WTF is a Grid Trading Bot?
Growth @ Pionex & BitUniverse
Grid trading profits in a fluctuated market. Here are 9 reasons from an experienced trader who has used GRID Bot for more than 18 months.
What is Grid Trading?
GRID Bot is the trading bot that helps you to perform the Grid Trading Strategy. It is a trading strategy which, in contrast to most other strategies, works best in a ranging sideways market with no clear direction.
It profits from the ups and downs of the price fluctuations in a market and is best used while there is no clear up or downtrend for a longer period. The more frequent and the bigger the price fluctuations are, the more profitable the strategy will be.
Simply put, a grid strategy works by scheduling or setting up buy and sell orders in a predefined price range, creating a grid-like formation; This is where the strategy gets its name from.
First of all, you will have to choose a price range for the strategy and then decide how many "Grids" you want to have inside of it. You basically "split" your price range into multiple smaller ranges (Grids) to increase the likelihood of trades to trigger.
The visualization of the orders from grid trading bot directly on the Chart.
The more grids you make, the higher the trade frequency will be because the grid width is decreased. But at the same time, the profit earned with each order will decrease. That means you can choose to either have many trades which earn only a small profit at a time, or a few trades which in turn make a big profit each.
Whenever a buy order is triggered, a new sell order will be placed (higher than the buy). And whenever a sell order is triggered, a new buy order will be placed (lower than the sell). This means that whenever the price fluctuates between 2 grids so a trade is executed, a small amount of profit will be earned.
As long as the price stays within the set range, the strategy will always sell a bit when the price goes up and buy a bit when the price goes down, scalping small amounts of profit every time.
9 Reasons to use a GRID Bot
1. Reliable Strategy in the Crypto Market
Grid Trading has been around for quite some time now, and it is a proven, time-tested, and profitable trading strategy. Tons of examples of successful traders actively using it over decades on all possible kinds of markets can be found. Due to its high fluctuations, especially the crypto market turned out to be one of the most reliable spaces for Grid Trading strategies.
2. Simplicity for all crypto-traders
Because the strategy does not require any algorithms, indicators, or complicated market signals, everyone can easily understand and use it to make a profit. People with no experience in the crypto trading markets will have an easy time setting it all up.
Because the strategy is based solely on the most basic idea of trading (buy low, sell high → earn the difference) and nothing else, it can be used on virtually any market and successfully earn a profit, regardless of the trend or market behavior.
By choosing the price range and the number of grids, you actively define the frequency and period of the strategy.
- It can be set up for the short term, making hundreds of trades per hour to catch micro profits from all small fluctuations of a day.
- It can also be set up for the long term by choosing a huge range, which will allow it to run for months to earn profit from every greater trend change.
4. Providing Liquidity
Grid Trading is a strategy that can be used for market making just perfectly. It helps provide liquidity and by doing that it will create a ton of trading volume for the trader if it's configured for that purpose.
But (even though most Grid Traders don't think about it) it can also be incredibly useful on illiquid markets with thin order books. Those markets tend to have huge spikes (like 5% up, then 7% down, etc.) very frequently and in short timeframes. You can easily "eat" all of these spikes by providing liquidity with a Grid Bot and turn them into nice profit for yourself. Not only that, it is also incredibly helpful for exchange you are trading on and is useful for anyone who would like to trade on that illiquid pair since it enables them to do that for a fair price.
There’s another market-making bot on Cryptohopper if you’re aiming for market making.
5. Enhance Your Risk Management
The settings you choose for your grid strategy make a big difference in its success and allow you to influence the risk/reward level even more actively.
You can choose if you want to use a GRID Bot to earn steady small profit with close to zero risks (for example: by selecting a stablecoin pair like BUSD/USDT), or if you prefer to take bigger risks for potentially huge returns (e.g., with a low market cap coin that has high fluctuations).
On Pionex, you also have the option to multiply your PnL on big pairs easily by taking advantage of the "Leveraged GRID Bot" or "Margin GRID Bot" they offer. With those special kinds of GRID Bots, you can easily adjust the risk you are willing to take and multiply any Profit/Loss made by doing so.
It's great if you want to trade with only the big and reliable assets like BTC, while you also want to get more significant results in shorter periods, which would otherwise only be possible with trading small market cap coins.
6. One of the best strategies in a ranging sideways market
Most trading strategies you will find focus around correctly predicting a trend and betting on that prediction by trading accordingly (for example: If this EMA crosses that, while X-Indicator is showing this, then the price will likely go up).
Sadly, more often than not, the market just has no clear trend, or the trend goes in the wrong direction needed for the strategy, so traders using that strategy have to wait it out and stay flat most of the time.
Another thing to keep in mind is that because their trades are just bets on predictions, it's also very possible that they lose their bet and take a loss.
