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The crypto market is popular for its volatility, and the price swings up and down within a matter of minutes. This offers both risks and opportunities. For a trader, these price movements are like jackpots when used correctly!
But it does come with a challenge, so what is it?
Human traders often find it difficult to keep up with this speed! Sometimes emotions kick in, and placing orders takes time. As a result, opportunities might vanish.
This is where Grid trading bots come into the scene!
Grid trading bots help traders in placing a series of buy and sell orders at a predefined price interval. Thus, turning the price swings into profit opportunities.
In this blog, we will break down everything you need to know about grid trading, like
Let us begin!
Grid trading bot is an automated trading software that places buy and sell orders at specific price intervals. It doesn’t capitalize on high price fluctuations. Instead, it leverages small price movements. Just imagine the street vendor strategy, where he buys mangoes every time the market price hits Rs .95 and sells them immediately when the price rises to Rs. 105.
Here, you can see the price difference is not too high! It is just Rs. 10! But when the same action is performed several times, it would lead to significant profit. Similarly, in crypto exchanges, every time the price dips, these bots would buy a little, and every time the price rises, the bots would sell a little. The result here is profiting from price swings, and there is no need to predict whether the price will go up or down!
In manual trading, traders would probably need to sit glued to the charts and constantly adjust their orders to earn a profit. But with these grid bots, the whole process is so simple! They run 24/7 and don't sleep or take breaks like humans, thus they can effectively execute orders in a matter of seconds. They do eliminate emotions, which can lead to missed opportunities at times. Traders can make use of these bots to get the maximum out of them.
Grid trading is all about dividing a selected price range into multiple grids. And the bot automatically places buy and sell orders at each grid level. This creates a staircase of orders or forms a zigzag graph.
For example, just imagine a case where Bitcoin is trading at $25,000. You are setting the grid between $24,000 and $26,000 with 10 levels. The bot will place a series of buy orders whenever the price goes a few hundred dollars below the current price. And it places sell orders in the same way, whenever the price goes a few hundred dollars above. So, in this case, if the price drops to $24,500 when the buy order executes, and when it climbs back to $25,500, the bot executes the sell order. And this cycle repeats!
Not all grid bots are the same! There are a lot of variations in the market, and traders can choose the type that suits their goals.
These are the common types of grid bots, and they operate in spot markets by buying assets at a lower price and selling them for a higher price, and gaining profit out of it after repeating the same process. It is great for beginners who want to make a profit at a lower risk.
These bots are used in the futures market, and they allow both long and short positions along with leverage options. They can multiply profits in volatile conditions and also increase risks! Especially if the grid isn’t set carefully. So, it is advised to analyze well and then set the grid, or else it won't be very useful. And it is often preferred by pro traders!
It is ideal for sideways markets! Here, you set a tight price band, and the bot focuses on making use of the repeated price fluctuations within that set price range.
Instead of just working within the fixed price band, these bots adjust the grids according to the market direction. If the price trend goes upward, the grid shifts higher. Similarly, if the price trend goes downward, the grids shift lower.
This is the latest evolution in grid trading. These bots make use of AI or ML to adjust grid spacing based on factors like,
This effectively reduces the need for manual setup and frame strategies that are more adaptable to changing conditions.
A grid bot offers a good outcome depending on how good the parameters that you have set are. These act like setting up rules on how your bot should behave.
This is the no.of divisions between your upper and lower price limits. Here, more grids mean smaller profit per trade, but the frequency of trades is also quite high. Meanwhile, fewer grids mean bigger profit per trade, but the opportunities are fewer.
This is the price gap between each grid level. Tighter spacing can capture small moves but demands more capital. Meanwhile, wider spacing reduces the no. of trades, but it does offer profit in each trade.
This factor decides how much money the bot uses per grid trade. Balanced allocation is advised to avoid overexposure in a single trade and protect your funds from getting washed out.
These are the price range within which your bot must operate. If the market moves away from this band, then the bot stops trading until the price comes back to what you have set. So, selecting realistic and price ranges is important.
