Grid Trading Introduction
Bitget
2023-04-13 12:44
Global Bitgetters,
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.
Classic Grid Trading - FAQ
Q: What is classic grid trading?
A: Classic grid trading is a buy-low sell-high strategy suitable for oscillating markets. The strategy operates automatically by setting a price range and systematically dividing funds into a number of equal shares. It buys in batches when the price falls and sells in batches when the price rises. By doing so, it capitalizes on price fluctuations and reduces the cost of long-term investments.
Q: What are the ideal market conditions for classic grid trading?
A: The strategy works best when an investment's price oscillates within a certain trading range. In such cases, grid trading generates profits by repeatedly buying low and selling high.
Q: Are profits from grid trading settled in the base currency or quote currency?
A: Profits are settled in the quote currency. In a trading pair, the coin on the left is called the base currency, while the one on the right is called the quote currency. Taking BTC/USDT as an example, the profit earned from classic grid trading in this case will be settled in USDT.
Q: Which trading pairs are suitable for grid trading?
A: If you are a novice trader, mainstream trading pairs such as BTC/USDT and ETH/USDT could be a strong option. If you know grid trading well, you may want to try earning profit from other more volatile currencies. However, bear in mind that high yields come with high risks.
Q: Is classic grid trading always profitable?
A: You can always make a profit if the price moves within the specified range, but in the case of a floating loss in a down-trending market, you may suffer losses when the cost of holding a position is higher than the current price.
Q: Why does the system automatically buy the base currency of the trading pair at the start of trading?
A: We need to buy a certain amount of base currency at the very start of trading in order to sell it to make a profit when the price rises.
Q: How is the amount of base currency purchased at the start of trading calculated?
A: Amount of base currency purchased = Number of pending sell orders * Amount of base currency in each grid.
Q: Is stop-loss applicable to grid trading?
A: Yes. You can set a stop-loss price in the advanced settings. When the transaction price of the underlying asset is lower than the stop-loss price, the bot will automatically sell the asset to prevent losses and secure your funds.
Q: Is take-profit applicable to grid trading?
A: Yes. The maximum limit price within the trading range is also the take-profit price of the underlying asset.
Q: Is it possible that fees can be even higher than the profits I make through grid trading?
A: No. In classic grid trading, an order can only be placed when the profit is greater than the fee. Essentially, you cannot pay a fee that is greater than your profit.
Q: Will I earn more when there are more grids?
A: No. Grid profit = Price difference within a single grid * Purchase amount of a single grid * Number of filled sell orders. From the formula, you can see that the pre-condition for making a profit is that the price always moves within your preset range. The most critical factor for maximizing profit is to increase the number of filled transactions and the profit of a single grid. Too many grids for a fixed amount of total assets will reduce the price difference and buying amount of a single grid, thus lowering your profit per transaction. Therefore, a proper number of grids is critical to securing greater profits.
Q: Will I earn more if I use a wider price range?
A: No. Grid profit = Price difference within a single grid * Purchase amount of a single grid * Number of filled sell orders. If you set a broad range, there may be fewer filled transactions. Setting a proper number of grids and price range can be an art that requires both experience and creativity.
Q: Does anyone make real money through grid trading?
A. As one of the most classic trading strategies, grid trading has helped many users earn profits. You can see other users' returns on the grid trading leaderboard.
Q: What if I run a grid trading strategy for three days and see little returns? Should I give up?
A: Be patient and let time do its job. It is quite normal to see only tiny gains if you just run the strategy for three to five days. Give it a month and see how your strategy turns out. You can also communicate with other users to see if you can increase your profits by adjusting certain parameters.
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.
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