In my trading, I use MT4 accounts, but I’ll keep this discussion as broadly applicable as possible. If you’re familiar with MT4, this should be intuitive.
The Typical Advice
Most trading courses emphasise: never average down. The reasoning? If your initial trade is wrong, why compound a mistake? In theory, if you add to losing positions indefinitely, it might resemble gambling rather than strategic trading.
The Reality: It Depends
This advice is often wise, but it isn’t universal. Consider position size and account balance: how many positions will you add, and at what cost to your overall risk?
An Example
Imagine Joe, sitting at his desk and with a $10,000 account trading EURUSD in 0.01-lot increments, with entries spaced 50 pips apart on a grid. After ten entries, your total exposure would be 0.10 lots. If EURUSD dropped to zero (hypothetically), he’d lose the entire account. Now, if he had a $1,000,000 account instead, that same $10,000 exposure would equate to only a 1% risk—a far smaller impact.
This illustrates the relationship between position size and account balance. If the trade goes against you but then rebounds, a smaller position lets you stay in, reducing panic and maximizing your flexibility.
Key Takeaways
No, the trading courses are wrong. Grid trading isn’t inherently risky—it depends on these factors:
- Position size relative to balance.
- Total number of grid positions.
- Strategies like counter-trend entries and hedging if risk tolerance is exceeded.
Ultimately, grid trading’s safety and success depend on proportionate risk management and strategic positioning, not simply avoiding averaging down.
I’ll finish with a story. When I worked on the desk at a Dublin Stockbroking company, one of the brokers on the desk got his client into an oil trade. I don’t recall if he bought or sold oil but whatever he did, oil was going the wrong way. Finally the broker rang the client as they got close to a margin call and told him it wasn’t looking good. With the hurricanes in the gulf of Mexico and so on this shouldn’t be happening to oil. The client calmed the broker down (ironically) and overwhelmed the account with new money. A few months later they closed the trade for a profit. That was in 2008 and I’ve been thinking about position size ever since. You don’t need to have a large fund in reserve if you control position size in the beginning. Assume you are a professional and act that way.