The Complete Guide to Pionex Grid Bot — Pionex Trading Bot Series
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This is the first article of the Pionex Trading Bot series, beginning with Grid Bots, one of the most versatile trading bots that Pionex offers.
This is going to be a very detailed and comprehensive guide with the following topics covered:
- General mechanics of Grid Bot operation
- How to set up a Grid Bot on Pionex with all the parameters explained
- Monitoring during bot operation
- Releasing idle profits during operation to achieve manual compounding
- Risks of Grid Bot
- Limitations of Grid Bot
- The time horizon for using Grid Bot
- BTC and ETH Moon Bot
- My recommendations for new users
- Features I wish could be added to Pionex Grid Bot
- How I use Grid Bot to achieve my trading goals
I took a few weeks to write this lengthy article with whatever pockets of free time I had. Now that it's finally completed, let's dive right in.
General overview of Grid Bot mechanics
The concept of grid trading is not native to the crypto markets. It has its roots in the traditional stock market, where Quant Funds employ grid trading algorithms as one of their trading strategies. The issue is that these funds are not easily available to retail investors like you and me.
Pionex redeveloped some of the trading algorithms for the crypto market and built an array of trading bots that are easy to use, reliable, and readily available to the masses, Grid Bot being one of my favourites.
So what is grid trading?
Simply put, grid trading is the process of systemically and mechanically buying low and selling high at various price grids to achieve consistent profit-taking within a predetermined trading range.
Pionex defines the process of buying at a lower price grid and selling at a higher price grid as one transaction. Once a transaction is completed, the price difference between two grids is locked in as profit
We can control a Grid Bot's risk profile and profit potential by tweaking its parameters.
Understanding Grid Bot mechanics with a simple example
Let's suppose BTC is trading at 55k right now, and I run a Grid Bot with the following parameters:
- Upper and lower price limits of 10k to 100k
- 10 price grids in total
- Investment of 10k USD
This is what happens in the background when the Grid Bot starts to run:
- The bot divides the total investment by the number of price grids to calculate the individual investable amount per grid.
- In this example, we have 10 price grids, so that's 10 equal portions of the invested amount, i.e., 10k/10=1k per grid.
- There is a limit buy/sell order at each grid. For 10 grids covering 10–100k, there will be 10 limit buy/sell orders placed automatically.
- The bot needs to buy 5 portions of BTC at the current price of 55k to place 5 limit sell orders at the price grids above 55k.
- The bot will place 5 limit buy orders at the price grids below 55k.
Operationally, the bot does the following:
- Buys 5 portions of BTC with 5k, totalling 0.091 BTC (5k/55k). Each portion is ~0.0182 BTC.
- Places 5 limit sell orders of 0.0182 BTC at price grids 60k, 70k, 80k, 90k and 100k, respectively.
- Places 5 limit buy orders of 1000 USD each with the remaining 5k USD, at price grids 50k, 40k, 30k, 20k, and 10k, respectively.
The initial setup is complete, and the Grid Bot is ready to go live.
How Pionex Grid Bot calculates profit
Before I simulate a price movement, it's essential to understand how Pionex Grid Bot calculates and displays profit.
This is a screenshot of one of my BTC/USDT Grid Bot. You can see that the total profit is made up of two components: Grid profit and unrealized profit.
The grid profit is the realized profit of selling the purchased BTC when the limit sell order at the next price grid is filled.
The unrealized profit is the unrealized price appreciation of the purchased BTC that are not yet sold.
Together, they make up the total profit.
Pionex also displays the annualized grid and total profit respectively for viewing convenience.
Let's now simulate a price movement of BTC going to 65k
A price movement to 65k will cause the Grid Bot to perform a few operational executions.
- As the price goes to 65k, the limit sell order at 60k is filled, and 0.0182 BTC is sold for 1092 USD (0.0182*60000).
