The grid strategy can make a profit in an oscillating market. However, it may have a big risk in trending markets.

Definition

Grid strategy sets up a continuous price grid of buying and selling at predetermined prices to gain profit in any market. This strategy works best in an oscillating market with large swings.

The following is an example of a neutral grid setup on FPT corporation’s stock: the starting reference price of the grid is 87,200 VND. The grid step is 800 VND and the take-profit price step is also 800 VND.

Grid Type 

• Neutral grid. This grid works best in oscillating markets. The grid starts with zero positions and accumulates long positions if the market goes down, and short positions if the market goes up.
• Uptrend grid (bull market grid). This grid works best in bull markets. The grid starts with several long positions instead of no positions.
• Downtrend grid (bear market grid). This grid works best in bear markets. The grid starts with several short positions instead of no positions.

Important Parameters

• Trading price range. The highest price and lowest price of the grid.
• Grid. The distance between each pending order and the profit/mesh. This distance can be between each pending order and can be a fixed number (arithmetic grid) or a fixed percentage (geometric grid).
• Stop-loss. Does the system allow stop losses and when will it be activated?

Risks 

Grid strategies work best in oscillating markets. Any trending market can cause this strategy to accumulate a large number of positions against the trend. It may cause heavy losses to the entire account.

In a bull market, a neutral grid will take short positions and accumulate more and more at a new high. If a stock constantly reaches new highs, the neutral grid can consume way more positions, leading to serious losses.

Application 

The grid strategy can make significant profits in an oscillating market. It’s vastly different from the momentum approach. Any trading instrument can use the grid trading system. Also, because of its simplicity, the grid strategy can be easily automated. Today, the grid strategy is most popular in the currency and cryptocurrency markets because of its 24/7 trading nature. It’s very advantageous for the grid strategy. In Vietnam, a grid strategy can also be developed. However, risk control is key due to the extremely high volatility of small markets.