testing Euro USD in 2021 and our observations on using the grid trading strategy. Most importantly, this will let you decide if the grid trading strategy is a good strategy to use. Our first observation is that the grid trading does not work well in trending market. Remember the Euro USD equity graph. We noticed that the strategy starts to lose money in the month of September and it just deteriorates all the way from there. It declined until the end of the testing period. Let's take a look at the chart to have some understanding on the price action. First, we identify the January and December limit of the chart. Next, we draw a line on the September period. From the chart, we can see that the price is ranging between January to end of August. After that, it went into a down trend in September to December period. The down trend continued until the end of December. This is unfavorable for the grid trading strategy as it will always have an open buy trade at each grid level. Those added up to be a huge loss. Therefore, the grid trading strategy should not be applied on market that is very volatile and trend a lot. Observation number two, only the deep pockets and big accounts can trade the grid trading strategy. This strategy is not suitable for the small accounts. The highs and lows of the currency pair matters as it will determine how many trades you left open until the end of your trading period. Each of them adds up significantly. Most importantly, to be able to trade the grid trading strategy, you must have a huge account that is able to hold on to all the losing trades. You need to take into the account of swap fees and holding trades over the weekends. And you need to make sure it has enough margin to continue to open new trades at new grid levels. Therefore, the grid trading strategy should only be traded on a huge account that is big enough to stay in the market. Observation number three, the grid line gap matters a lot in determining profitability. There is a fine line between being too conservative and being too greedy. This applies for the selection of the grid line gap as well. We cannot be too conservative by setting a 500 pips spread and we cannot be too aggressive and greedy by setting a 10 pips gap. We have done some comparison between the Euro USD and GBPUSD using the grid line spread of 30 pips, 50 pips and 100 pips. We used the tick data for the whole of 2021 in a size of 10 cents per pip. Before we compare the results, if you are new to this channel, please tap the like button and follow us for more in depth analysis of different trading strategies. From the previous back test on Euro USD, we know that it will be a negative return for the whole of 2021, but from the result, we can also see that the pip spread will determine how much money was lost. The conservative approach of using larger pip spread will give a smaller loss, but it will also give a smaller return. This is the same for smaller pip spread. It will give a bigger loss in trending market such as the Euro USD, but it will also give a big win on the ranging market such as the GBPUSD in this example. We added the results from the two currency pairs. And we can see that the 50 pip spread actually gave a better overall result compared to the 30 pips and 100 pips. But does this means that 30 pips is too aggressive and 100 pips is too conservative? And as 50 pip spread the recommended setting, we cannot be certain of it as this is only based on two currency pairs. Therefore, with this in mind, we want you to be careful when selecting the gap between the grid line. The recommended range should be between 50 to 100 pips. We need to take into account on the pip spread and commission for trading as well. Usually, this will reduce the profit from 30 pip spread greatly. In this video, we have back tested the grid trading strategy on the Euro USD and GBPUSD. Let us know in the comment section if you would like us to back test the grid trading strategy on all the 28 currency pairs to find out which pair will give the best result. Or we can also back test it to find out which grid line gap will be the most recommended. And there you have it. In this video, we have shared with you how we use the grid trading strategy. In the second section, we have provided some examples of the grid trading strategy on the crypto and forex market for your understanding. In the third section, we have shared with you our back test result for using this strategy. Last but not least, in the last section, we have summarized the observations and points to take note while using the grid trading strategy. We hope this video can give you some ideas on how you can use the grid trading strategy to create a profitable careful strategy. All we like to ask for is for you to kindly like, share and subscribe to our channel. You can greatly help us with the YouTube algorithm and motivate us to create more winning strategy videos. We would like to hear your suggestions on how to improve our strategy. Please feel free to comment down below and share with us your thoughts. If you have a trading strategy that you would like us to back test or to create an expert advisor for it. Please email us at themetaexchange@gmail.com. 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