Direction guide for trading the Forex Grid Trend trading system
The GTT Direction module
The main direction guide
Overall direction is the most important element of the Grid Trend trading strategy. However there are aspects of Direction you need to be aware of. As you will see this is a long term trading technique – it is closer to an investment technique as you need to make an investment in open trades throughout the trading of this technique when trading the technique continuously.
So you don’t want to use a direction finding approach that is going to give you a buy phase one day and then a sell phase the next. You want as few phase whipsaws as possible. Ideally the phases should last a long time if the market will allow for that.
So we need a method of finding the phase that you can use at any-time. That means that you need not wait to only start trading when the price moves into a particular phase the first time. You need something that will allow you to start trading even when the phase has been active for quite a while.
Now there are literally hundreds of ways of find the direction of trading. We are going to show you the simplest and sometimes the most efficient way of determining longer term trades. Please bear in mind this method applies to the Grid Trend Trading technique in particular. In order to ensure that trends are of a longer term nature we would suggest that you use the Daily charts. One of the best dynamic divider between buy and sell phases is the simple moving average. You want it to be quite sensitive so a setting of 3 or 4 is recommended. To make this moving average work best for this technique you need to shift it 4 to 5 periods into the future. The shift creates a dynamic support and resistance level as well as providing cleaner crossovers from one phase to the next.
Some traders do not like the daily chart so a 4 period setting offset by 4 on the daily is close enough same as the 24 period offset by 24 on the 4 hour ( x 6 ) or 96 period offset by 96 on the hourly ( x24 ). Using short timeframes make the candles close on the other side of the MA much faster.
So the general rule is if the price closes below the MA trade in the Sell direction. If the price closes above the MA trade in the Buy direction – that is on any adapted timeframe you select.
Now that is pretty simple but what if…..
The price crosses over and closes in a different phase than you are in.
If the price crosses over and closes in a new direction you need to assess you current profitability.
If profitable close all deals
If you are profitable after taking your open deals and closed deals into account it might be a good idea to close all open deals and start Grid trend trading in the new direction.
If you are not profitable there are a few options.
1. Close all deals anyway and trade in the new direction.
2. Stop the grid trading in the previous direction and open a new grid in the new direction. This is a partial hedge type solution but is risky as open trades will accumulate losses faster than new trades will cash in gains in the short term.
3. Use the solution above but use much smaller grid sizes for the new direction. This will increase the chances of the multiplier effect working in the new direction and make your cash-ins more frequent.
4. Put a total hedge on the open deals and open a new grid trending trading system in the new direction. So if you have 5 open sell you would open 5 open buys. In addition you would start a new grid trend trading system in the new direction. The danger of this is that you will end up with a huge amount of open deals.
Clearly the Grid Trend Trading system has great benefits when you get the direction right. However if you are trading it continuously you need a definite strategy when the market phases change.
Many of these complications can be avoided if you are selective when you use the Grid Trend Trading system and only trade when you are sure of the short term trend and don’t use it on a continuous basis. Using it this way you would only use it for shorter 4 to 24 hour trading sessions. This will be covered in the next modules.