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ForexGridMaster Strategy Development

What is Grid Trading? The essence of grid trading, as I practice it, is to catch and efficiently profit from as much of the price action as possible by configuring ForexGridMaster automatic trading strategies that place buy and or sell trades according to a pre-determined plan that creates a grid pattern of trade orders. With price always going up and down, even when the market is trending, grid trading automatically cashes in many profitable trades in the run of a day. In the past, the major complaint against grid trading has been the accumulation of too many open trades in the negative which may eventually margin out the account. This does not have to be a problem. When I developed ForexGridMaster and ForexTradeManager robots, I integrated many different settings that effectively eliminate accumulated negative trades to whatever degree the trader wishes. Those user friendly settings can be seen in the manual ...

View the ForexGridMaster.v5.00.Manual at
http://forexgridmaster.com/ForexGridMaster.v5.00.Manual.pdf

to see all FGM Input settings and the descriptions of what they do.

View the ForexTradeManager.v1.10.Manual at
http://forexgridmaster.com/ForexTradeManager.v1.10.Manual.pdf

to see all FTM Input settings and the descriptions of what they do.

Yea for Mathematics. We hear a lot about FOREX trading based on technical and or fundamental analysis and sometimes on sentimental analysis, but seldom do we hear about FOREX trading based solely on mathematical analysis. Grid trading is a mathematical approach that usually pays little attention to fundamentals such as news events, or to technical indicators, or to sentiment in the market place. There are exceptions of course. For instance you can set up straddle grids around market price just before scheduled major economic reports come out to catch the price breakout up or down.

After having traded and studied many grid trading robots and strategies for 3 years since 2002, I clearly saw what was lacking, so in August, 2005, I started creating my own grid trader, ForexGridMaster, aiming to build the perfect tool for (but not limited to) mathematically minded traders to create much more stable and consistent automatic trading system strategies. In all my years of trading, I have found that the simpler the approach is, the more effective and enjoyable it can be, and math based automated grid trading strategies fit that ticket very well for me. I prefer to work with probabilities based directly on price action and to skip the usual predictive methods using indicators and price patterns. I had years of experience with those too. Make no mistake about the fact that the forex market is much more random than you think and also heavily manipulated by the central banls and large institutional traders in collusion with those banks. They move the market whenever they like in whatever direction they want.

ForexGridMaster automates grid order spacing and spacing step, number of trades placed and allowed open at any one time, lot size, lot size increase percent, lot size increase percent step, order take profit targets and steps, stop-losses, trail-stops on individual grid orders or groups of orders, profit pips before trail stop, trail stop pips, and much more. FGM also uses automatic CloseRuns, optional automatic HedgeGrid settings integrated with MainGrid settings, and Time and Day settings.

We are now at FGM v5. Below is an example of a very simple v5 grid altho the image says v3.00K. I will update this page as soon as I get a chance to a more sophisticated v5 example, probably using the default CounterTrend audnzd strategy.

Video of FGMv5 back-testing the default audnzd strategy - I finally created my very first video demonstrating the use of FGM and Strategy Tester doing a back-test ... http://youtu.be/iLCRwJ_ZWUk ... which I will replace when I can get to it, because it is not good enough as a final product. It really was just a first run to see how I could do it, how long it will take to cover a certain amount of info and to see what it would be like on YouTube. I was zoomed in too much of the time, it's missing information that should be there and I was tired with a graveling voice, I made mistakes with what I said, and it's too long. It did definitely put me on the right track however, and the next one will be far easier and more professional. That one I never used any notes or did any editing and never paused. Aside from my presentation, the quality of the video is good if you reset the default YouTube quality setting higher, 480p being best. Otherwise it is definitely a good example of grid trading at its best.

MainGrid basic setup - To create a simple BuySell Trend grid trading strategy to trade the EURUSD, which is presently priced at 1.3885, we configure FGM to automatically place buy stop orders above grid center at 1.3885 and sell stop orders below 1.3885. If FGM settings MainGrid_Active=true, Main_GridSpacing=20 pips, Main_MaxPendingBuyOrders=5, Main_MaxPendingSellOrders=5 and Main_TakeProfitPips=70 pips, then the initial grid layout of pending orders will look like this ...

