AI and other forms of automated trading algorithms have been around for years. However, with the advent of blockchain and cryptocurrencies, these technologies have become accessible for retail investors for the first time in history. This article talks about Grid trading bots and how cryptocurrency investors can benefit from them.
What is a Trading Bot?
Trading bots are AI-based programs or algorithms that allow investors to perform automated trading. These bots can learn from trading strategies and market models. However, they still require input from the investors.
Investors have the option to create a trading bot from scratch if they are familiar with the coding. Otherwise, they may also rent out or purchase trading bots from independent services providers such as Fetch.ai, etc.
What is Grid Trading?
Grid Trading is a type of trading strategy that entails placing automated trading orders. This type of trading strategy is designed to profit from the smallest price volatility taking place in the spot markets.
Grid trading is a strategic, algorithmic, or quantitative mode of trading. It is executed through bots. Investors may inspect the bid/ask spread and place various orders at different price points.
What is a Grid Trading Bot?
Grid Trading bots are the type of trading bots that are designed to execute trading based on grid strategies. Grid trading bots can place orders at multiple price points for a given asset based on its projected range. In this manner, investors can take advantage of the smallest fluctuations taking place in the market.
Investors may be able to earn profits using Grid trading for both long and short positions and during bear and bull market conditions. Investors must ensure that they have sufficient funds in their accounts before deploying grid trading bots.
How to Perform Grid Trading?
Here are some easy and simple steps to perform Grid Trading:
- Create an account on a platform where grid trading options are available such as Binance, Crypto.com, ByBit, etc.
- Determine a price range for a given cryptocurrency based on the spot price and projected expectations.
- With the upper and lower price limits determined execute the trade in terms of buy and sell order at the same time. If the market price dips, the grid trading bot will buy, and vice versa.
- Set parameters such as risk exposure and investment goals to keep editing the upper and lower price ranges.
- Advantages of Grid Trading Bots
Here are the benefits of Grid trading bots for cryptocurrency investors:
Trading bots can save time for investors and allow them to narrow down their active market observation time
Trading bots remove the danger of emotional decision-making when performing trades. It means that the chance of FOMO or FUD-influenced decision making reduces.
Trading bots can perform the trading cycle as soon as the price hits the predetermined price threshold. It saves the investors from missing the correct window to take action.
Trading bots are ideal for risk management since they remove the chance of potential losses. Bots remain active 24/7 while the investors can keep checking in and out of their trading accounts at their discretion.
Grid trading bots make asset diversification easier for investors as going in and out of trading positions becomes seamless, easier, fast, and simple. At the same time, investors may deal in multiple trading pairs at a given time using trading bots.
Key Components of Grid Trading Bots
Here are some important terminologies and factors that every investor using grid trading bots should know about:
Trigger price is the price that activates the bots to execute a buy or sell order. The trigger price is determined based on market analysis and projections.
When using Grid trading bots, investors can set up multiple price thresholds for selling or purchasing a given cryptocurrency which saves time and increases profit-earning potential.
Stop Loss Price
A stop loss price is a price that investors can determine as a selling range. At this price range, investors immediately sell their trading pairs to prevent dipping below their purchase price or to preserve a given percentage of earned profits.
Grid traders can lose track of the trading fees whenever they are creating or switching positions. Therefore, it is important for investors to always account for trading fees when they are performing their price range calculations for grid trading.
Grid trading is used for both spot and futures trading markets. Spot trading depends solely on deployed capital. However, futures trading bots can perform leveraged or margin trades that can increase the overall risk appetite of an investor.
Grid trading is a great way to perform trading options but it requires performing diligent market research and technical analysis. Investors have to learn how to read market fundamentals and understand the dynamics of technical indicators to feed the best possible parameters to their grid trading bots to become successful investors.