- Since the 0.0182 BTC was bought at 55k for 1000 USD, we have a profit of 92 USD. This is the grid/realized profit.
- 1000 out of the 1092 USD is immediately used to place another limit buy order at 60k to replace the filled limit sell order.
- We are left with 4 portions of BTC, totaling 0.0728 (0.0182*4). It is worth ~4732 USD at the current price of 65k (0.0728*65000).
- Since the purchase price of these 4 portions of BTC was 55k, they are sitting at a profit of 728 USD (65k-55k*0.0728). This is the unrealized profit.
- So we have 92 USD of realized profit and 728 USD of unrealized profit, making the total profit 820 USD (92+728).
- The realized profit of 92 USD is temporarily stored in the bot to be deployed in future orders. Pionex Grid Bot also provides the functionality of withdrawing this net profit. More on this later.
BTC price drops to 45k
Let's take a second to visualize how the bot operates in this situation:
- The limit buy orders at 50k and 60k are filled.
- The bot buys 0.0167 (1000/60k) BTC at 60k and 0.02 (1000/50k) BTC at 50k, respectively.
- Two new limit sell orders are immediately placed at 50k and 60k to replace the filled limit buy orders, with 0.02 BTC at 60k and 0.0167 at 70k.
- Note that there will be two limit sell orders at 70k. One for 0.0182 BTC purchased at 55k and the other for 0.0167 BTC bought at 60k.
- We are left with 4092 USD, with 4 limit buy orders at 40k, 30k, 20k 10k.
- Our BTC position increased from 0.0728 to 0.1095 (0.0728+0.0167+0.02).
- At 45k, our BTC position is worth 4927.5(0.1095*45000) USD.
- Since we bought this position with 6k USD, we now have an unrealized loss of 1072.5 USD. Yes, it is possible to have unrealized losses in Grid Bots.
- The grid profit of 92 USD stays unchanged since it's already been realized.
BTC price goes to 55k again
- No limit sell order will be filled at 50k as there is none, but a new limit buy order will be placed at this price grid.
- Our BTC position stays the same at 0.1095, but it's worth more at 6022.5(0.1095*55000) USD. Since we bought this position with 6k USD, we now have an unrealized profit of 22.5 USD.
- Our cash position stays the same at 4092 USD, with 92 USD of grid/realized profit.
Progress review
- Now that the price has gone back to 55k, let's look at how the Grid Bot has performed.
- When we first operated the bot at 55k, we had 0.091 BTC and 5000 USD, totaling 10k USD.
- After the price went up to 65k, down to 45k, and back to 55k again, we've traded our way to 0.1095 BTC and 4092 USD, totaling 10114.5 USD, with a profit of 114.5 USD.
- Out of the total profit of 114.5 USD, 92 USD is the grid/realized profit, 22.5 USD is the unrealized profit.
- We'd have no profit or loss if we held this position through the price movements.
- Using the Grid Bot, this series of price movements generated a total profit of 114.5 USD or 1.145%.
- This is the power of Grid Bot. There is consistent profit generated through volatility even if the price returns to its original level.
Please note that the above example is just a basic representation of how Grid Bots work in general. I did it to help readers visualize its underlying mechanics. It does not entirely depict how the Pionex Grid Bot works.
What happens if the BTC price goes beyond 100k or drops below 10k?
At this point, the more astute thinkers amongst readers might ask, what happens if the upper or lower price limits are breached?
If the BTC price soars above 100k, all the limit sell orders at 60k 70k 80k 90k 100k will be filled and replaced with new limit buy orders. The bot goes on standby and waits for the price to fall back below 100k to start trading again.
At this point, the Grid Bot has sold all the BTC positions and sits in a full USDT position.
Conversely, if the BTC price drops below 10k, all the limit buy orders at 50k 40k 30k 20k 10k will be filled and replaced with new limit sell orders. The bot waits for the price to rise above 10k to operate again.
