Most of the traders wrongly believe that hedging activities are tied with the currency pair, in which a position is already open - to hedge a long EURUSD position, You would need simply to open a sell in the same pair. These individuals misjudge the reason why brokers allow to open positions in the same currency pair at the same time on both directions -> purely monetary reasons, no connection with hedging whatsoever.
Having both long and short positions on EURUSD doesn't solve a thing - this simply puts the existing result on freeze, while You still keep paying swap fees to Your broker. Moreover, the question of which of these positions should be removed remains unsolved, that's why both Twilight and Dragon crashed. Both of them thought that they were doing some hedging, when actually they were just juggling the existing positions and guessing, which of the trades should remain open and which should be closed.
After this lenghty discussion of terms, it is important to discuss how these trading elements affect real time trading. With regards to hedging, there is not much to say - 95% of existing strategies DO NOT USE any hedging at all, as their authors have 0 idea of what actual hedging means for the forex markets. When analyzing grid trading, things get much more complicated and fun.:)
In order to compare grid trading with "correct trading", we should formulate a few assumptions that would characterize a typical strategy of each type:
- Grid trading - new positions are opened when result on the existing ones worsens (like in that visual example); correct trading - no more than 1 position is open on the same currency pair at the same time;
- Grid trading - no usage of SLs, but have TP conditions; correct trading - have SL and TP for each position;
- For sake of fun, let's assume that only grid trading employs semi-martingale elements. Theoretically, correct trading could have that as well -> after each SL, increase the size of a next position till positive outcome is being reached.
For those of You who would like to see how these strategies look in real trading, here are examples:
Grid trading growth and % of profit and loss trades: