Perfect Crypto Trading Pair for a Grid Bot

With increased volatility in the cryptocurrency market, investors are searching for new trading strategies and automation tools that would help them register larger gains. Growing a portfolio is not easy, but using grid bots and selecting some of the best crypto trading pairs could be one of the best decisions.

In this guide, we are going to share with you how to select a perfect crypto trading pair for a grid bot. At the same time, we will also summarize how the grid strategy works and which are some of the measures you could follow to improve your trading skills.

The Essence of the Grid Strategy

We are used to trading in the spot market. When we buy an asset, we expect it to move higher and sell it for a profit. Instead, if we have an asset, we sell it at a price and we expect for it to fall and purchase more of the same asset for a lower price.

If you purchased an asset, and the price of the digital currency moves lower, then you lose part of your funds. If instead, the coins you purchased move higher, you make a profit. This is how the spot market works.

With the grid strategy, the investor aims at profiting from certain price ranges and trends. Rather than buying an asset and just waiting for it to move higher, there is an active trading process in this strategy.

The grid strategy involves placing different buy and sell orders across different price levels in order to capitalize on trends and market volatility. As the price moves higher in a clearly defined trend, the grid strategy would place different buy orders as the trend evolves. As soon as the price reaches the target you were looking for, you could sell your funds that will be larger than your initial order.

What is the Perfect Market Scenario for the Grid Strategy?

The perfect scenario to trade when we want to use a grid strategy is the one in which we are able to set buy and sell orders in a very clear trend. Thus, if we believe that there is a clear and defined trend, then this could be a good moment to start trading with a grid strategy.

Although this strategy can be applied to a wide range of markets, it properly works in mature and liquid markets. The crypto market could be a good example of a strong liquid market to implement the grid strategy.

The cryptocurrency industry has been adding liquidity to different trading pairs such as BTC/ETH or LTC/BTC. These trading pairs, among others, have many traders and have clearly defined trends over different periods of time that could be ideal to implement different grid strategies.  

Moreover, when we distinguish a clear trend, the grid strategy could start playing out by gaining more exposure to our position as the trend continues to move forward. In this way, we are able to exit the position with larger profits. However, we should always pay close attention to indicators that show there could be a change in the trend.

How to Choose a Proper Crypto Trading Pair for a Grid Bot?

It is not an easy task to select the best trading pair for a grid bot. This would require analytical skills from the trader in order to execute a proper strategy. Every single trading pair that you select should have a clearly defined trend, moving higher or sideways.

Furthermore, when performing technical analysis, we also need to find possible retracement levels (Fibonacci), support and resistance regions and inflexion points. This would help us understand which are the pairs with clear information about the price action.

In addition to it, we should also take into consideration the volatility that there is for a specific trading pair. This would help us understand which are the targets we want to reach and how fast we want to sell our coins.

How to Identify a Trend?

Using the necessary tools to identify a trend might be tricky. Fortunately, most of the trading platforms in the cryptocurrency market are sharing different tools that help us recognize trends and take the necessary actions for our grid bot to execute the most efficient trades.

Moving averages (MAs) are great tools we have in order to identify trends. By using the MA 50 or MA 200 (long-term) we could clearly see where the market is heading. However, they are usually lagging indicators, meaning that we should also use other indicators to understand whether the market is expected to change direction. Trend lines could also be very helpful.

By using MA 50 and MA 200 crossings, we could receive buying and selling signals, depending on which side the market is moving. We can also use the MACD and combine it with histograms to know when a trend could be changing direction.

How to Identify Support and Resistance Levels?

There are also some other trading tools that would help us distinguish support and resistance levels. For example, by using Fibonacci levels, we could easily distinguish which could be possible support and resistance levels. They can help us understand whether the price could continue moving in the direction it was going or whether there could be a pause for a short period of time.

The volume profile could also help us get a better idea of where we could find support and resistance levels. Nevertheless, this is sometimes considered to be a premium tool.

Selecting Your Coins

Selecting the cryptocurrencies to trade with grid bot should be something that you do taking into consideration different metrics. These metrics include momentum, the trajectory (trend of the coin), fundamentals, and liquidity (we should avoid smaller coins).

In terms of momentum, we want to be sure that the coin that we are purchasing and using for our grid bot strategy is moving in a clear direction and momentum keeps. This could be analyzed by checking the volume trend and also using some indicators such as Bollinger bands.

We want to make sure the trend is strong and that it continues moving in the direction we want. The trajectory of the coin is also important (if not the most important factor). Knowing a trading pair is moving in the right direction is definitely useful for us to set our grid bot strategy.

Moreover, the fundamentals could help a very important role in determining inflexion points and also momentum. Following the latest news and events linked to a specific currency is definitely important for us to make clear investment decisions or modify pre-determined strategies.

Finally, avoiding smaller coins with no volume is a must. We do not want to be part of pump and dump schemes where the price of an asset is artificially inflated and then dumped. These are the worst type of coins we could follow, something that could cost us a lot of money.

We need efficient and liquid pairs that are easy to understand and that follow clear trends. If we do not follow clear trends, then we could end up losing more than what we can afford.

Executing Your Trading Strategy

Step 1 – Pick a Coin That Moves Sideways or It is Slowly Growing

The first thing that you should do is to search for a trading pair that would move sideways or that is moving higher, but slowly. You can use a wide range of indicators to understand which are the best coins to pick.

For example, you can use, as mentioned before, moving averages that would give you a clear idea about the trend. If you see the trend is moving slightly higher, then this could be a trading pair you could use to implement your trading strategies with a grid bot.

Step 2 – Set Support and Resistance Levels

You need to set up your range for the grid settings that you will have to complete in the next step once you activate the trading bot. But you are for sure wondering how to find support and resistance levels. Let us tell you that this is not a difficult task.

There are some trading tools that allow us to find support and resistance levels. As we previously mentioned in this guide, you can use the volume profile tool or Fibonacci levels. For some trading pairs, round numbers could also work as psychological support and resistance levels.

By using Fibonacci levels, you will see that 0.5, 0.382 and 0.618 are usually the best places where to find support and resistance levels. If you are using the volume profile tool, those prices at which the volume was the largest could work as support and resistance.

These levels will then help us set up the different strategies in our bot.

Step 3 – Execute Your Bot

Once you have identified your trading pair and you have already found support and resistance levels, the next step is to execute the trading bot that would follow the grid strategy. So as to do it, you will have to connect it to the exchange.

After it, you would only need to define the settings you want to use for your bot. For example, you want to set a lower price and a maximum price, the grid step and the grid levels. Furthermore, you can also select whether trailing up will be activated or not.

Run Backtesting When Possible

Backtesting is a very important part of our overall strategy. We cannot afford losses and we want to reduce them to the minimum. This is why having a backtesting strategy would help us assess the effectiveness of a specific strategy when using our grid bots.

This type of strategy allows us to analyze a specific bot strategy and how it behaved. Some strategies will be better than others. Replicating those that were profitable and shared with us large profits would be key in order to make our trading strategies sustainable over time.

At the same time, we should definitely avoid those strategies that make us lose money. Discovering the points of failure could be one of the easiest ways to control the viability of a strategy. Modifying those weak points and turning them into learning experiences could help us have more diversified strategies with positive results for our grid bot.