At this point, the Grid Bot has spent all the USDT to buy BTC and sits in a full BTC position.
How to setup Pionex Grid Bot
Pionex Grid Bots run on cryptocurrency trading pairs. Let me explain with a simple example of BTC/USDT.
The nominator BTC represents the cryptocurrency we are speculating on, i.e., we are planning to profit from the volatility of BTC price movements.
The dominator USDT is what we are investing in. We use USDT to buy the initial BTC positions and place subsequent orders. USDT is also the profit we receive, not BTC.
In short, for any trading pair XXX/YYY, we use YYY to fund the bot, expecting to profit from the price movements of XXX. Our profits will be in YYY.
I will now run through the interface of Pionex Grid Bot and explain each component's significance.
I'm not too fond of the AI strategy as the trading range is too narrow. I always choose the manual setting to key in my preferred parameters.
The above screenshot shows the basic settings. These are sufficient to operate Grid Bot for new users.
Lower and Upper Limits
The lower and upper limits define the boundaries of the Grid Bot's trading range.
As a rule of thumb, I recommend setting the lower limit to a price you reckon the cryptocurrency is unlikely to drop to and setting the upper limit to a price you're comfortable with selling your entire position.
You could use technical analysis indicators such as 200 MA to identify major support and resistance levels as a reference for price limits.
I generally prefer larger trading ranges because I want to give the Grid Bot enough space to operate.
Grids
This is the number of price grids the bot operates on. It has three implications.
Firstly, the number of grids corresponds to the number of limit buy/sell orders the bot places. In the above example, where there were 10 grids, the Grid Bot will place 10 limit buy/sell orders in total.
Secondly, it is the number by which the bot partitions the total invested amount. If we have 10 grids, each grid effectively controls 1/10 of the total USDT investment, roughly speaking.
Lastly, the price difference between two grids is also the price trigger for transactions. In the above example, a bot with a 10–100k range and 10 grids will have a transaction triggered whenever there is a price movement of 10k (100k-10k/10–1).
Generally, I choose the largest number of grids available so that to facilitate frequent profit-taking.
Profit/Grid (Fee Deducted)
This shows the profit percentage we can expect from each grid. Here's how to make sense of this profit/grid percentage.
From the above screenshot, we are putting 1000 USD into this bot with 200 grids, so the total investment is divided into 200 portions, i.e., 1000/200=5 USD.
This means that the Grid Bot will utilize 5 USD to buy at the lower grid and sell the corresponding higher grid for every transaction. At a profit/grid of 1.06% after fees, we expect each successful transaction to theoretically generate a profit of 0.053 USD (5.025*1.06%).
This may not seem too exciting, but it's definitely a substantial income stream over a long time horizon, especially in the volatile crypto market where transactions are frequent.
Also, note that geometric Grid Bots produce a fixed profit/grid percentage, while arithmetic Grid Bots have a profit/grid percentage range. More on geometric vs. arithmetic Grid Bots later.
Total Investment (USDT)
This is the total amount of USDT we invest into the Grid Bot. The bot calculates the minimum amount needed to operate based on the trading range and the number of grids.
There is an option in the advanced settings to fund the bot with both cryptocurrency and USDT. The bot will automatically show the appropriate allocation of one cryptocurrency based on the other.
For simplicity's sake, I fund Grid Bots with USDT only.
Let's move on to the advanced settings. This is for the more sophisticated trading bot users who want more customization. It's OK to leave these settings alone.
Trigger Price
Trigger price is the equivalent of a limit buy order for Grid Bots. For example, if the current BTC price is 50k and you only want to start running the bot at 45k, you can indicate 45k as the trigger price. The bot will wait for the price to drop to 45k to make its initial purchase and place subsequent limit buy/sell orders accordingly.
If left blank, the bot will start operating at the current spot price.
I don't typically set a trigger price as I want my Grid Bot to start running as soon as possible. The entry price also matters less if our time horizon is long enough.
