Understanding Grid Trading Strategy and Its Risks

The grid trading strategy appears profitable but often leads to significant losses when all orders are closed.

### Understanding the Grid Trading Strategy: Explanation and Backtest
* 📈 Welcome to Echo Engineering, where we explore the **grid trading strategy**, a popular method in trading that will be explained in detail throughout this video.
* 💻 The video is divided into two sections: the first covers the trading approach of the **grid strategy**, while the second involves **backtesting this strategy** using MQL5 code in MetaTrader 5.
* 🛑 It's crucial to **watch the entire video** before attempting to use this strategy, as **understanding its performance** is key to effective trading.
* 📊 The grid strategy involves placing buy and sell orders at predetermined price levels, allowing traders to **capitalize on price fluctuations**, with an example given of a **100-point distance between levels**.
* 💰 As the price fluctuates, traders open new orders and cash out profitable ones, accumulating points; however, the strategy is not risk-free, as **open orders can lead to losses that impact equity**.
* ⚠ The balance and equity differences are emphasized, highlighting that although **profits may appear to increase**, actual losses can occur when **all orders are closed**.
* 🔄 The backtesting results revealed a **significant loss of approximately $25,000**, underscoring the strategy's potential pitfalls and the **importance of using brokers with positive swap conditions**.
* ❗ Ultimately, the video concludes with a strong recommendation against using the grid strategy due to its **lack of profitability**, urging viewers to **be cautious in their trading endeavors**.

Hello everybody! Welcome again to your channel Echo Engineering. In this video, we are going to talk about a trading strategy named grid strategy. Uh, it seems that it's a popular and very well-known strategy, and that's why I decided to explain it. And back to this video, it has

two sections. In the first section, I explained the trading approach, and in the second section, we backtest this strategy by the code which is written in MQL5 and MetaTrader 5. And we use strategy tester just to backtest this strategy and see its performance. I

highly recommend you do not use this strategy before watching this video to the end and see its performance and my explanations. Uh, if this is your first time watching our channel, please subscribe to our channel and hit the bell button so whenever we upload new

videos regarding trading strategies or algorithmic trading or writing expert advisor, you would be immediately noticed, and you can watch it uh as soon as possible. I hope you enjoyed this video and stay with me to the end. So, in this section, we discuss about the grid

strategy, but please notice, although the main focus of our channel is algorithmic trading and programming using the code to do the trades, uh, but uh sometimes we backtest the strategy, we introduce the profitable strategies here, and I leave you the link to some of

these videos here. You can, if you like them, you can go and watch them. But what is grid strategy? First, imagine that we have a chart like that. This is the price of, for example, your USD. It is just fluctuating around some uh prices. We just

Draw some grids like that, where each level, for example, has a distance between two levels.  For example, it would be around 100 points in this case. It's 100 points, but it can be, for example, 500,000 or whatever you want. So how does it work? So this is our levels.

Imagine that, for example, the price goes high like that, and here we opened a buy order. From now on, we activate our grid strategy. How does it work? Okay, from this level to this other level, when we go higher and we hit the higher level, for example, like that,

we open one buy and one sell order immediately together, and we cash out one buy. We have two buy and one sell at the moment, but this buy is in a profit by 100 points because we opened it here and now it reaches this, the

higher level by 100 points, and it is in a profit by 100 points. So we cash out this buy, and in this case now we have two open positions, one buy and one sell. And because we closed this buy by 100 profit, then our profit point would be 100.

Now we continue. For example, the price fluctuates like that and then again it goes higher and hits the higher level again. When we hit the higher level, we open another buy and sell order together, and we cash out one buy. But the buy order, we have two buy orders now.

We cash out the buy order that is in profit. So we cash out this buy order here. Then we have now three open orders: one sell, two sell, and one buy. So the total open positions is three now, and profit points, we closed one buy here by 100 point profit.

and the second buy Here by again 100 point profit and uh generally speaking we acquired 200 points uh uh when we if you want to change it to for example US dollar or our base account currency we need the lot size but here we just speak

about the point so we gained 200 points because we closed two orders by 100 points profit for each now if price goes like that and the fluctuate and now hit the lower level again we open another buy and sell order together but now instead of

cashing out a buy order we cash out a sell order cash out a sell one sell but which sell this is the sell order and this is the sell order both of them are sell orders we cash out the sell order which is in profit if we close this one we

don't gain anything but if you close this one we gain 100 point again because uh it will be in the profitable direction so we cash out this one and we again gain 100 point like that if we see with the total open position now with before

one two three four four open positions and the total profit would be 300 which 200 is from the buy orders and 100 is from the sell orders order so again we continue for example the price from here goes back and hit again the higher level again we open another buy and sell order

and we cash out one buy order uh in this case we cash out this buy order because this one is in profit not this one so we cash out this one and now the total open position is five one two three four five and we gained 400 points

which uh 300 of them are from the buy orders and 100 is from the sell order again we continue for example the price again goes higher hit this level we opened another buy and sell order uh again and we cash out one by we can catch this

by cash out this by and despite both of them but I prefer to cash out the buy the earliest buy which would be this one because I don't want to pay for example a swap it's very important uh and it's actually a very important point about this

strategy we talk about it when we are back testing it but now we cash out the earliest one so I cash out this buy and now the total open position is six and the profit points would be 500. again we continue for example the price

