Grid Trading Introduction

What is Grid Trading?

Grid Trading is a strategic tool that automates the buying and selling of crypto at preset intervals around a prese t price range to construct trading grids. Grid trading tends to work best in volatile markets when price fluctuates at specific intervals.In this way, grid trading attempts to make profits on small price changes.

Grid trading can help trade rationally as in practice, grid trading bots will execute a series of buy/sell orders on a preset interval within an oscillating price range to buy low and sell high. As this happens automatically and based on preset parameters, it allows a trader to take out the emotional part of trading and therefore avoid unnecessary losses by decision making attempts led by FOMO (Fear of Missing Out), FUD (Fear, Uncertainty, Doubt), Greed, and Hope.

How does Grid trading work?

Through using the bot, you can set a series of buy and sell orders in either price direction, and with this a trading grid of orders will be placed waiting to be triggered. When the price drops to your preset target, a buy order will be executed, and a sell order will be placed above on the next grid. When the price then rises again to the next grid, the sell order will be executed, and a profit will be realized from the price difference.

Let's look at an example of Jane who likes to trade BTC/USDT on Spot, and has identified a trading range through technical analysis with a resistance level at 30.000 USDT, and a support level at 20.000 USDT, in which BTC has been trading.

Jane wishes to use a Grid to be able to profit from within the range, and identifies a few areas of interest in which she wants to create a grid.

Therefore she sets up her grid as follows:

Market Price: 26.000 USDT

Upper price: 30.000 USDT

Lower Price: 20.000 USDT

Number of grids: 5

Total investment: 10.000

The system will now calculate where the orders must be placed, and what the size of the buy/sell order will be. In this scenario it means the following:

30.000 USDT: Sell

27.500 USDT: Sell

26.000 USDT: Market price (no orders will be placed)

25.000 USDT: Buy

22.500 USDT: Buy

20.000 USDT: Buy

Outcome 1:

If the price now hits 25.000 USDT, the buy order will be executed, and the sell order will be placed in the next grid. When the price rises to 27.500 USDT, the sell order will be executed, and a new buy order will be created at 25.000 USDT again. Now a grid trade has been completed and profits have been made from the price difference.

Outcome 2:

When the price rises to 27.500 USDT, no buy/sell orders will be triggered, as there is simply no current position open. When price rises to 30.000 USDT however, a sell order will be placed at 30.000 USDT, and a buy order at 27.500, which will now effectively put the grid in motion.

What if price trades outside of the boundaries I have set.

The grid bot will only operate in the upper and lower price bounds that have been configured. When the BTC price rises above 30.000 USDT or falls below 20.000 USDT, the strategy will be suspended and no new orders will be placed by the Grid Bot.

Should this happen, you can either choose to close the grid trading strategy, or wait for the price to return to the range you have set, at which time the strategy will resume.

Note: Once the strategy has been suspended, this does not mean your positions will close automatically. In order for this to happen, you must tick the box to close the position upon termination of your strategy.

Disclaimer:

The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.

All opinions expressed on Bitget’s Soapbox (also known as the ‘Soapbox’) are opinions of individual traders using the Bitget platform, and do not reflect the opinions of Bitget or its affiliate companies and partners. The Soapbox author’s opinions are based upon information they confirm to be reliable, but neither Bitget nor its affiliates warrant its complete accuracy, and it should not be relied upon as such.