Many friends have asked me if there is a trading method that can both make profits safely and stably, and at the same time be simple and not brain-taxing. Today, I'm going to talk about the grid trading method, which is a trading method I often use in the stock market, and the profit results are quite good. I will explain in detail today the four uses of the grid trading method, which I believe will be helpful to everyone.

1. What is grid trading?

A: The origin of grid trading

The grid trading method was proposed by Claude Elwood Shannon, the founder of information theory. You can search for his life story on your own; he was a very impressive person. He proposed the theory of grid trading in the last century and used this theory for trading for more than a decade, achieving an annual compound return of 29%, fully verifying the effectiveness and practicality of the grid trading logic. The grid trading method popular in China today has undergone some changes based on his method.

B: The method of grid trading

When it comes to the "grid" in grid trading, you might think of a fishing net with warp and weft, but actually, grid trading is more like a zebra crossing. The operation method is as follows: first, divide the stock trading funds into several portions, wait for the selected stock to be in a suitable price range, and then start buying.After purchasing a batch of stocks for the first time, if the stock price falls, continue to buy in batches according to the rules, just like buying at the first zebra crossing, and then continuing to buy at the second, third, and fourth zebra crossings as the stock price falls, averaging out the cost. If the stock price rises, sell in batches according to the rules.

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Seeing "buy in batches as the stock price falls," many friends will feel very familiar with this approach, which is similar to the way many friends operate after being stuck, not stopping the loss, and continuously buying to average out the cost.

However, most friends do not have a plan or a method, and are often stuck halfway up the mountain, resulting in significant losses. Today's grid trading method can help you solve this problem.

So, how should grid trading be operated? Below are explained four specific methods of grid trading.

2. Four methods of grid trading

Let's first talk about two general stock selection principles:

(1) The grid trading method profits from the continuous process of buying and selling, and performs better in a volatile market. Therefore, try to choose stocks that are in a bottom range and avoid chasing high prices in trading. Since our stock market has been in a pattern of bottom range consolidation for many years, this method is very operable.

(2) Choose large-cap stocks with an extremely low probability of delisting, and those with good volatility.

Method 1: Grid trading with equal distance

(Translation of the rest of the text is pending as the original text is incomplete.)This trading method is the most basic grid trading approach. For instance, we select stocks that are consolidating at the bottom, divide the funds into several portions, and randomly purchase the first portion.

Suppose the first purchase price is 10 yuan, and for every 1 yuan decline in the stock price, we buy another portion, meaning we would also purchase at prices of 9 yuan, 8 yuan, 7 yuan, and so on, all with the same amount of stock.

As the stock price falls, we keep buying, and the average cost of our stock holdings is continuously reduced. If the market trend shifts from a decline to an increase, and the stock holdings have realized a profit, we sell 10% of the holdings for each 1 yuan profit, and so on.

After selling, if the stock price falls again, we buy again, repeating the cycle, and we can continuously profit in a volatile market.

After buying, if the stock price shifts from a decline to an increase, we close positions in batches at three higher price levels. After closing positions, if the stock price falls again, we continue to buy during the decline, waiting for the market trend to shift from a decline to an increase.

Method 2: Dynamic grid trading based on reversal pattern signals

This is a dynamic method for buying and selling in grid trading. After selecting the stock, divide the funds into several portions, and the first purchase is also made randomly.

After the purchase, if the price falls and the account shows a floating loss, wait for a reversal candlestick pattern to appear during the decline, and then continue to buy.

For example, after the first purchase of 1,000 shares, for each reversal candlestick formed during the price decline, we buy another 1,000 shares. With continuous buying, the average cost of the stock holdings is constantly reduced.

If the market trend shifts from a decline to an increase and the holdings have realized a profit, during the stock's rise, for each bearish reversal candlestick formed, sell 10%.The advantage of this operation method lies in the exit strategy. In a strong uptrend, the market continues to rise, and the increase may be significant before entering a consolidation pattern. It is only when the market enters a consolidation pattern that a reversal pattern may emerge.

At this point, closing the position can yield a substantial profit, and if the market consolidates and rises again, significant profits can be made. This method has a significant advantage in a one-way market trend.

Due to the different times at which reversal candlestick patterns form, it can be observed that the intervals between the prices at which stocks are bought are not fixed.

