The paradox of grids

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I would venture to say that grids are a system that takes advantage of randomness in the markets. They work without regard to the technicals or the fundamentals so two things would seem to be possible:
1) They work in the long run in which case markets would become pointless since they would technically be beaten or "solved" from a trading perspective because everyone would just set up a grid and the market makers give up and shut it all down.
or
2) They don't work in the long run and they are dead systems.

Could it be that grids are a lose/lose situation?

I realize that I may be making alot of naive assumptions but thought it would be interesting to talk about.
 
soma,

For any given amount of money and leverage, it is possible to calculate the lot size that will allow your grid to 'survive' known historical currency moves.

Assuming the currency does not exceed that range 'quickly' ( i.e. before u have time to accumulate some gains), a grid will not fail.

It is like the 'doubling up' strategy in roulette. As long as u have enough money and stay under the house limit, u cannot fail.

Grids will work in the long run as the sum of the up and down movements will exceed the total range. It is only a question of deep pockets and time.

The tick is to find ways of limiting risk ( minimising open losing positions) and accelarating the gains. I have not found out how yet but I know some people who I think have solved the major problems...

Sometimes its the simplest ideas that work - and even traders / market makers (bless their souls) cant beat it!
 
I agree that given an 'nlimited' amount of funds that a grid can't in theory fail though it is possible that it will never profit in theory as well (i.e. a market that never moves). However, assuming it doesn't fail and it does profit, then my other point comes into play: that the market would close up shop because, like a board game that can be solved by a computer completely, it loses it's point for existing. This theory comes from the fact that the grid, unlike other systems, doesn't rely on an opinion about market direction and unlike option sperads (which can also ignore direction) don't expire. So they basically turnout to be option spreads that never expire which is something that isn't offered in options markets for a reason: it would be a free lunch for deep pocket investors. Everyone's grid, while possibly having different exact levels would still not really compete and so I see it all imploding , or the market makers giving up, or the market freezing in place as everyones grid stops movement atogether. Again, I'm just theorizing and don't fully understand the way markets would be affected by thousands of grids all at once but it's an interesting topic of study for some theoretically minded econmists.

That said, I too have developed a few techniques for keeping the grid nice and lean. For instance, you can lower margin (at the possible expense of profit) by closing any hedged pairs as they form.
 
Everyone's grid, while possibly having different exact levels would still not really compete and so I see it all imploding , or the market makers giving up, or the market freezing in place as everyones grid stops movement atogether. Again, I'm just theorizing and don't fully understand the way markets would be affected by thousands of grids all at once but it's an interesting topic of study for some theoretically minded econmists.


It all comes down to volume. Although +-80 percent of the market consists of speculation, most major moves are caused by goverments or large multinational companies that have to exchange money.

All I can see would happen is that some grids (not everyone will have the same configuration) will win and others lose for a total sum of the brokerage to market makers (increase in spread, commision,etc).

The only winners will be those that can adapt their grids fast enough and thase that do not use grids (and brokers of course). Lets face it, doesn't matter how much money you have, only people that actually understand grids (few do) will make money.

Enjoy the weekend guys!!

JF
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