These are risk control measures. A stop loss prevents heavy losses if the market breaks sharply. Meanwhile, take profit lets you lock in gains when a certain range is reached! These strategies together ensure your bot trades safely in volatile markets without huge losses.
How the crypto market doesn’t sleep, similarly, the bot also doesn’t sleep! It runs day and night without any break. This helps you capture opportunities that you have missed during manual trading.
Fear and stress can ruin good trades, and we humans tend to be anxious about price changes. But, unlike humans, bots do not have such emotions! They execute things as per plan, and they don't become stressed even if the market becomes unfavourable!
Most traders struggle when the price moves sideways as there is no clear trend. But, grid bots find it rewarding, and they thrive here, as they turn small price jumps into steady profits!
Beginners demand simplicity, as they do not have enough knowledge of the trading trends. Meanwhile, experienced traders also benefit from grid bots as they help them manage risks more wisely and gain profit from smarter moves.
Even though grid bots offer a lot of benefits, they do offer a few risks as well, which traders must be aware of beforehand, to avoid huge fund loss.
If the market moves in one direction, it means your bot would just keep buying or selling, and it can ultimately lead to a losing position. Without proper control, this can pose a huge risk.
In futures trading, the leverage option seems too attractive, but just like a coin, it too has two faces, one is profit and the other is loss! A poorly set grid in a volatile market can trigger liquidation quickly!
A grid that is too wide may tend to miss trades, and too tight may exhaust capital quickly. And success depends on how well the bot is configured.
A bot’s performance depends on the exchange and its API functionality. If the platform has downtime, then orders may not be executed as expected.
This is the most common approach. The bot buys low and sells high within your set range. It is best suited for a sideways market.
Here, the bot does the opposite of what it does in classic grid. Here it sells when the price drops and buys back when it rises. This strategy is considered risky, but it can be profitable in strong downtrends!
In this strategy, the bot increases the trade size after a loss; the main motive behind this is to recover losses faster once the market reverses. But it is also highly risky if the trend continues to be against you.
These are smarter bots that use real-time analytics and machine learning to adjust grid spacing and size. These eliminate the need for manual editing and adapt really quickly to changing market conditions.
Grid trading bot development involves several key steps. For your easy understanding, we have listed the development method in a step-by-step manner. Have a look at it!
Having a clear goal before you proceed is what you need. So, decide which grid method your bot will use, and that too under what market conditions, like,
A clear strategy acts like a roadmap for you to proceed further.
Choosing an exchange that is reliable and supports API trading is equally important. This allows your bot to place and manage orders seamlessly.
Plan the bot’s structure like,
A well-crafted architecture ensures smooth performance.
Code the bot’s logic that effectively does several activities, like,
Add risk management tools like stop-loss, take profit, and other rules. These safeguards protect you against heavy market moves and keep your trading balanced.
Build a dashboard where users can easily set parameters, configure the bot, and view their profits with ease. A clean interface makes the bot useful for both beginners and experienced traders.
Before moving the bot to the live environment, it is necessary to go through paper trading. This helps in identifying bugs in the initial stages and fixing them accordingly.
Once the bot passes all the tests, it is all set to be moved to the real environment. And with deployment alone, your work doesn’t end; monitor its performance closely to make changes further.
Crypto markets just keep evolving, and your bot should also evolve. Regular updates and maintenance are necessary as they add additional features and keep it competitive in the market.
Volatility in the crypto market need not be a threat anymore, with grid trading bots. It helps in turning that volatility into opportunities. By automating the process of buying low and selling high, these bots offer the required profit that manual trading would miss. No matter whether you are a beginner or a veteran trader, grid bots totally change your way of trading into a smarter one. But let us not miss out on the fact that success depends on how well the bot is set up!
If you are impressed by grid trading bots and want to develop one? The Fourchain, a leading crypto trading bot development company, is your right partner. From requirement gathering to deployment, we ensure your bot goes live without much difficulty. Take the first step by contacting our experts today!
Related Blogs:-
1) Top 10 Best Crypto Trading Bots
2) Best Crypto Trading Strategies Using Crypto Trading Bot
3) How to Optimize a Crypto Trading bot for Better Profits
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