Why you should consider Grid Trading

After more than a year consistently using Grid trading, I am ready to share my ABC on why it is an amazing technique.

A- It’s a Non-Directional Strategy

This happens to all of us: whenever I buy an asset it dumps, whenever I sell it pumps. As traders we are all driven by emotions. Fear and grid hunt us. We never tend to take advantage of opportunities that price action always gives.

Trying to predict the direction of the market is somehow close to an impossible venture. As the Random Walk Hypothesis states, prices evolve according to a random walk and cannot be predicted. What moves the market?

- News of any kind, related to politics, economics or even a new pandemic, that no one can predict.

- Traders reacting to the news, speculating, adjusting their strategies in randomness.

Prices have no memory and they reflect all available information. So, predicting price changes is predicting the future.

Not even the successful investor Benjamin Graham attempted to predict prices movements:

“The last time I made any market predictions was in the year 1914, when my firm judged me qualified to write their daily market letter based on the fact that I had one month’s experience. Since then I have given up making predictions.” -Benjamin Graham

Then… why are we always gambling to find the right market direction?

We may not if we use Grid Trading. Even though you might be already familiar with it, Grid Trading works by setting up buy/long and sell/short orders in a predefined price range, creating a grid-like formation. It will buy low and sell higher every position until you end it. So it doesn’t care if prices go up or down, because in downturns you will be buying the then sell in upturns.

B- Passive Income generator

Stocks and cryptocurrencies’ space is full of traders falling in the get-rich-quick idea, but makes greater sense to design techniques to earn a passive income. Less gambling, more strategies.

Why grid trading offers this possibility? Well… every buy and sell represents a MATCH with an associated profit since the selling is always at higher prices within the boundaries of the grid. And even if that profit is just a couple of cents, there may be hundreds of matches every day. That gain is a potential passive income, whether the price of the asset goes up or down, you will still be making matches and thus profiting from the grid.

As an analogy, you buy a house (grid investment) then you rent it (matches). Whether the value of the property goes up or down, you are still making consistent monthly revenue through the rent.

Find solid real estate and find solid grids. Both of them will give you passive income.

C- Compound your Capital

Ahhh… the Magic of Compounding. The story of the king in India who ordered a mathematician to design a game, illustrates it. After pleasing the king with the creation of the chess, the mathematician asks to be paid with grains, starting with 1 grain in the first square of the board and doubling in each square. The king thought it was a bargain and accepted it. After several squares, he realized that there was no crop in the world that could pay the mathematician, so he finally has to hand the kingdom to him.

If you are a young man in your 20s and start investing $1200 every month until your 60s with a 20% return annually. How much would you accumulate? 1 Billion. Not bad.

Grid trading is a great tool for compounding, because after some days of operations and an accumulation of matches you can re-invest it in the grid. By increasing the size of the buy/sell orders in the grid, you can boost the profit for every match and generate higher profit (maintaining the Rate of Return).

So let the profits begin…

DISCLAIMER: Nothing contained in this article should be construed as investment advice.

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