Grid Bot Strategy for Cryptocurrency Trading and Free Grid Bots with WAARN.finance
UPDATE: 27 Sept 23
After much considerations on the current market outlook, we have decided to changed our business model to better adapt to this uncertain environment. We will no longer operate a trading bot.
Instead will be open-sourcing our trading tools (the non-proprietary ones), and transition into a community-driven platform business. If you are interested (early membership will be free as we build the platform together), please take a look here: https://waarn-finance.gitbook.io/waarns-philosophy/
UPDATE: 16 Nov 22
Due to recent events with FTX, we will move our operations to other exchanges once the dust settles. We apologize for any inconvenience.
Introduction to Grid Strategy
Grid strategy has been around for a long time. It is the base building-block of most market-maker strategies, and is encouraged by various exchanges as it provides liquidity to their order books. The strategy itself is simple:
- You choose a range of prices for an asset, let’s say from $20k-$50 for BTC
- Then you choose the number of grids. So if we follow the range from (2), and we choose 300 grids, then each grid will be stationed at every $1,000 interval; so the grid will go up from 21k, 22k, 23k, …, 49k, 50k
- When the price of BTC moves below each of these grid levels, it will place a buy order of (Total money / number of grids), which in this case is 10k / 300 = $33 per grid.
- Then when the price moves back up above the original buy-point, it will sell the same amount back to USD. The process reverses if the price moves up first (so it will sell BTC if it moves up one grid level before buying back when the price drop a grid level)
Should I use it?
While it is commonly referred to as a low-risk strategy, grid trading is far from a tool for beginners. In fact, it is extremely likely that someone who doesn’t have a firm grasp of technical analysis will lose money with this strategy. Many traders have been duped by the various articles out there claiming that grid trading is easy even though there is no evidence behind such a claim.
On the other hand, this strategy could also be a lucrative strategy for those who know what they are doing, providing a trader with a 24 hours system that makes money even when an asset price is not going anywhere — which is really all there is to it; grid strategy is excellent for trading within a certain range, and the longer an asset stays in a particular price range, the larger the profit.
How does grid trading really work?
As with most trading strategies out there, grid trading is really just a buy-low sell-high strategy at its core. However, it also relies on one prominent market characteristic to flourish: most asset prices will stay within a range 80% of the time. This means that the win-rate for most grid strategy, if properly configured, will be extremely high. This is great, but the downside is that it will make only pennies on each trade. Of course, if the number of trades is large enough, this will add up substantially.
The real problem happens when there are market crashes (or in some cases market bounce if traders incorporate shorting into the strategy). What this means for the strategy is that while you are making pennies on every trade, it only takes a single market crash to make the profit evaporate as the losses are usually larger than all the profits combined. And unlike a buy&hold strategy, without intervention, it will not bounce back for a long time.
Ultimately, grid strategy should be considered an active trader tool which requires monitoring. It’s not a simple set-and-forget strategy for most assets. However, it is an observed fact that market stays ranging 80% of the time, so if you learn how to detect support and resistance levels effectively, and actively readjust those levels, chances are that you can make enough money that a single market crash will not matter even if you don’t see it coming (and let’s be honest, nobody, not even the pros, can time a market crash consistently).
Grid trading in the world of cryptocurrency
Traditionally a tool for the Forex traders, grid trading is a double edged sword in the world of cryptocurrency. Applied to Forex, grid trading works very well as prices between two currencies of similar economic structure tend to range within a certain bound; however, cryptocurrency prices tend to shoot up and down at random based on the whims of a few whales.
However, where there are dangers, there are opportunities. Cryptocurrency is probably the most volatile asset out there, and grid trading is perfect to take advantage of that volatility. With the right tools in your belt, grid trading can be very lucrative indeed.
