During the last decade, the focus of retail traders shifted from simply using simple technical analysis tricks to employing advanced automated trading systems. For some, this change happened naturally. According to market surveys, around 65% of all crypto traders employ various forms of automation. However, many people struggled to switch from traditional methods to newer ones.
While the vast majority of crypto investors are at least familiar with the term “grid bot”, many newcomers and even experienced buyers of crypto are unaware of this instrument. Despite grid bot trading strategies yielding impressive profits for their users, they are still rarely used by regular investors who are new to the crypto market.
How does a grid trading bot work?
The fundamental component of the grid method is the Distributed Cost Average or Dollar Cost Average approach to buying assets. DCA is widely used by financial experts. The core idea of the DCA approach is to reduce the average price of assets in your portfolio by splitting a single purchase into a series of market positions strategically placed during a downward trend in the market.
Instead of chasing lows and trying to guess where the price will hit the local bottom, you can make your overall market position as close to it as possible. Here are two example you can compare:
- You bought $100,000 worth of Bitcoin on April, 24 at the price of $50,000 which is close to the hypothetical local low. You acquired 2 BTC. Seems like a good deal. Consider another scenario below!
- You bought $25,000 worth of Bitcoin on April, 24 and then made three similar trades each separated by two days. Prices for each days were as follows: $50,000; $51,000; $49,000; $49,500. So, you would have acquired: 0.5, 0.49, 0.51, 0.505 BTC. 2.005 BTC. It is an extra $500 on a single purchase.
While such differences may feel negligible, they add up over time. It is also important to remember that you make purchases during local downtrends. The main goal of the DCA strategy is to reduce the price of entry as much as possible instead of buying in bulk and risking to miss out on extra profits.
A grid trading bot from WunderTrading employs the DCA logic to place buy orders on the spot market. You can also use it for futures to open long and short positions. The key difference between a standard DCA bot and a grid bot is that the latter also places liquidation orders for each of opened positions individually allowing you to secure larger profits in theory.
Practically speaking, the difference between well-tuned DCA and Grid systems is small and can be even unnoticed by retail traders with small portfolios. In the long run, however, a grid system usually outperforms a DCA bot and often shows better results when tested against the market history. When it comes to algorithmic trading methods, grid is certainly among the best the trading automation industry has to offer.
Grid trading bot settings for beginners
First and foremost, we must warn newcomers to the industry against using free grid trading bot software. While various desktop and mobile apps can work well when developed by experienced programmers, many factors like hardware, internet connection quality, your personal technical knowhow, and more can significantly affect the success of your grid trading strategy.
It is a good idea to use dedicated service providers such as WunderTrading to deploy reliable grid trading bots with settings that will generate profits. Here are some important grid trading bot parameters that you should pay extra attention to:
- Delayed orders. Grid bots usually place take profit and stop loss orders for each of new market positions. However, it is up to you to pick the best values that fit your risk style and profitability goals. Leaving settings as default is not optimal in most cases.
- Position size. It is hugely important to limit your bots in terms of how much they can use to open new market positions. The general rule of thumb is to limit a single position to just 1% — 2% of total assets. Since Grid bots split a bulk purchase into a series of smaller ones, simply divide them further. For a grid bot that can open 5 sequential positions, make each close to 0.2% — 0.4% of total assets.
- GRID Size. Selecting the price range within which your bots can open new market positions is a great way to limit the exposure of your portfolio to various risks associated with trading assets using bots. This type of sizing is called Interval. However, you can also use an infinite GRID allowing bots to create multiple grids with the profit per grid fixed at the level chosen by a user.
Remember that it is hugely important to test all your bots using the back-testing functionality available to all users of the WunderTrading platform. It is a tool that simulates the performance of your bots with selected settings using market history to provide you with an idea of how well your automated trading systems could perform.
Since you will be using a fully automated trading strategy, testing it multiple times before launching is quite important and can save you from potential losses. The WunderTrading platform allows its users to iterate as many times as needed to create a set of parameters that produce profits consistently without causing significant losses.
Should you use Grid trading bots in 2024?
Using automation for either passive income or active trading is something that many retail traders do quite often. Contemporary automated trading systems are flexible and capable of working well without any human oversight once you set them up properly.
Grid bots have established themselves as a reliable tool for beginners who would like to start trading cryptocurrencies without facing high risks. Go to the WunderTrading platform right now and test Grid bots in action! It is a convenient method of entering the crypto market without any prior experience in the field of finance.