Stop Loss Price
The Stop Loss Price is a price below the lower price limit, where the bot ceases operation and sells all of the current crypto position into USDT.
For example, if the lower limit of a BTC/USDT Grid Bot is 30k, and the stop-loss price is set to 20k; when BTC price drops to 25k, the Grid Bot would have used all the USDT to buy BTC and wait for the price to go back above 30k to start operating again. However, if the BTC price drops further below 20k, the bot will sell all the BTC positions at 20k and cease operation.
This guard against a black swan event where the price dives way below the lower price limit.
I typically do not use a stop-loss price. Instead, I set my lower limit very low to allow for a larger trading range.
Close-Bot-At Price
The Close-Bot-At price is essentially the opposite of Stop Loss Price, where the bot will take profit completely by selling all of the cryptocurrency at a price above the upper price limit.
Using the same example, if the upper limit of a BTC/USDT Grid Bot is set at 100k and the Close-Bot-At price 105k; if the crypto price goes to100k, the bot would have sold all the BTC position into USDT and goes into standby mode, waiting for the price to dip below 100k to start operation again. However, if the price continues to shoot up to 105k, the bot will cease operation and keep all the USDT.
This is to avoid the situation where BTC price drops below 100k again, and USDT is used to obtain more positions.
Honestly, this is only useful for very specific cases where Grid Bot is used for short-term speculation and instructed to take profits very proactively.
It does not fit into my trading strategy, so I usually leave this blank.
Slippage Control
The cryptocurrency market is much more volatile than the traditional stock market with significant price fluctuations. As a result, the price might have already changed from starting the Grid Bot to when it starts to buy cryptocurrency.
Slippage control is designed to mitigate this problem.
When you select 1% or 5% slippage, it means that the bot will only buy the cryptocurrency when it's within 1% or 5% of the starting price. This is to prevent buying at a wildly deviated price and having an unrealized loss right from the beginning.
When you select no slippage control, the bot buys the cryptocurrency immediately at the spot price to get started as fast as possible.
Like Trigger Price, I'm not concerned with Slippage Control as I have a long enough time horizon. I want my bot to start running as soon as possible. I usually leave it blank.
Grid Mode: Geometric/Arithmetic
Grid Bot partitions the trading range into equal portions either geometrically or arithmetically.
Since the price difference between two adjacent grids is essentially the profit per transaction, Geometric and arithmetic style grids have different profit profiles.
I did a simple Excel table to illustrate the differences between geometric and arithmetic Grid Bots. Both Grid Bots have a trading range of 10k-100k with 10 price grids, but the grids are distributed differently.
A geometric Grid Bot divides the trading range by a constant percentage difference. Each grid's price level is always a fixed percentage higher than the previous. Hence, for geometric style Grid Bots, the profit % between two grids is constant, while the numerical value differs.
On the other hand, an arithmetic Grid Bot divides the trading range by a constant numerical difference. Each grid's price level is always higher by a fixed number than the previous. Hence, the numerical profit value between two grids is constant for arithmetic-style Grid Bots, while the profit % differs.
Looking at the Excel table, we can see that as price approximates the upper price limit, geometric and arithmetic Grid Bots behave differently. The price difference between the 9th/10th grid for geometric Grid Bot is 22574, while it’s constantly 10000 for arithmetic Grid Bot.
For arithmetic Grid Bots, the price difference between two grids is constant, transactions are equally likely to be triggered by price movements of similar magnitude, regardless of where the price is in the trading range.
As for geometric Grid Bots, the price difference between two grids gets increasingly larger as the price approaches the upper price limit. Hence, larger price movements are needed to trigger transactions nearer to the upper price limit.
What does this all mean practically, you might ask?
Since we know that geometric Grid Bot requires more significant price fluctuations to trigger transactions but generates more profit per transaction closer to the upper price limit, it is more suitable for the following conditions:
- The cryptocurrency is volatile, with a strong upside price bias nearing the upper price limit.