Here are a few of suggestions if you want to tread into the water:
Learn technical analysis: like how to find resistance and support for a price, and never forget to set a stop-loss. It might seem obvious, but this is crucial. You may want to experiment with larger time-frame Donchian channels, Fibonacci Retracement and extension, and Ichimoku cloud. You could also try to detect buy / sell walls if you have access to real-time order flow, detect market sentiments of fair price with put/call options prices and volumes. We will not go into the details for these, but it’s safe to say that unless you understand one of the above concepts, grid trading might not be for you. On the other hand, if you put in the work, they can form a powerful framework for discovering support and resistance for any cryptocurrency.
Turn it into a BTC accumulation strategy: Grid strategy really works best when price ranges within a certain bound of expectation. Aside from the ability to identify support and resistance levels, one of the ways a trader can profit from is to choose the correct pairs to trade with. Unfortunately, most cryptocurrencies don’t range within USD. However, what if you pair it with /BTC instead? Of course, this means you will be exposed to the price of BTC, but if you are confident that BTC price will rise over time, a BNB/BTC pair could be a strong asset to use with grid strategy to slowly grow your hoard of cryptocurrency.
In all of the above recommendations, we ultimately encourage an active trading style when you are using grid strategies. Things tend to end very badly for those who just leave a grid bot without at least a weekly reconfiguration.
Grid bot with WAARN Finance
Ok, so if you’ve got to this point, then perhaps you are interested in running a grid bot for your cryptocurrency trading strategy. Here is the good news, at WAARN.finance, we offer an unlimited number of grid bots completely free of charge on FTX. We generally do this as an advertising campaign for you to take advantage of, so that you can see our other premium bots which utilize a more complex strategy suitable for those looking for safer returns. So consider it your chance to use these bots for free even if you don’t use our other paid bots.
Configurations
There are really just 3 things you need to do to set up your grid bot:
- Upper limit price and lower limit price: This defines the total range of the prices you predict the trading pair will move through. For example, you might think BTC will not move more than 60k or below 20k within this year; then 60k becomes your upper limit price, and 20k becomes your lower limit price
- Investment amount: This is simply the amount of money you want the bot to run with.
- Take-profit price, and Stop-loss price: These should be placed above and below the upper limit price (for take-profit), and lower limit price (for stop-loss). Ultimately, they are simply an exit point in which the strategy will stop running once the price hits either of the two points. This is useful in case there are unexpected price movements, like a coin going to 0 overnight.
- Grid quantity: This defines how many grids there are within your chosen range. The higher the number of grids, the more often the trades will be executed. Beware, while this sounds good, it also means that the higher the quantity, the more money you will need to spend to satisfy the minimum order requirement for each trade.
- Grid type: There are mainly 2 types of grid: arithmetic, and geometric. It sounds complicated, but all you need to know is that:
Arithmetic is when the grid is spaced apart equally;
Geometric is when the space gets progressively larger as the price moves away from lower-bound at a fixed percentage.
A simple rule of thumb is that you should use arithmetic if you are running the bot short-term, and geometric when trading long-term. Geometric simply means that you are betting the price will move mostly above the lower-bound, but could explode upwards. Setting the grid progressively higher allows you to take in more profit from assets that exhibit exponential growth.
And that’s it! Again, grid strategy is not really suitable for beginners, but in the right hands, it can be very powerful.
Making your life easier
Another bit of small self-promotion, if you think a grid bot is a bit out of your depth, you can try out our paid bots, since we only operate on a profit-share model only, we will only bill you if you have made money with it — this means no fixed monthly subscription fee, and if the bots don’t make you money, we also don’t make money. What’s better, we take a cut from the yearly returns (billed monthly but only when you get all-time-high profits), unlike most profit-sharing crypto bots out there that take a cut every MONTH you make a profit, even after a string of losses — which is ridiculous.
To make it clear, if the profit-share is 30%, we take 30% of your 12-months return; others take 30% of your 1-month return. We’d like to think ours is a better deal than most other bots out there!
Thank you for reading.
Quantitative Analyst Team at WAARN Finance
