What is the Grid Risk Management System?

It is a risk management system that falls under the category of “Negative Progression systems”, which means that it increases the number of trades if the current positions are in loss.

This system is based on the following steps.

First, spread your entry over more than one price level, so that the distance between trades is based on a clear mathematical gradient.

Second, calculate the breakeven level for all open trades.

Third, calculate a single take profit level for all open trades.

Fourth and finally, distribute the stop loss points for all open trades.

The Grid System Settings.

It represents the set of settings used to perform calculations for the trading grid on the chart.

First, the Initial Lot Size.

It represents the volume of the first order on the grid, which we will rely on to calculate the size of all grid orders.

Second, the Lot Size Exponent.

It determines the amount of increase in the volume of each order on the grid.

Third, Take Profits in points.

It determines the number of profit points for all open trades.

Fourth, Grid Step in points.

It is the distance between orders on the grid.

Fifth, Grid Steps Exponent.

It determines the amount of increase in the distance between orders along the grid.

Sixth, Maximum Number of Trades.

It determines the maximum number of open positions within the grid.

Before we continue this topic, I would like to make two important points, which are:

First, this strategy works well with the Forex market, because it depends on the nature of price movement in this market, which is the return of prices to the midpoint.

The second point is that this strategy can be applied manually, but that will require a lot of effort. Also, the possibility of error will be high. Therefore, it is better to rely on the paid automated tools provided by the MQL5 website.

A Practical Example.

Let’s say that “Peter” trades the Gold CFDs on the Metatrader platform.

Peter finds that all the conditions of the “Berma plan” are met on the gold chart, so he decides to go long using the grid risk management system.

The price of gold was $2,000. Peter used the settings shown in this table for this trade.

Peter entered his first buy trade at $2,000, for one contract. He set his take profit at $2,100.

Then the price of gold drops by $100, so Peter enters the second contract. The breakeven level is now $1,950. The take-profit level for all grid orders is $2,050.

But gold fell again, by another $100. So, he entered the third contract. The breakeven level for the three orders is now $2,000. The take-profit level for the three network orders is $2,100.

For stop loss distance, it is equal to the maximum number of trades within the grid multiplied by the number of grid step points.

According to that, the stop loss for the first order is $1,700.

The stop loss for the second order is $1,600.

The stop loss for the third order is $1,500.

As we can see in the previous example, each order within the network has a stop loss. However, all orders have a single take profit level.

Because this risk management plan is based on distributing losses and accumulating profits.

In the previous example, all grid orders were closed as soon as the gold price rebounded and reached the take profit level.

At the End.

We have basically learned about the grid risk management system. Now, let’s move on to the next topic.