- The general crypto market is in a strong upward trend, such that it is more likely for crypto prices to go towards the upper price limit.
- The trading range is narrow, and the upper price limit is set not too far from the spot price.
In these situations, even the harder-to-fill grids nearing the upper price limit could be triggered frequently to lock in profits.
However, this is for more specific market conditions or cryptocurrencies. I still prefer to use Arithmetic Grid Bots for its consistent profit profile.
Pionex also did back-testing and found that arithmetic grid bots outperformed in the current market condition.
Investment: Both/USDT
This option allows users to fund the Grid Bot with cryptocurrency and USDT. For example, we can use both BTC and USDT to fund a grid bot, in which case the bot will need to purchase less BTC for the initial position.
This is useful if you already have some cryptocurrencies and want to throw them into a Grid Bot instead of just holding them.
I usually only use USDT to run Grid Bots, which is easier to track. I tend to keep my HODL position separate.
Monitoring Grid Bot Progress
Once the Grid Bot starts to run, you can monitor its progress in the Details interface. I'm showing my BTC/USDT Grid Bot screenshots as an example.
In the first Placed tab, you can see a few pieces of information.
- BTC Holdings: this is the total amount of BTC the Grid Bot currently holds. It is used to place limit sell orders on the right.
- USDT Holdings: this is the total amount of USDT the Grid bot currently holds. It is used to place limit buy orders on the left.
- Holdings Buy Price: this is the cost basis of my BTC holdings. The Grid Bot aggregates all my previous BTC purchases at different prices to calculate an overall average purchase price.
- We can also see that this particular Grid Bot is instructed to buy 0.0001 BTC per grid to be sold at a higher grid.
On the second tab for Transaction, you'll see:
- Transaction statistics. From the above screenshot, we can see that the bot has made one transaction in the past 24 hours, with a total of 1138 transactions since it was started, averaging 6.81 transactions per day.
- The definition of a transaction is also reiterated here: successfully executing one buy order at a lower grid and a sell order at a higher grid to lock in the difference as profit.
- Initial Buy Quantity/Avg Buy Price. The Grid Bot shows a record of the quantity of BTC purchased and the average cost basis when the bot was initially started.
- The Grid Bot also provides a detailed record of every transaction ever executed, all 1138 of them. You can expand every single transaction to see the prices at which BTC was bought and sold, the fees involved, as well as the profit generated.
The bot provides a summary of all the parameters on the last Parameter tab.
We can gather a lot of information about this Grid Bot with just one glance:
- It is a BTC/USDT Grid Bot.
- We are using USDT to fund the bot, and the profit is in USDT.
- We have a generally bullish outlook for BTC but expect some price volatility.
- The trading range is 10k to 100k, with 200 grids in total.
- It's an arithmetic style Grid Bot as the profit/grid is a range.
- We started running the bot when BTC was at 32.9k.
- We did not use any Trigger Price, Stop Loss or Take Profit price.
Grid Bot provides a very powerful monitoring function. Even if we run multiple bots simultaneously, it's convenient to keep track.
Releasing Profit During Operation
If there is anything the Grid Bots cannot do, it's that it lacks the ability to compound profits. Pionex is aware of this limitation and has enabled a nifty feature of releasing idle profits from Grid Bots to be utilized elsewhere.
Where do idle profits come from?
Grid Bot needs to keep a reserve of funds to be fully operational. It is for placing limit buy orders and paying transaction fees. The rest of the profits are literally sitting idle if all the limit buy orders have been placed and enough is set aside for transactions. Hence, we can withdraw those idle funds to run new Grid Bots to achieve compounding.
Since the Grid Bot reserves a portion of the profit to place orders and pays for transaction fees, the profit available for withdrawal will be less than the total profit displayed out-front.
You can refer to the formula above to see how Grid Bot calculates the releasable profit.
