GRID bots are highly popular among crypto retail traders. They are based on the Distributed Cost Average (DCA) approach and deliver fantastic results when paired with a reliable technical analysis strategy capable of producing a consistent flow of true positive trading signals. If you are interested in building a source of passive income in the crypto industry, it is a good idea to use this type of Automated Trading Systems (ATS).
A contemporary crypto GRID bot is a powerful tool that can be used to trade a wide range of different digital assets and their derivatives. Whether you are interested in spot trading or want to use leveraged positions, you will be able to benefit from this incredibly efficient ATS. WunderTrading’s GRID trading feature can work on Binance, Kraken, Coinbase, and many other CEX platforms.
Understanding GRID bot trading and its advantages
The GRID system is based on the DCA approach designed to reduce average price of target assets. The idea is to avoid placing large orders and instead break them down to multiple smaller market positions preferably placed on a downtrend. Instead of missing out on multiple buying opportunities, a DCA user aims at multiple entrance points to lower the average investment cost.
The Distributed Cost Average method has been around for a century. It is a reliable way of mathematically reducing expenses related to acquiring assets. The same approach to opening market positions is used in the GRID system, but each position is immediately accompanied by a sell order and a stop-loss order. It allows GRID bots to target higher profitability goals while reducing risks associated with trading volatile assets.
The name of the bot comes from the net of lines created on a price chart by various market orders (take-profit, stop-loss, buy order and more). The mesh on the chart forms a grid that never disappears completely since GRID bots are closed loops meaning that they open new market positions as they close previous.
Here are some notable advantages of using this method for cryptocurrency trading:
• The variety of analytical approaches. You can use a wide range of different technical analysis strategies to generate trading signals that will trigger GRID bots. These automated trading bots can trade against and within a trend, react to price swings and retracements, and even work as parts of more sophisticated portfolio management systems.
• Advanced risk management. The GRID system is safe as it is since it does not create open-ended market positions. Every single buy order and accompanied by a sell order. Additionally, you set up stop-loss orders to prevent unexpected losses. Limit position sizes to reduce the exposure of your portfolio to the risks associated with running a system like GRID. The WunderTrading platform offers a rich selection of risk management tools.
• Easy to set up and use. One of the best things about this particular product in the WunderTrading’s lineup is the simplicity. You don’t have to spend time tinkering with every single setting or trying to set up a connection. Use trading signal providers to receive triggers for bots. Establish the connection between the automation platform and your centralized exchange via API. Launch a GRID bot and track its performance.
Bots can be used to trade all sorts of digital assets that are common in the cryptocurrency market. While many people believe that only established coins should be considered by serious investors, many lesser tokens, DeFi smart contracts, and derivatives are valid targets for investment activities of any scale.
Here are some assets that you can trade with GRID bots:
• Spot market bots. Use your automated trading system to place orders on the spot market and work with tokens by buying and selling them directly instead of employing leverage. Trading tokens on a centralized exchange can be a good way for many retail traders to keep track of their investment activities in real time.
• Futures trading. The crypto futures market is quite volatile and unpredictable, but it also features some of the most lucrative derivatives allowing risky investors to make huge profits in a relatively short amount of time. Trading derivatives is a dangerous endeavor that requires careful planning and good analytical skills to build a strategy that will produce reliable trading signals.
- Margin trading. If you want to use GRID bots in both directions, you can deploy them on your margin trading account to create short and long positions with the same approach as it uses on the spot market but without its limitations (the necessity to hold assets to sell them). Remember that using leveraged positions can be very dangerous for your portfolio.
How to set up a crypto GRID trading bot
If you have an account at WunderTrading and your preferred CEX platform, you only need to register at TradingView to deploy an analytical strategy that will generate trading signals for your bots. However, the first step is to choose some crucial parameters of GRID bots.
Start with selecting an appropriate range of prices that bots will use to place buy and sell orders. Determine at which price bots will start placing first orders and limit their profitability goals and risk style by tweaking the settings.
An analytical strategy on TradingView can be used to identify good entry points for your ATS. Suitable technical indicators for this job are Bollinger Bands (to determine price ranges), Relative Strength Index (to identify potential price reversals), and Moving Average Convergence/Divergence (to determine the strength of the current trend). Use these indicators or other analytical tools that you like to generate trading signals that will command your bots to place an entry order.
The final step is to set up a good strategy for stop-loss order placement. It is imperative to use these delayed orders to protect your portfolio from unnecessary losses that you cannot sustain. It is impossible to build a flawless trading system regardless of which analytical approach you use. You will lose some money. Reducing your losses is very important.
We also strongly recommend all retail traders to utilize strategy testers and back-testing functionality at WunderTrading to test how GRID bots perform against the market history. It is a good idea to first test your strategy on TradingView (use the Strategy Tester tool) and determine the ratio of false positives to true positives.
When you have a good strategy on your hands, use the back-testing feature at WunderTrading to test the automated trading system as a whole. You will be able to assess potential profitability, losses, and win/loss ratio without risking your portfolio.
Should you use GRID bot trading?
Many crypto enthusiasts believe that DCA buying is enough to build wealth in the long run. While dismissing an approach that has been working well for a decade is wrong, adding other tools to the portfolio is quite useful. GRID bots are not that far away from DCA and can be used to create a steady stream of passive income for retail traders interested in allocating their capital in the cryptocurrency market.
Use trustworthy centralized crypto exchanges, work with reliable automation providers like WunderTrading, and experiment with various automation products to build a robust portfolio. GRID bots are an excellent place to start.
