When configured carefully, cryptocurrency grid trading bots automatically issue orders to execute profitable trades.
Grid trading is a benchmark trading strategy in which automated buy and sell orders are created in an effort to profit from cryptocurrency fluctuations. Grid trading is an algorithmic trading style that automates order execution by grid trading bots.
To create a grid of orders that can accommodate market fluctuations, this method involves placing multiple orders at higher price levels above and below the current market price.
Typically, the trading bot places the buy/sell order within a predetermined price range, creating an automated trading grid. This automation allows crypto traders to profit and gain from small price movements and avoid emotional decisions, thereby increasing the likelihood of profiting 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 grid trading?
Cryptocurrency prices fluctuate; therefore, experienced cryptocurrency traders rely on crypto market charts to make trading decisions. However, when cryptocurrency prices fluctuate, it can be hard to follow, leading to missed opportunities and sometimes FOMO marketing. With so many crypto assets and so many cryptocurrency exchanges, things get complicated for traders and keeping track becomes a challenge.
This is where a grid trading strategy can come in handy as a cryptocurrency trading strategy. Grid trading makes it easy to buy and sell cryptocurrencies in a trader-defined range. The strategy is based on the assumption that the price of an asset will fluctuate within a certain range, and by placing orders at points within that range, the trader can profit from the rise and fall of the price. This determines the area or grid for the grid trading bot to work on and calculates profitable buy and sell orders.
Related: Cryptocurrency Investments: The Latest Crypto Trading Indicators
What is a grid trading bot and how do they work?
Grid trading bots are trading algorithms or codes that aim to profit from price movements within a predefined grid area. Trading sets the parameters or limits of the trading grid bot so that it can operate within a pre-defined range and execute orders according to pre-conceived rules. So the trading grid order bot performs crypto trading automatically.
Let’s take a hypothetical Bitcoin/Tether trading example to understand how bot trading grid works and what parameters are considered. Before setting up the grid, it’s important to make sure you have enough money in your wallet.
Set the upper and lower limits of the grid
Let’s say the price of bitcoin
BTC
tickers drop down
$23,644 in total
$15,000 in the past two weeks. The merchant has 5,000 Tethers
USDT
tickers drop down
$1.00 per month
and plans to sell $600 above and below the range. That makes $15,600 the upper limit price and $14,400 the lower limit.
Create grid levels
The next step is to divide the upper limit price of the interval and the lower limit price of the interval into grid levels. Each exchange has different rules; however, manual and automatic settings are available on all major exchanges, such as Binance, Crypto.com, ByBit, etc. in manual mode, the trader can select a level and in automatic mode, the grid level can be determined automatically.
The chosen grid number is what determines the number of buy and sell orders in that grid. So it is set to level 7 in this example. One is the freedom to choose and create as many grid levels as needed.
This will lead to the next pre-defined limit for the work of the grid trading bot.
When the price goes up and crosses the sales grid, the bot sells BTC and makes a profit. Similarly, when the price drops on the buy grid, the bot automatically buys BTC. Buying and selling continues with the goal of making a profit until the trader stops the bot or the timer runs out.
It is important to note that all parameter settings above are for reference only. The parameters may vary depending on one’s investment objectives and profit trading