Pionex also lets users batch withdraw profits conveniently if multiple Grid Bots are running.
I routinely withdraw all the profits every week or two to run new bots to manually achieve profit compounding.
Risks of Grid Bot
No investment in the world is guaranteed and risk-free. It's important to understand the risks involved with running Grid Bots so we can make more informed decisions.
In my opinion, there are two main risks involved with using Pionex Grid Bots.
- The price of the crypto used to run Grid Bot falls drastically.
- Platform risk of using Pionex exchange.
If the crypto price falls below the bot's lower price limit, all the USDT will be depleted, and we'll end up with a full crypto position. However, this is only risky if the crypto you chose is an alt-coin with the possibility of going to zero. Otherwise, we are merely dollar-cost-averaging on the way down and still have a good chance of impressive profit when the market rebounds.
Hence, it's crucially important that we choose the more tried-and-tested cryptocurrencies like BTC, ETH, and a few others. If you are speculatively running Grid Bots on alt-coins, make sure it's not a significant position and the parameters are adjusted accordingly.
As for platform risk, Pionex has a good track record and is generally considered a trusted crypto exchange. You can read more on why I think Pionex is a safe exchange in my previous article here.
Limitations of Grid Bot
No trading strategy is perfect, Pionex Grids Bot is no exception. I will address some of the limitations of Grid Bots in this section. Every user should keep this in mind because it can affect how we craft our trading plan to achieve optimum effectiveness.
Price exceeding upper and lower price limits
This point ties in closely with the risk of Grid Bots. I'll quickly explain again.
When the crypto price goes beyond the upper price limit, the bot sells into a full USDT position; when the crypto price drops below the lower price limit, the bot buys into a full crypto position. The bot also goes on standby to wait for the crypto price to regress into the trading range.
Although there is no realized loss at this point, being in standby mode causes profit-taking to grind to a halt. All the invested fund is sitting idle, and it's not ideal.
There are two workarounds for this limitation:
- Firstly, we can set a broader trading range, so the probability of price deviating out of the trading range is low.
- Secondly, we can run multiple bots of varying and overlapping trading ranges.
I prefer to set the trading range very wide. It is much simpler to manage and saves me the hassle of constant monitoring. Pionex also offers a particular type of Grid Bots called Moon Bot for BTC and ETH only. I will talk more of Moon Bots later on.
Low fund utilization
Another limitation of Grid Bot is that it does not utilize the invested funds efficiently. What does this mean?
For instance, if we have 10k USD worth of spot BTC and the BTC price doubles, we would have a 100% return. However, we'll have a lower return if we have the same 10k USD invested in a BTC/USDT Grid Bot.
This is due to the Grid Bots' feature of only utilizing a portion of the 10k USD to buy BTC while using the rest to only place limit buy orders as a safety mechanism.
Although this is done as part of Grids Bot's design to primarily profit from automated buy-low-sell-high, it means the utilization of funds is lower since we do not have a full BTC position.
One important implication is that in a strong bullish trend where crypto prices continuously rise without many pullbacks, Grid Bot is less profitable than holding a spot position.
Profit does not auto compound
I have mentioned this point above. Grid Bot does not automatically compound profits. Additional profits that are not being utilized just sit idle. Hence we need to compound the profits manually.
I recommend routinely withdrawing all the idle profits to either run new bots or DCA into new spot positions.
Long vs. short time horizon — Introducing Moon Bots
The matter of time horizon is an important concept which I feel a strong need to discuss repeatedly.
Generally, when we decide to use Grid Bots on a particular cryptocurrency, we subscribe to a long-term bullish view while expecting short-term volatility.
We must give the bot enough time to take profit through each buy-low-sell-high transaction consistently. A good general rule of thumb is, if you're not comfortable holding any cryptocurrency for at least 1–2 years, don't run Grid Bot on it.