Price   Order Type   OTP price
1.3980 Buy Stop 1.4050
1.3960 Buy Stop 1.4030
1.3940 Buy Stop 1.4010
1.3920 Buy Stop 1.3990
1.3900 Buy Stop 1.3970
1.3885 MovingCenter starting point for grid
1.3880 Sell Stop 1.3810
1.3860 Sell Stop 1.3790
1.3840 Sell Stop 1.3770
1.3820 Sell Stop 1.3750
1.3800 Sell Stop 1.3730

When the ForexGridMaster settings above have been chosen and you click the "OK" button, the EA robot is launched and on the first price move, it places the above grid of trades quickly and automatically. This would look similar to the image of the FGM v3.00 default strategy shown just below, except that in the image below the grid has been trading long enough for the Buys and Sells to overlap because MainGrid_FixedCenter=false and FGM setting BuySellOverlap=true were also configured. Please note that FGM has the the option to limit pending orders to one at a time and use the settings Main_MaxOpenBuyTrades and Main_MaxOpenSellTrades to control how many open trade orders are allowedat any one time.

FGM Grid Trading image

Once the grid of pending orders has been placed, price may move up quickly or slowly or it may move straight down. If price moves up to 1.3900, then the 1st buy order will be opened, up to 1.3920 then the 2nd buy order will be opened as well, and so on. If price moves 70 pips up from 1.3900 to 1.3970 then the 1st opened buy trade will close out capturing 70 pips of profit, if up to 1.3990, then 2 trades will be closed out for a total of 140 pips captured. If the price then turns and moves down as far as 1.3880, then the first sell order will be opened and if price remains active below, then the bottom half of the grid will respond the same as the top half does. Trades that are closed out are replaced by new pending orders. This grid can trade indefinitely above and below the MovingCenter price depending on account equity, lot size chosen and the range of price movement.

The ForexGridMaster story - In the fall of 2005 after trading 100s of FOREX trading systems since 2002 that did not produce the results I was looking for, I decided to create my own system. At that time I was experimenting with many MT4 Expert Advisors, most of which were automatic trading system robots, and I was convinced that I was on the right track. I had also discovered grid trading systems earlier that year, and was fascinated with the idea of using robots to "carpet bomb" the market to take as much profit out as possible, but at lower risk compared to standard methods of trading. I quickly learned that the key challenge to grid trading systems was how to handle accumulating negative open trades. The grid trading robots that I was using at the time did not have the features needed to handle that aspect of grid trading well enough, so I set out to solve that problem and also create a versatile robot that could trade an unlimited number of strategies.

First I envisioned what the perfect trading robot could do and I came up with this list...

  • Trade on automatic pilot for long periods of time fully hands off, maybe some monitoring
  • Trade all price action either up or down or both ways simultaneously
  • Be effective when price is ranging, breaking out, or trending
  • Target daily profit of at least 1% and up to 5% or more per day
  • Use best risk and money management possible
  • Handle any accumulating negative trades most effectively
  • Trade mathematically based strategies, no indicators needed
  • Trade any number of currency pairs simultaneously
  • Have as much flexibility as possible

Over the next few years I worked at accomplishing the above goals. It became crystal clear to me that I was on the right path and that the key to successful grid trading is to have the proper tools and to apply simple mathematics, working with the statistical behavior that is always in the FOREX market. Price always goes up and down and it never has not done so. Price always ranges more than it trends and it has never not done so. Even trends always include retracement fractals, and a percentage of ranging within them. So it is a matter of math and statistical analysis combined with optimal risk and money management that is needed.

I have been semi-manually figuring out various strategy settings using my JavaScript JFKGridCalculator and soon I will make the next step... which is working with professors and students in the Computer Science Math Stats department at a local university, to develop a software program to integrate right into my robot that will constantly optimize settings for capturing the fractal price movements most efficiently.

