What is a Grid Trading Strategy and How a Grid Trading Bot Perform?
by Thomas Redfield Trading ConsultantWith the prices of
crypto assets fluctuating within a matter of minutes or seconds, and markets
opening 24 hours a day, it becomes really tough for crypto traders to keep up
with trends. For beginners, it’s tough to react to these market movements
enough to take advantage of opportunities to profit. Furthermore, the delay in
transactions may worsen the problems.
Traders cannot monitor
all the crypto exchanges and market trends round-the-clock to achieve optimal
trading results. Fortunately, we are living in the age of automation. And, for
many traders making use of crypto trading bot is the best
option. These bots work on algorithm to trade and execute transactions. They
are very easy to use and can help traders execute trades profitably and
efficiently.
There are different
strategies that traders use to execute profitable trades. One such trading
strategy that is gaining huge popularity among crypto traders is the grid
trading strategy. This strategy is designed to combat the volatility of
cryptocurrencies and navigate market uncertainty. Let’s understand about this
strategy:
Grid trading
Grid trading is
actually a strategic tool which automates the buying and selling of crypto
assets at preset intervals around a preset price range to construct grids. This
kind of trading method works well in a volatile market when the price fluctuates
at specific intervals. This way, grid trading helps traders to make profits
from smaller price changes.
This kind of trading
can be performed by making use of grid trading bots which will execute a series
of buy/sell orders on a preset interval within an oscillating price range to
buy at a low price and sell at a higher price. This kind of trade happens
automatically based on the preset parameters, allowing traders to earn
profits.
Grid trading provides
profitability to the trader every time the selling price of the asset exceeds
the buy price during a flat movement in the market by automatically executing
low buy orders that lead to high sell orders. This fact eliminates the need for
market forecasting. This way, traders can easily take advantage of a ranging
environment.
Let’s understand this
with an example:
Suppose the price of
an asset, say XYZ, ranges between $50,000 and $40,000. The seasoned grid trader
would set a lower limit slightly below $40,000 and an upper limit slightly
above $50,000. When the price dips to the lower limit, the grid bot
automatically buys the asset XYZ.
After a while, when
the price reaches the upper limit (slightly above $50,000), the grid bot
unloads the position, generating Pete a decent profit. Traders may even tell
the bot to scale in and out of positions.
How does grid trading
strategy work?
Grid trading strategy
involves placing orders above and below a set price using a “price grid” of
orders. The price grid consists of orders at incrementally increasing and
decreasing prices. Let’s understand how this strategy works for crypto assets:
For instance, you may
set buy orders at every $5000 below the current market price of the Bitcoin
(BTC) and sell orders every $500 above BTC’s current price.
Here the grid trading
bot will automatically buy when the price falls to the predetermined level and
again if the price drops by another $500. The reverse will occur whenever the
price of BTC starts to rise.
The basic principle of
this trading strategy is to repeatedly buy at the pre-specified price, and then
sell the position whenever the price rises above that level. On the other hand,
you can sell at a predetermined price point and wait for the price to fall to a
set level, and buy the asset repeatedly.
A grid trading
strategy can be easily automated, and is valuable for crypto trading. This
strategy is especially useful for traders when prices move within a specific
range or a “sideways market,” where assets fluctuate within a fixed range for
an extended time without going in a particular direction. Prices in this
strategy fluctuate within the borders of price support and resistance.
Grid trading
strategies attempt to make money whenever the price of an asset changes.
However, there’s a trade-off: The more orders a grid trading system has, the
higher the trading frequency and, consequently, the lower will be the profit
from each order.
Grid trading bots
Grid trading bots
allow traders to buy and sell crypto assets periodically at predetermined
prices. This forms a grid of orders. The buy and sell orders are set above and
below the current market price.
One of the frequently
used types of bots in the crypto market is the Grid Trading bot. The main
principle of the Grid bot is the same as that of the Dollar Cost Averaging
(DCA) bot. The grid trading bot places the first buy order, and if the price
moves in the opposite direction, it places additional orders. The main
difference between DCA and grid bot is that each buy order will place a
take-profit order separately unlike DCA robots, which place a take-profit order
for all executed buy orders.
When the Grid bots
trade, every buy order will place a sell order and if you have 5 buy orders, a
total of 5 sell orders will be placed. Therefore, the algorithm will place the
grid of limit orders spread at the same distance from each other. If the bot
executes a partial order, it will set a take profit order for that part. This
bot has a continuous closed loop of work. In other words, once the bot closes
all sell orders, it will place a new buy order and start a new cycle again.
In each grid, the
trader has to set the price manually for the upper and lower limits. And, these
orders are executed by the grid bots at these predefined price intervals. This
type of trading strategy works at its best for Binance futures and spot
trading. This trading enables Binance users to create a trading bot that will
automatically make trades based on the movements of a particular crypto asset
price. The Binance trading bots work on grid trading strategy and when properly
deployed, these bots will help you earn optimal gains. Let’s understand the two
types of trading Binance
trading bots perform on the Binance exchange:
Spot grid trading
Recently, Binance has
started a grid trading strategy where the traders only take spot trades. This
trading is relatively safe as it allows you to buy as much as you can afford.
In spot grid trading, the bot will buy and spot positions at predetermined
levels while generating profits on the capital deployed.
Futures grid trading
In this trading
method, the traders can use margin and trade bigger positions. Because of
larger positions, they can generate more profits. This trading works well on
Binance Futures. Along with generating profits, it brings some risk too as
margined trades could be liquidated.
Growlonix is one of
the fastest-growing crypto trading
terminals that provides Binance grid trading bots to perform trades on the
Binance exchange. The platform has its own trading bots which perform amazingly
on different exchanges. You can directly perform trades for different exchanges
easily through this platform by making use of APIs. Binance trading bots
offered by the platform works well for both the spot and futures market.
What are the benefits
of using grid bots?
One of the key
benefits of grid trading
bots is that it allows you to trade systematically and periodically.
After establishing some conditions, the bot will execute the strategy without
giving it another second.
These bots are quite
beneficial for beginners and are perfectly suited for a range of environments.
Some of the major benefits of using grid trading bots are:
- Easy to use and customizable
- Reliable
- Enhance risk management
- Low entry point
- Versatility
- Higher automation level
- Suitable for both long-term and
short-term trading
- Diversification
You can start by
creating your own grid trading bot so that you can easily invest in both spot
and futures trading markets.
How grid trading
strategy/bot perform?
- First, you have to choose the
trading platform where you can perform trades
- Navigate to the trading section
and select the grid trading strategy
- Now select your trading pair
and customize your strategy. You can either choose AI strategy or manual
strategy. In manual strategy, you have full control over the way you would
like to set up the bot, and the AI strategy performs automatically.
- In manual trading, you have to
set some basic and advanced settings as follows:
Basic settings:
- Choose the lowest price on
which the grid will execute orders. When the market price falls, orders
will no longer be executed.
- Now select the highest price.
- It’s time to select the number
of grids
- Choose the asset that you hold
and want to use for grid strategy.
- Choose the amount that you wish
to use for the strategy from your available capital.
Advanced settings
After clicking on
advanced settings, you can explore more options:
- Trigger price
- Take profit price
- Stop loss price
- Initial price limit
- Grid order mode
After creating your
grid, you can keep track of the strategies by looking at your order
information.
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Created on Apr 9th 2024 11:13. Viewed 65 times.