What is a grid trading bot and how do you use it?
Online trading is a quantitative trading strategy that involves placing automated buy and sell orders in an attempt to profit from the volatility of cryptocurrencies. Grid trading is a style of algorithmic trading that automates order execution using grid trading bots.
To create a grid of orders covering a range of potential market movements, this method involves placing a series of orders at incremental price levels above and below the current market price.
Typically, the trading bot places buy/sell orders between a predetermined price range, constructing an automated trading grid. This automation allows crypto traders to take advantage of and profit from even small price fluctuations and avoid emotional decisions, thus increasing the profitability potential in both bull and bear markets.
This article explains what grid trading is, how grid trading bots work and their benefits for traders.
What is online shopping?
The price of cryptocurrencies fluctuates; therefore, experienced cryptocurrency traders rely on crypto market charts to make trading decisions. However, it can be difficult to keep track when cryptocurrency prices fluctuate wildly, resulting in missed opportunities and sometimes market FOMO. For traders trading multiple cryptoassets and on multiple cryptocurrency exchanges, things get complicated and constant monitoring becomes a difficult task.
This is where the grid trading strategy can be useful as a quantitative crypto trading method. Grid online trading helps to buy and sell cryptocurrencies in an area set by the trader. The strategy is based on the idea that the price of an asset will fluctuate within a certain range, and by placing orders at various points within this range, the trader can profit from both upward and downward movements of the price. This essentially creates an area or grid where the online trading robot will work and calculate profitable buy-sell orders.
Related: Cryptocurrency Investing: The Ultimate Crypto Trading Indicators
What are grid trading bots and how do they work?
Grid trading robots are trading algorithms or codes that attempt to profit from price changes within the predefined grid range. The trader sets up the parameters or limits for the online trading robot to operate within the predefined range and execute orders according to predictable rules. Thus, grid trading bot orders automate crypto trading.
Let’s take a hypothetical Bitcoin/Tether trading example to understand how a grid trading bot works and what parameters are taken into account. It is important to ensure that there are enough funds available in the wallet before setting up the network.
Set upper and lower grid limits
Let’s imagine that the price of Bitcoin (BTC) has approached $15,000 over the past two-week period. The trader has 5000 Tether (USDT) and decides to trade $600 above and below the range. That makes $15,600 the upper limit price and $14,400 the lower limit.
Create multiple grid levels
The next step is to split the interval’s upper limit price and the interval’s lower limit price into grid levels. Each exchange has its own rules; However, manual and automatic settings are available across all major exchanges, such as Binance, Crypto.com, ByBit, etc. In manual mode, the trader can select levels, and in automatic mode, the grid levels are determined automatically.
The selected grid number is a determinant of the quantity of buy and sell orders in that grid. So in this example it is set to 7 levels. You are free to choose and create as many grid levels as necessary.
This will result in the following predefined limit within which the grid trading bot will now operate.
When the price rises and crosses the sales network, the bot sells BTC and makes money. Likewise, when the price drops in the buy network, the bot automatically buys BTC. Buying and selling continues with the aim of making money until the trader stops the bot or the timer runs out.
It is important to note that all the above parameter settings are for reference only. The parameters can be changed depending on one’s investment goals and trade-off between risk and return. Also, crypto trading involves risk, and traders must familiarize themselves with all possibilities before setting up online trading.
Benefits of using a grid trading bot
Trading cryptocurrencies can be time-consuming, and automation tools can help investors make better, rational and profitable decisions. Cryptocurrency trading robots are beneficial for the following reasons:
Automated execution of trade
Grid trading bots can automatically execute trades based on predetermined rules, which can save time and reduce emotional decision making. Traders can also scale their trades by creating multiple grid trading robots for different coin pairs simultaneously.
Faster and rational decision-making
Bots can make decisions faster than traders. Additionally, because they are unaffected by emotion, FOMO, peer pressure or social media trends, they can maintain their trading rationale even in erratic and volatile market conditions.
Risk management
Online trading robots can be programmed to automatically close trades if certain risk thresholds are reached, which can help minimize potential losses. In addition, diversifying trades among many currency pairs rather than trading in a single pair is a well-known risk management strategy: “Don’t put all your eggs in one basket.” Using grid trading bots makes it easier to trade simultaneously in several pairs.
Related: Are Crypto Trading Robots Legit?
Is online shopping strategy profitable?
Crypto grid trading strategies have the potential to generate profits if grid parameters are configured carefully.
While grid limits and grid levels are mandatory for setting up a grid trading bot, the following terms and settings are optional on most cryptocurrency exchanges. However, when used in conjunction with Grid Limits and Grid Level, these settings help make more clinical trades.
Trigger Price: This is the preset price at which the e-commerce robot will start its operations. No buying/selling activity will take place until the market price hits the trigger price. When the market price and the trigger price are the same, the robot is triggered and the grid becomes active for trading.
Stop loss price: As the name suggests, this is the point where the trading robot automatically closes all positions to protect against large losses. The stop loss point is below both the lowest price limit and the trigger price. Setting this up will help protect the trader because when the market price hits below the stop loss price, the trading network will stop working.
Take Profit Price: This is higher than both the upper price limit and the trigger point. When the market price hits the take profit price, the bot will sell the base cryptocurrency, collect the profit and exit automatically.
Another important aspect to consider when using a grid trading bot is the trading fees. If the trading fees on the exchange are high and the online trading bot executes several transactions quickly in a short period of time, the trading fees can add up and eat into the overall profit. It must be ensured that the trades generate more profit overall than incurred costs.
Online trading takes place in both spot and futures crypto trading. Spotgrid trading robots only generate profit on deployed capital since they use spot wallet funds and insufficient funds will automatically stop trading. This makes spot trading relatively safer since the trade is exclusively with own money. Futures grid trading bots use margin trading and can borrow funds beyond available capital. This allows traders to make larger crypto trades amid added risk exposure.
