If you are planning to use a cryptocurrency trading bot in the near future, then you might have more than a few concepts to clarify. Choosing the right bot, setting it up with suitable indicators, and following the most beneficial market signals would all be a part of that little questionnaire in your mind. But perhaps the most complex questions of them all would be about setting up the right strategy.
As you might be aware, most bots are built upon the idea of using some of the most popular trading strategies as their main mechanism. These methods have been adopted from conventional markets, but they work very well with automated bots that are built for trading crypto. That’s why, experienced and novice traders equally use these strategies to their advantage, where bots buy and sell cryptocurrencies based upon these preset functions.
One such approach happens to be grid trading strategy. Mostly used in forex, the grid could work effectively in cryptocurrency markets as well. To help you deduce whether the grid is the right fit for you, here is a detailed overview defining exactly what does the strategy do and how it works.
📊 Grid Strategy Explained
Simply put, cryptocurrency grid strategy works by scheduling or setting up future buying and selling orders in a predefined frequency. This frequency denotes to time as well as value, creating a grid-like formation for a trading day. This is where the strategy gets its name.
This frequency for buying and selling your crypto assets is set at different intervals in time, regardless of the market movement. The orders are set around a predefined price, where they are placed at both above and below this value.
Typically, buy orders are set above the set price, while sell orders are set below it. But this is not always true, since some traders decide to go the other way around and switch things up in their trading mechanism.
Depending upon market conditions, both subsets of the strategy could be beneficial for the trader. This is especially true while using a grid trading bot, since it minimizes any human errors in assessment, and the transactions happen as fast as the clock hits the specific time for buying and selling the desired cryptocurrency.
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👍 Pros of Grid
As defined above, grid strategy could be beneficial for you as a cryptocurrency trader, especially if you don’t want to rely on market fluctuations but regular market movements. This could give you a steady stream of profits on a daily basis, as compared to hitting a single market fluctuation every few days.
By using grid trading, you could profit from usual market movements. You could take advantage of daily trends, which refers to a market’s general direction. You could also benefit through daily ranges, where the asset’s price is consistent through a high or low value.
For instance, if you want to benefit from trends, then you could utilize the strategy of placing your buy orders above the defined price and placing sell orders below it.
On the other hand, if you want to take advantage of market ranges, then you could place your sell orders above the set price, and place buy orders below it instead.
Both strategies work to give you low yet consistent profits, which could be a helpful source of daily revenue. This has been noted in case of forex exchange markets, and it works the same way in cryptocurrency trading.
👎 Cons of Grid
With that being said, as many benefits as crypto grid strategy brings to the table, it is still not a failsafe way to trade assets. Things can still go awry in this trading mechanism, and you can still end up losing your money.
This is especially true when you are trading with an asset that is prone to high fluctuations out of nowhere – which is what cryptocurrencies are largely identified as.
If you are not managing your buy and sell transactions effectively in a fluctuating market, or if you don’t have essential order types such as stop-limit orders setup for market triggers, then you could end up losing a large amount of money. It wouldn’t be the bot’s fault since it will just be acting on settings that you defined to it. But it would still take a large chunk of your trading funds away.
That is why, while the grid works well with cryptocurrency assets, you need to be careful of using it with a certain level of caution.
👉 Want to see grid strategy in action? Check my experiments with real money investments.
👌 How to Use It Right?
The disadvantages of grid trading in cryptocurrency don’t mean that you should stop considering using the strategy. The situation just indicates that you should be using it with vigilance.
For instance, you should always use grid method with assets that are mostly stable in the crypto market. This could apply to popular cryptocurrencies and new altcoins alike – where you would be making the decision by looking at historical trade data for these assets.
With it, you should also setup mechanisms that could come into play in case of market triggers. As defined above, stop-loss orders prove to be essential with grids, which is why you should be using them whenever you setup your bot.
Along with this, you should also have a set timeframe on when to move on from grid strategy for a particular asset. Since it is not an approach that turns the most significant profit and could actually turn ineffective with ongoing market movements, you should have an exit strategy in place where you could roll back your investment without affecting your funds.
Once you have all of these factors in mind, you can move forward with using the grid in a safe way.
🤖 Bot Solutions with Grid Strategy
Check out the reviews of automated trading services that provide grids to their users:
✔️ Conclusion
Similar to other strategies, grid trading comes with its fair share of advantages and shortcomings. It is not a method to get super-rich super-fast, and it is not something that is bound to make you lose your investment.
The key is to use the strategy with vigilance and care. Do not put a large amount of funds on the line when you start trading with this instrument. Initiate with a low amount, and then gradually increase it once you grow more confident with your crypto bot’s usage of grid settings. From there, you can effectively learn more from experience and make informed decisions when it comes to using grid method for certain assets.