Oct 24, 2021
Grid Trading Strategy
Grid trading strategy is important as it can help you maximize your profit in a ranging sideways market with no clear direction. In this article, we will share with you what is grid trading and how to get started as well as some trading tips.
You can also watch our YouTube video below or download the PPT file.
What is grid trading?
To put it simply, grid trading can help you take advantage of the market volatility and earn profits for you.
All markets involve volatility — even when there is a clear uptrend or downtrend, volatility still exists. Let’s have a look at this chart.
What if we can take advantage of this volatility and make profits? Let’s say if we can constantly buy low and sell high, that would be ideal, right? That’s exactly what grid trading does for you. It is not feasible for us human beings to watch the trading all the time as we need to sleep, we need to go out for date, we need to have fun, right? So why not have someone else do the job for you?
That’s exactly what grid trading does. It is a systematic approach that can automate the buying and selling process. All you need to do is to set up a price range and interval and then the trading bot will do its job.
What is price range and interval?
A price range means you need to decide a range for the bot to trade. And an interval means you need to let the bot know how often a buy or sell instruction is implemented. For example, if we set up the interval at $1,000, we are basically telling the bot to place buy orders at every $1,000 below the current market price of Bitcoin, while also placing sell orders at every $1,000 above the Bitcoin’s market price.
How price ranges and interval affect your P&L?
As you can guess, grid trading performs the best when the market is trading sideways and when prices fluctuate in a given range. The more grids you set up, the narrower the interval will be, and thus the more frequently the trades will be executed. However, it also means the profit you make from each trade is lower.
Thus, it is a tradeoff between making small profits from many trades, versus a strategy with lower frequency but generates a bigger profit per order.
Let’s see some examples. Here are two screenshots we get from KuCoin grid trading bot. Both bots have the same price range. On the LHS chart, you can see if we set the number of placed orders at 100, then profits per grid are between 0.30–0.69%, while if we set the number of placed orders at 50, profits per grid will be between 0.77–1.55%. So how to set up these parameters is quite important if you want to maximize your return.
How to do grid trading?
Please check out our step-by-step YouTube video below on how to start grid trading.
Trading tips
- Use the assets you already own when starting the grid trading: if this button is turned off, that means the bot needs to buy some BTC when the trading starts, which could slightly increase your cost. If you turn on this button and have enough both BTC and USDT, you don’t need to place any orders at the beginning which effectively increases your money usage efficiency and lowers your cost. Therefore, the KuCoin official suggested we turn that function on if we do the grid trading.
2. Use Token/BTC rather than Token/USDT pair: So that you can not only enjoy the increase in BTC amount but also the BTC price increase. But how to choose which pair we want to trade? If you go to the dropdown button, you can see all the token/BTC pairs and you can rank them by volatility. We want to use those with higher volatility.
But at the same time, we also need to pay attention to the price change. We don’t want to use those coins that have already seen a big price increase.
3. Profits from grid trading include two parts: grid profits and floating P&L.
- A reasonable entry price: Floating P&L can affect your overall return so if you believe a token price is already at a high level, don’t rush into the grid trading. Instead, you can wait for a reasonable price to get in.
- A reasonable price range: Try to make sure the token price will not leave your price range in the next few days. If the price range is too narrow, even small price fluctuations will result in your bot stopping working.
- A reasonable number of grid: More grids means profits in each grid is low, barely covering the trading fee in the worst case. But when the grid is too wide, orders may not trigger very often.
About Us
3Comma Research focuses on cryptocurrency investment and research and shares with you what we have learned during our investment.
Disclaimer
The information provided here does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Do conduct your own due diligence and consult with a qualified financial advisor before buying, selling, or holding any type of digital asset or cryptocurrency.
Disclosure
We have no business relationship with any company mentioned in the article and any video we make and we are not receiving compensation for the article or video.
