If you've tried your hand at actively trading your crypto assets or not, many investors find the prospect of maintaining a trading portfolio daunting. You may have analyzed the crypto charts, noting how the asset's price fluctuates between highs and lows over a specified time span. You may have thought to yourself, "If I sell at the top and then reinvest at the bottom, I will maximize my holdings!" However, you might be concerned that you may time your entry incorrectly and end up losing money. The cryptocurrency grid strategy may prove valuable to you.
What is Cryptocurrency Grid Trading Strategy?
Grid trading is a strategy that entails putting a series of long and short orders at predetermined intervals around a predetermined price. This way, it establishes a trade grid. Grid trading is most effective in a competitive market with periodic price fluctuations. By automatically conducting low buy orders that lead to high sell orders, it ensures profitability each time the sale price exceeds the purchasing price during a sideways price movement and thereby eliminates the need for market forecasting.
Numerous considerations must be made in order to maximize grid trading profits. However, what if I told you there is a way for you to benefit from this volatility? What if you could automate your trades and just sit back and track your profits on a regular basis? For example, a pair with many and significant ups and downs, but a relatively stable average price over a longer term, is almost definitely a good candidate for Grid Trading. With that being said, let us review the fundamentals.
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What is a grid crypto Bot?
GRID Bot is a crypto trading bot designed to assist you in executing the Grid Trading Strategy. “Bot-Trading” has existed for as long as cryptocurrency has existed, but it has always taken advanced programming capabilities, a computer working 24 hours a day, and a great deal of know-how.
Grid Trading benefits from the market's ups and downs. If the price moves above or below your given Price Point, the grid trading bot will sell; if it moves marginally above, the Price, the bot will buy.
How Cryptocurrency Grid Strategy Works?
First, you'll need to establish a price range for the strategy and then determine the number of "Grids" it will include. To maximize the probability of trades triggering, you essentially "break" your price spectrum into several smaller ranges (Grids).
The more grids you build, the higher the trade frequency would be due to the reduced grid distance. However, the gain received from each order will decline. That means you can either have a large number of trades that earn a small profit each, or a small number of trades that earn a large profit each.
A new sale order will be put once a buy order is activated (higher than the buy). Additionally, any time a sell order is initiated, a new buy order is placed (lower than the sell). This means that if the market fluctuates between two grids, a slight profit is gained.
As long as the market remains within the established range, the plan will still sell a small amount when the price rises and purchase a small amount when the price falls, scalping small amounts of profit each time.
We used BNB/USDT as an analogy in this example. Grid Trading Bot's output would range between $15 and $18. There are fifteen grids, each with one BNB. It will buy 1 BNB if the price increases and it breaks through one grid, and it will sell 1 BNB if the price decreases and it breaks through one grid.
See also: Shorting Cryptocurrency
5 Reasons you should consider using a cryptocurrency grid strategy
1. Dependable Crypto Trading Strategy
Grid Trading has existed for a long period of time and is a well-established, time-tested, and lucrative trading technique. Numerous records of effective traders successfully using it for decades on a variety of markets are available. Due to its high volatility, the crypto industry, in particular, has proven to be one of the most reliable environments for Grid Trading strategies.
2. Ease of Use
Since the approach does not include any complex equations, metrics, or market indications, it is simple to grasp and apply. Entities with no prior experience in the crypto trading markets will have no difficulty setting it up.
Since the approach is built entirely on the most fundamental concept of investing (buy low, sell high, gain the difference), it can be used consistently on almost every segment, regardless of the pattern or market activity.
Grid Trading is an excellent technique for market making. It contributes to liquidity provision, which generates a significant amount of trading volume for the investor if configured properly.
Various traders encourage you to distribute your funds and invest in various assets rather than putting all of your eggs in one basket. Therefore, if you keep two exchangeable assets for an extended period of time, you can use Grid Trading to reap some added benefit from the volatility between them.
See also: Best Grid Trading Bots
Managing the Crypto Grid Strategy
I had a running with a few pointers and safeguards when using the crypto grid strategy.
When the market as a whole is rising, trading crypto-currency pairs would yield a higher return than trading crypto-fiat pairs. This is because each coin will pump in a unique sequence. In the majority of cases, you'll see BTC pump first, followed by other Altcoins.
That is the source of volatility!
A high "Grid Benefit" figure means absolutely nothing! If a coin pumps to 100%, any Grid Bot would display a nice "Grid Profit," but in practice, someone who executes a basic Limit-Sell or Trailing Stop Order will have done much better than someone running a Grid.
If you cancel and recreate the grid due to the price pumping/dumping above/below the Grid-Price range. In this scenario, you incur an unobservable loss.
Often attempt to use a price scale that can hold for an extended period of time (could be a few days, or weeks). Making profitable short time grids and canceling or remaking them hourly or monthly is a poor practice, even though it consistently shows a high percentage grid profit.
See also: Buy Ethereum