Of course, Grid Bots can also be used for short-term speculation or as a part of a more complex strategy. However, for most cases, Grid Bot is a tool for long-term investment.
Importance of a wide trading range
To comfortably sit on our Grid Bots for a long duration, we need a wide trading range to accommodate large price movements. Let me elaborate with one of my Grid Bots.
The above screenshot is one of my earlier Grid Bots with a small trading range of 25k-45k. I ran it with a small range because I wanted the bot to complete more transactions to increase profit-taking in a tight price range.
I started the bot at around a BTC price of 33478 on 11/7/21 and closed it on 9/8/21 because the BTC price shot out of my upper price limit of 45k.
As you can see, this Grid Bot has returned a nice profit of 12.25%, which is very impressive for a short 29 days' work. However, if I had just held a spot BTC position, I would have been up 39.9% (46849–33478/33478).
This goes back to the earlier point of Grid Bot's limitation of having low fund utilization. Hence, I learned an important lesson.
If you plan to run a Grid Bot with a tight trading range on a high conviction cryptocurrency on a bullish trend, don't. You are better off holding a spot position.
BTC/ETH Moon Bots
Pionex advocates running wide-range Grid Bots over a long duration to maximize profit-taking through repeated transactions. It offers specialized Grid Bots called the Moon Bots for BTC/USDT and ETH/USDT trading pairs.
Moon Bots are Grid Bots that offer a pre-set ultra-wide trading range and 500 grids.
For reference, standard Grid Bots only provide a maximum of 200 grids, unless you're a whale with VIP status.
More price grids are beneficial for frequent profit-taking, as a smaller price movement is needed to trigger transactions between two adjacent grids because they have a smaller price difference.
Users need only to indicate the amount of USDT they wish to invest in Moon Bots, and cannot customize any other settings.
- BTC/USDT Moon Bot has a price range of 15k-150k with 500 grids.
- ETH/USDT Moon Bot has a price range of 1k-10k with 500 grids.
Having such an ultra-wide range and 500 grids allows the bot to run for a long duration safely within the trading range, with a high probability of successful transaction for profit-taking.
This is a convenient pre-set that I would recommend everyone to have as part of their core portfolio.
Important recommendations for running Grid Bot
In my journey of using Grid Bots, I have made several mistakes and learned a few important lessons. I wish to share them with my readers as recommendations. Hopefully, they can be of help in navigating the Grid Bots smoothly.
Primarily choose trusted cryptocurrencies with a good track record
Even though the mechanics of Grid Bot provides a safety net against market volatility, it's not going to magically generate profit if we choose a shit-coin.
Remember, we are still holding a spot position in Grid Bots, so if the cryptocurrencies we chose go to zero, we still lose all of our investments.
If you are strategically speculating on certain alt-coins, make sure you're only putting in money you can afford to lose. Do so in small amounts and set tighter trading ranges, also consider using the Stop-Loss and Take-Profit features.
Use mBTC/mETH instead of BTC/ETH for anything less than 3k USD
mBTC/mETH are smaller units of BTC/ETH (1/1000) to facilitate better order fills.
I recommend using mBTC/mETH to run Grid Bots if you plan to invest less than 3000 USD per bot.
If you take a look at Pionex's order page. The smallest unit of BTC tradable is 0.0001 BTC with a notional value of 5 USD at a price of 50k.
If we run a bot with 200 grids, we need a least 1000 USD (200*5) to get the Grid Bot running. Any investment less than 1000 USD will not trigger any transactions.
If the BTC price drops to 40k, 0.0001 BTC will be worth 4 USD, and the bot might start running. However, if BTC goes to 100k (which I believe it will), the bot will simply halt operation at 50k again.
On the other hand, mBTC supports 0.001 as the smallest trading unit, that's 0.05 USD in notional value. We can run a 200 grids Grid Bot with a mere 10 USD theoretically.