fluctuate again like that and hit that lower level again we buy and we open a buy and sell order together but because we hit the lower level we cash out one sell order between these two which both of them are in profit I cash out the earliest one so I cash out this

one and so on again as we can see now total open positions uh is seven and profit points are is 600. so this is it this is all about the grid strategy it seems that it is risk-free but it is not because if it was risk-free then everyone would have used

it and everyone were were rich but it is not the case uh what is important is that first notice that this profit here is what you are seeing in your balance not your Equity uh yeah you have gained 600 uh points but still you have open orders which they are in losses so the

echo Your equity would be your balance plus your profit and losses of your open orders. And as long as you have open orders, the broker doesn't let you to cash out all of your balance. Maybe they, maybe based on some brokers, maybe some brokers let you to cash out a

proportion of your balance but not all of it. It's very important. And the second important thing, this sell and buy orders can be open for days or weeks. And for each day, you would pay uh some swaps when you open them. You paid spreads, and you will pay

commissions too in some cases, and they will negatively affect this strategy. If we go, for example, here in MetaTrader, this is a balance, this is your equity. It's very important to understand the difference between these two. In the next section, we will back test the strategy

by using strategy tester. So this is the code that I am using to practice the grid strategy. The name of this expert advisor is EA Grid Trading Strategy. I'll give you access to this code, but in any case, if you want to learn algorithmic trading and

programming the expert advisor, which is something that you should learn because without practicing the strategies, I think you would not be profitable traders. I'll leave you the video to the tutorial of algorithmic trading here. You can watch it. It would be very useful for you, but in any case, I will leave you the

code in the description. So I go to, this is the code. I compile it again. I go back to the MetaTrader here. From view, I'll add strategy tester. This is our strategy tester. From the expert, I add my EA Grid Trading Strategy here. I wanted, I want to test it on Euro USD, a

period of tests I want it to be between these two dates and the deposit that will be 100,000 US dollars I press start now uh the testing window is opened I decrease the speed a little and then I open a clean template I want you to be like

that and now exactly like I mentioned in the previous section if it goes high by 100 points or low by 100 points then it opens another two orders and it closes a cell or an earlier sell or buy order now I increase the speed okay now it closed the previous order

and opened two orders and now total position is three it has open street orders now it is four it has opened four orders and uh this is the orders here in trades section as you can see the balance is increasing but the equity is decreasing although we

gained some balance but the equity is decreasing because we still have some open orders which are not profitable and we lost money because of them now we seven order is opened I just small it minimize it and here we can see the graph as you can see

this is the strategy tester we are testing it nine order 10 orders and this is the blue one is the balance the balance is increasing but at the same time the balance is increasing the equity is decreasing because we have still some orders that we are that they are not profitable

32 orders is opened still continue continue we are in the balance is increasing and we are getting close to the end it's very important what happened at the end is very important okay see it is increasing increasing increasing increasing until at the end which it means

at the end means we are going to cash out all of our balance, the balance will decrease to their equity because in order to cash out your balance, you should close all your open orders. When you close them, then the balance will be equal to equity. So to

this point we were profitable, but then when we close all open orders, we actually lose money. If uh here in a back test, if I maximize it, I can see that I the total net profit is actually minus 25 000. 305. I almost lost 25 percent of my

balance, although to the last point I was profitable, actually I thought that I am profitable because my balance was increasing, but again if I look at it here, this is my balance and the equity. When I close all open orders, so that's why I'm

saying this uh strategy is not profitable when you, if you want to use it, which I don't suggest at all, if you want to use it, you should use it in a broker which this broker has positive swap. It means for example when you keep Euro USD during the night in some

direction, you will gain some money. In other direction, you will lose money. If you keep it during the night, they will pay you, they have positive swap. If you don't know it, please read about positive and negative swaps too. And please enter the order when the spread is minimal, but still I highly

recommend do not use this strategy because it is not profitable. I hope you enjoyed this video. If you like this video, please do not forget to hit the like button so YouTube algorithm will introduce us to those who are interested in these subjects. Uh I hope you have a good day. Goodbye.

Grid Trading Strategy Explained and Backtested in MQL5 | Forex Trading Tutorial

EcoEngineering

Introduction to the Grid Trading Strategy and Video Overview

Video introduces the grid trading strategy.

Video divided into two sections: strategy explanation and MQL5 backtest.

Recommendation to watch the entire video before using the strategy.

Encouragement to subscribe to the channel for algorithmic trading content.

Channel focuses on algorithmic trading and programming, but also includes strategy backtests and introductions.

Explanation of the Grid Trading Strategy Mechanics

Visual explanation using a price chart with grid levels.

Details on order placement and closing based on price movements.

Illustrates multiple iterations of the strategy, showing order management and profit accumulation.

Explains how sell orders are handled when the price hits lower levels.

Highlights that the strategy isn't risk-free and discusses the difference between balance and equity.

Backtesting the Grid Strategy using MetaTrader 5

Shows the code used for the grid strategy (EA Grid Trading Strategy).

Encourages learning algorithmic trading and programming.

Steps through the backtesting process in MetaTrader 5, specifying parameters.

Observes the backtest results, noting the increase in balance but decrease in equity due to open losing positions.

Final result shows a net loss despite initial balance increase, due to closing all open orders.

Summarizes the backtest results, highlighting the final net loss.

Suggests using brokers with positive swaps and minimal spreads if using the strategy (though still strongly discourages its use).

Concluding remarks and call to like the video.