After purchasing, as the market shifts from a decline to an uptrend, the interval between the prices at which stocks are sold, due to the more urgent bullish trend, is significantly greater than the interval between the prices at which stocks are bought. This creates an advantage of having more profit upon exiting the position.

Notes:

(1) Compared to the other methods discussed today, this exit strategy is more aggressive.

(2) The first operation method mentioned above can also be combined with this exit strategy.

(3) Since stocks that are chosen for their bottoming consolidation have been selected, the identification of reversal candlestick patterns can be more aggressive.

Method 3: Using grid lines with different position ratios for buying and selling trades

There are two approaches to this operation method, both of which involve buying and selling at fixed price intervals. However, the allocation of funds is done in different ways.After selecting a stock, the first purchase is made randomly. If the stock price falls after the purchase, there are two ways to continue buying.

First: Allocate funds for purchase according to the "pyramid" structure, which means that as the stock price gradually falls, the amount of money invested in each purchase increases.

Second: Allocate funds for purchase according to the "inverted pyramid" structure, where the first purchase is made with the largest amount of money, and as the stock price falls, the amount of money invested in each purchase decreases.

After the purchase, if the market turns from a decline to a rise and the position is profitable, it is also possible to close the position gradually in proportion, following the pyramid or inverted pyramid method.

These two methods have different application scenarios.

Method 1: If one is quite optimistic about a particular stock, but the stock price is relatively high and there is a fear of missing the market, a small amount is bought at a high price.

If the stock price falls, the position becomes heavier in the later period, which can achieve a better average holding cost. If the market does not rebound, profits can also be made from this high-position purchase.

Method 2: If a stock is already in a historical low range and the price is low, with limited room for further decline, there are fewer opportunities for later positions. At this time, the amount of money for the first purchase is relatively large, so as not to miss the opportunity for profit.

Method 4: Grid trading based on support and resistance levels.

This operation method is the most difficult to operate among the four methods discussed today.After selecting the stocks, allocate the funds properly, and randomly make the first purchase. After the purchase, conduct technical analysis. First, identify the support levels below the purchase price and mark them on the chart.

If the stock price falls after the purchase, buy again when the price tests the support level. Each time the market falls and tests a new support level, perform the buying operation.

When the price reverses and the position becomes profitable, find the resistance levels above the price and mark them on the chart. After the price rises and tests the resistance, start to close the position gradually according to a certain ratio, closing a certain proportion of the position for each resistance tested. If the stock price falls again, find the support level again to continue buying, and repeat the cycle.

After the market turns from a decline to an increase, sell in batches at the resistance levels above, with selling prices of 9.70, 9.81, and 10.1 respectively.

Note:

Technical analysis to find support and resistance levels requires the trader to have certain technical analysis skills and to make some subjective judgments. It demands a higher level of trading ability and also requires strong execution.

The support and resistance levels found through technical analysis are dynamic. Sometimes there is a large space for averaging down, and sometimes there is a small space. If there is a large space for averaging down or a large space for closing the position, it requires greater patience to hold the position.

3. Precautions for grid trading

1: Position management is key

Grid trading is a trading method without stop loss. The use of positions must be reasonable, otherwise, if the initial positions are heavy, later averaging down cannot lower the average price, and being stuck halfway up the mountain will make it impossible to operate.2: Profits are relatively stable, but the profit margin will not be too high, and the cycle is relatively long.

According to market conditions, the average annualized return varies between 15%-25%, which is considered a normal level of profitability. The profit cycle must be calculated on an annual basis.

3: Diversify funds.

Retail traders can allocate their capital across the leading stocks of different sectors, 4-5 in total, to profit from sector rotation. Additionally, this strategy can hedge against the risk of individual stocks experiencing long periods of consolidation at the bottom without rising. Stock selection should be based on the daily time frame, while buying and selling can be executed using the hourly time frame.

4: The foreign exchange market and futures have high leverage and should be used with caution.

The foreign exchange market involves high leverage trading, and improper logic in batch replenishment can easily lead to a margin call.

Futures trading, aside from the risk of high leverage and margin calls, also has the inconvenience of regular delivery requirements, necessitating contract rollovers, which are not conducive to long-term holding. Therefore, these two markets are not suitable for this trading method.

The above is the specific operational method of grid trading. Before engaging in actual combat, everyone should conduct review drills and simulation exercises to become proficient in the details of trading before entering the real battlefield.