This is a continuation of the strategy walkthrough. Understanding the overall mechanism is not enough to succeed in real trading — the difference comes from how you design the setup.
By "design," we mean how you decide on the price range and capital allocation. The way you set these up will largely determine whether the strategy survives or breaks down.
Two pillars of design
- Price range — define the band the grid will operate within based on past volatility.
- Capital allocation — assign capital so that an unexpected breakout doesn't wipe out the account.
Why design matters
Many traders set up grids based only on recent price action, then find themselves carrying large unrealized losses the first time the market breaks the assumed range. A resilient design assumes that the range will be broken sometimes, and stays within survivable limits even then.
In the next section, we'll go deeper into the most important piece: position sizing and maximum drawdown.