My Experience - In 2008 up until October 4th, it was easy to trade a Buy grid and a Sell grid simultaneously with as little as a 3 pip grid order spacing and LotSizePercent setting of 0.00005 and profit about 3% per day with OrderTakeProfit settings between 15 and 21 pips. I thought I had it made. This is when the market was ranging 70 to 85% of the time and the breakouts were limited and their distance of breakout fairly predictable. I was basing my settings on the fact that the EURUSD, as one example, was averaging about a 125 pip range per day and had been for years (altho it averaged 141 pips for the 6 months previous to Oct 4-08), and extremes were generally less than 200 pips per day (Oct 4th the EURUSD range was 444 pips). After October, we had many days above 300 pips. At that time I actually stopped trading and focused entirely on getting my robot finished with the new features I was adding, as I knew the need and opportunity had increased for such a robot.

I had lost one programmer and decided to learn MQL4 myself, which I struggled with for 4-5 months (doing other things in my life too) and then realized it was taking too long, so I found another programmer for the job, this time close to home. After a month or so that didn't work out either, and then I approached FerruFx, developer of the Probability Meter, a popular MT4 indicator. He was good to work with and continues to increase his skills. He programmed ForexGridMaster versions 1.0 up to 2.3. From there, Gendec Design programmed FGM_v2.40 through to the current version, doing an excellent job using industrial strength code.

As to the real potential for robot trading profits, here are the proven results from the 2008 (world) Automatic Trading Championship run from Oct 1 to Dec 26, 2008 at http://championship.mql4.com. Starting capital for all participants was $10,000. All the accounts and trading were totally transparent and the interviews with the winners are very well worth reading.

  • Top 50 participants at least doubled that money
  • Top 33 at least tripled it
  • 5th place finished with 13.7 times the start capital
  • 4th place with 13.8 times
  • 3rd place with 15.5 times
  • 2nd place with 15.6 times
  • 1st place finished with a whopping 16.9 times at $169,584 from the $10,000 start over the 3 months

I point this out, because some of the top winners were using software that optimized settings automatically as the robot traded. As I said already, this I intend to accomplish as well. If there are any math enthusiasts reading this, then I think you would very much like ForexGridMaster and its mathematical challenges and opportunities.

Setting up hedge grids - This is one of my favorite strategies that I trade on the EURUSD or USDJPY. This strategy holds up well over a 500-600 pip range in a generally ranging market. Trade a Buy-Trend grid on one EURUSD chart and a Sell-Trend grid on a second EURUSD chart. I normally use 1 minute charts for small grid intervals and also setup a third EURUSD chart for observing the bigger picture by flipping between the time-frames M5, M15, H1, H4, D1, and W1 on the third chart. The three charts I tile vertically. When watching the price action, sometimes I use the grid order spacing of 3, which is a fairly high risk setting. You may want to start out with a grid order spacing of 5 or even much larger (maybe higher lot sizes to match).

There are a lot of variations on this main basic strategy. Each grid for example can use the CloseRunLossPercent setting set to something like 15% depending on your lot size and making sure you have done your math so that it doesn't get stopped out within the grid range you have chosen (example 500-600 pip range). You can also use strategies that use the ProfitPipsBeforeTrailStop and TrailStopPips settings to withstand strong fast trends out of your grid range. For example... EURUSD is trending upwards strongly out of the pip range that you chose settings for, so if you have flexible take profit targets because you use these 2 settings, then the accumulating losses due to increasing negative sell orders, are better offset. Another variation is to simply limit the number of open trade using TotalOpenBuyTrades and TotalOpenSellTrades.

If you take the time to experiment with the various settings and combinations of settings, you will soon see the significant advantages of grid trading, especially with ForexGridMaster.

I also think that the big banksters almost entirely grid trade and constantly extract enormous sums out of the FOREX market daily. They do have the added advantage of being able to dump billions into the market whenever they wish to change the price direction and or cap the grid ranges that they are trading.

Another method is to expand the grid order spacing by stepping up each spacing interval away from grid center. For example... first interval is 50 pips, second is 100, 3rd is 150, etc., having both buy and sell orders placed at each of those points.

James

Keys to Grid Trading

Power of Compounding CloseRuns
Fast Back-testing, Optimization
and Walk Forward Testing
Traders VPS and Latency Chart
99% Modelling Quality Back-testing

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