Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next
Author: KBGlenn Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 162  
Subject: Re: Scale Trading Date: 8/25/2008 9:01 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Scale trading per se is nothing more than setting up a grid and buying "lows" and selling "highs" within the grid. With regard to its use in forex, other than a country's currency (assuming you are trading a stable/1st world country) disappearing due to something like being absorbed into the euro I'd say the odds of one going to zero are pretty remote as well.

Scale trading is literally a money machine in a range bound market and it will crush you like a grape in a trending market. The design challenges are pretty straight forward:

- How big are the polar extremes of the grid (i.e. HHV, LLV)?
- How big are the "rungs" on the ladder/grid?
-- The more rungs (i.e. the smaller the steps) the more money you will make. But alas, like everything in the market more rungs mean more risk if it doesn't work out. The last cycle on a grid will ALWAYS cause you the max losses possible on a grid as for that period of time you are 180 from what the future market it going to do.
- When do I bail out of the grid and close down shop (a function of the above)?
- What time frame will I use for the grid?
-- For example on the short side, I sometimes will grid trade index futures during the lunch time lull. In this case I will start and end the grid at fixed time periods or when the price action busts out of the grid. Using the latter method the key to profits is simply will I get enough "chop" profits before I take my last max loss when the price activity inevitably picks up. People say you should never trade that time period because of the choppiness of the market, but if you are grid trading that's exactly the kind of market you want.
-- On the other end of the spectrum you could do a big grid on a commodity that you might leave in for years (not a likely strategy for a small fry!) However, if your account is big enough you can also sell OTM options at the "opposite" rungs to earn cash which will juice your returns a bit.
--Really big wallets can be quite aggressive in how they design their grids as they can absorb the losses that will ensue...which is exactly what some program trading algorithms are designed to force. How sweet is that...build your grid and then manipulate the market to build your profits.

At the end of the day, conceptually, grid trading forces you into what everyone should do...buy low and sell high. But as we all know...price is relative and therein lies the real danger of grid trading.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Value Hounds

My Big Fat Greek Splat
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement