What is a Grid Hedge Strategy? First you determine a starting price point. From the this price point you built a series of buy trades above this price point. Simultaneously you do the same with sell orders below this price point.
Usually the orders are placed equi-distance from each other. The variations come with different or same lot volume for each trade order or the number of grid points you want to have.
The key to grid hedging is not having stoplosses for the orders. Having a stoploss will affect the performance of your grid significantly. The example below has a setting of GridStep= 20pips, GridNo=20 for a eurusd backtest from 1 Jan 2009 to 28 Apr 2009. The first chart has no stoploss while the second has a stoploss fix at 50 pips.
Fig. 1 - GridHedge with no stoplosses
Fig. 2 -GridHedge with stoplosses
With no stoplosses, the strategy over the stated period achieved a profit factor of 3.8. With stoplosses in place, the profit factor is only 1.1.
The Grid Hedge can also be combined with different stoploss and takeprofit techniques, but suffice to say that it requires the buy and sell orders to float in the system. That is the key to success for GridHedging.
No more using of such strategy for NFA brokers!
P.S. This strategy is not everyone’s cup of tea. It requires a high drawdown to survive the ups and downs of prices until the required profit target is reached.
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