Diversify across different trading bots, cryptocurrencies, price ranges, and fund allocations
The Crypto market is highly volatile; therefore, it's important to diversify to mitigate risk as much as possible.
I recommend having a trading plan to allocate your investments appropriately. Here are some considerations:
- Use different trading bots to diversify your portfolio's risk and profit profile as they serve different purposes. In future articles, I will go through the other crypto trading bots to enhance your trading bot repertoire.
- Spread your investment among a few tried-and-tested cryptocurrencies instead of piling everything into one single token. E.g., running three 500 USD Grid Bots on SOL DOT ADA is safer than one 1.5k SOL Grid Bot. The exception being BTC and ETH, it's relatively safe to have only BTC and ETH Grid Bots, in my opinion.
- Divide your total investable funds into different portions to run Grid Bots are different price levels, i.e., a BTC/USDT Grid Bot started at 40k will be more profitable in unrealized profit than the same Grid Bot started at 60k, even though they would lock in similar amounts of grid profits through price volatility.
- Always leave some dry powder to buy your favorite crypto or run new Grid Bots at a discount during a market downturn. Don't be fully invested at one time.
How I use Grid Bots to achieve my trading goals
I wrote an article on my overarching trading thesis for using Pionex Trading Bots; give it a read here if you haven't. The article provides a high-level view of my crypto investment strategy and shares how trading bots fit into it. Hopefully, it can help you develop your trading philosophy and craft trading plans.
I mentioned in that article that I aim to achieve two objectives with trading bots.
My first objective is to generate a steady positive cash flow in FIAT to DCA into my preferred cryptocurrencies. I primarily use BTC and ETH Grid Bots to achieve this goal. I have multiple Moon Bots running on BTC and ETH, and I'm routinely withdrawing the profits to run new bots, manually achieving profit compounding.
I also keep a portion of the profits as dry powder to buy the price dips in a market downturn.
My second objective is to consistently compound my existing crypto positions and HODL for the long term. I have a large portion of my BTC in ETH/BTC Grid Bots, leveraging the volatility of ETH/BTC pair to consistently compound my BTC holdings. The ROI is much better than all the other BTC lending platforms.
Pionex, however, does not offer BTC/ETH Grid Bots. I would love to have that to generate returns on my ETH holdings.
Functionalities I hope Pionex would add to Grid Bots
As impressive as Pionex's Grid Bots, there are still some functionalities that I wish Pionex would add to the current Grid Bots.
Auto-compounding
Although I'm manually withdrawing profits and running new bots to achieve compounding of profits, I still wish for a more convenient inbuilt way to do it.
How I imagine it might work is to add a profit target within the Grid Bot, upon which is reached, the idle grid profit is automatically used to increase the amount of investment allocated for each transaction.
Profits to be denominated in crypto instead of USDT
At the moment, when we run bots with USDT, the profit we receive is in USDT. It would be better if Pionex gave us to option to receive profit in the cryptocurrency itself.
This is more alluring for us crypto users who don't trust the highly inflationary FIAT currencies and prefer to hold our wealth in cryptocurrencies.
I know 3commas, another popular crypto trading bot, has a similar feature for its DCA Bots. So this feature is more feasible to be developed by the Pionex team.
Conclusion
If you have read through the entire article to reach this part, I sincerely thank you for your patience. It is indeed a very long piece with lots of dry technicalities.
I hope you can see for yourself that the logic of Grid Bots is highly sound. As long as we pick a high conviction cryptocurrency to run Grid Bots with appropriate parameters, we are very much guarded against market volatility and might even stand to benefit. Over a long time horizon, we can steadily and consistently compound our investment.
This is the first article from my Pionex trading bots series. In the future, I will introduce other trading bots that Pionex offers that have different profit/risk profiles to serve different trading purposes and objectives.
I believe that with all these powerful tools in our arsenal, we can navigate the crypto markets much more smoothly and profitably.
Stay tuned.
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