James completed a high-prolife move to Elland Road in the summer from rivals Manchester United, but is yet to open his account for Leeds having started nine Premier League games.
The Welshman has been mostly deployed in his natural role as a winger, but boss Marcelo Bielsa has asked him to step up in a central role in recent outings, with first choice striker Patrick Bamford sidelined with injury.
Former Leeds boss Grayson feels James looked uncomfortable while getting into positions more central to the goal in their 1-1 league draw against Leicester City on Sunday and stressed he will be a better asset for the club as a winger.
Asked what he thinks Leeds should do to get best out of James, Grayson said on BBC Radio Leeds post-match: “Dan James was getting into positions which he does not feel comfortable with in terms of it is more central of the goal, his composure was lacking when he should have been hitting the target.
“I think he is going to be a player that is going to be a real asset to the club in the wide areas that you can flip and change sort of him and [Jack] Harrison at times with different occasions.”
Grayson is of the view that James can take his game to the next level if he improves his composure in front of goal and hits the target more often.
“[To take his game to the next level the main thing he needs is] probably a bit of composure, really.
“I think when you go into the 18-yard box, he slashed at things and for all the chances that Leeds had they did not really work Kasper Schmeichel enough in the goal that he was having to make save after save.
“Just when you get into that middle part of the goal, you have got to hit the target and he did not do that enough.”
The Whites faithful will be hoping James will score his first goal for Leeds in the near future with the side set to return to Premier League action on 21st November with a trip to Tottenham Hotspur following the international break.
