Grid trading in gold trading

Grid trading is a method that places orders at regular price intervals, for example every $5, and takes small profits as price moves back and forth through the grid. Many grids open new positions in the losing direction without stops, expecting price to return.

How it applies to gold trading

Grids work while gold ranges, which it does for long periods, and the steady profits look attractive. When gold trends, a grid keeps adding positions against the move. With 0.05 lots every $5, a $60 trend against the grid leaves twelve losing positions, the oldest $60 underwater. Swap is paid on all of them every night. If the trend continues, margin runs out and the stop-out closes the lot at the worst price.

A grid with a hard stop on the whole basket and a maximum number of levels is a very different thing from an open-ended one. The second form, combined with martingale sizing, is the classic account-wiper.

Worked example

Example (hypothetical numbers): a buy grid starts at 4,000 with 0.10 lots every $5 down to 3,950, eleven positions. If gold falls to 3,940, the open loss is 0.10 × 100 × (60 + 55 + 50 + … + 10) = $3,850. A grid that seemed to make $50 a day has given back more than two months of profits in one move.

A common mistake

Running a grid without a basket stop or a maximum number of levels.

See also: Martingale, Averaging down, Hedging mode, Stop-out.

Frequently asked questions