However, with a Grid Trading strategy, you don't need to wait for the perfect opportunity to “predict” the next move. If the trend goes downwards you buy cheap and then cheaper, if the trend goes upwards you sell high and then higher, if it doesn't go anywhere you buy and sell and buy and sell, making a profit from all the small fluctuations it does until it changes into a trend.
So, while other strategies will miss out on most opportunities and maybe even make losses if their prediction is wrong, Grid Trading will make use and profit from any price movement, regardless of the direction (as long as the price doesn't leave your range downwards without ever reversing back up).
7. Never ALL-IN: Dollar-Cost Averaging tactic
Grid Trading also is a great way to ensure that you are not missing out on opportunities to buy cheap or to sell high. If you configure a broad range and set it up for the long term, you are guaranteed to have an excellent average price in both cases.
Many traders recommend that you spread your funds and invest in multiple assets instead of placing all your bets on one card. So if you are long term holding two assets, which are exchangeable with each other, you can use Grid Trading on to earn some extra profit from fluctuations in between them, while doing so.
Due to its obvious logic and because all of its actions are predetermined and unrelated to market behavior, Grid Trading is very susceptible to automation. Not only that, but it's also much easier and even way more efficient to utilize Grid Trading with a Trading Bot, instead of trying to follow the strategy with manual trades.
Since it can run on virtually any market, in any situation, 24/7 and because it can be configured for basically all periods, it's one of the very best strategies for traders planning to take their first steps into automation.
What are the risks of using a GRID Bot?
Grid Trading is still not a failsafe way to trade assets. All trading strategies have risks, and even though Grid Trading is one of the lower risk strategies, here’s the risk you need to keep in mind while using a GRID Bot.
- If the price goes down and never comes back up, which (especially on small market cap coins) is the case more often than you would think. In such a case, even the best grid bot in the world wouldn't make profits.
- If you started a Grid Bot on BTC/USDT in 2017 back when BTC/USDT was at 18k, you would have earned profits with Grid Trading for the whole time, but overall you would still be at a loss.
- If you are not managing your buy and sell transactions effectively in a fluctuating market, or if you don't have essential order types such as stop-limit orders setup for market triggers, then you could end up losing a large amount of money.
- It wouldn't be the bot's fault since it’s only acting on the settings you chose at the start. But it could still make a large chunk of your trading funds disappear if something doesn’t work out as it was planned. Currently, only Pionex’s GRID Bot provides trigger price, stop loss, and take profit features, which are helpful to prevent that..
- It is essential to use the strategy with vigilance and care. Never put more money into it than you could afford to lose. Begin with low funds when you start trading with this or any other new instrument. Initiate with a low amount, then gradually increase it once you grow more confident in using the bot and what settings to choose.
From there, you can effectively learn more from experience and make informed decisions when using the grid trading method for certain assets and situations.
Key takeaways before using a GRID Bot
I’ve been using GRID Bot for more than 18 months now. Here are my most important notes for anyone using a GRID Bot:
- For Grid trading in general the trading fee is playing a significant role. Exchanges with low fees, temporary zero-fee events like the ones hosted by Binance sometimes, or fee rebates you might earn as market-maker, will have a HUGE influence on the success of your Grid Bot.
- Finding the best pairs and market conditions to use Grid Trading on is probably the most crucial step for it to succeed. Learn to "read" the market, analyze the charts and try to get a feeling for what's important to look for.
- Search for charts that go sideways or have a slight uptrend, but make sure they don't show any signs of a long term downtrend at all!
- You want to search for a pair that has had many (and preferably huge) price movements, while not looking like it would leave your price range anytime soon.
Which platforms are offering a GRID Bot?
GRID Bot is a crypto trading bot that should be connected with an exchange API key. Several great crypto bot platforms provide GRID Bots.
It’s a free crypto portfolio and trading bot app (Disclaimer: The author works at BitUniverse and Pionex as a Growth Manager). It’s already supporting 22 exchanges for its grid trading bot and is regularly holding trading competitions with various exchanges.
Pionex is an exchange which provides Grid Trading Bot directly within the exchange (Disclaimer: The author works at BitUniverse and Pionex as a Growth Manager). Unlike other platforms, it has the most advanced GRID Bot features including stop-loss, take profit, and trigger price. It offers five very advanced, modified versions of GRID Bots for free. All of them can be used for different kinds of market conditions and various situations.
3Commas is the most popular crypto trading bot platform in Russia and the United States. For using a GRID Bot on 3Commas, you need to subscribe to the PRO plan, which charges a $99 monthly fee.
TradeSanta is a crypto bot platform startup in the United States. Currently, 6 exchanges have been supported. For using a GRID Bot on TradeSanta, you need to subscribe to the Basic plan, which charges a $10.5 monthly fee.
Disclaimer: The author works at BitUniverse and Pionex as a Growth Manager.
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