How Does a Grid Bot Work?


As a general knowledge, a trader makes a profit by taking advantage of the ups and downs of the market. Regardless of the trading strategy being used, a trader enters a trade through a set of entry conditions and likewise exits a trade when specified exit conditions are met. As easy as it sounds, this tactic is quite daunting and time-consuming as the trader needs to perform diligent research and also rigorous screening for potential assets. With a Grid Bot, however, implementing any trading approach and strategy becomes effortless. With a Grid Bot, a great deal of stress and strain is taken off the hands of the trader. Here’s what you need to know about Grid Bot and how you can improve trading performance with it.

What is a Grid Bot?

Grid Bot
Grid Bot

A ‘Grid Bot’ or commonly known as ‘Grid Trading Bot’ is an automated system of trading wherein entry and exit orders are executed regarding specified grids in the chart. If conditions are met, the Grid Bot will buy or sell the asset on a particular grid. Ideally, the Grid Bot is used on fluctuating markets that move sideways however it can also be used on upward or downward trends depending on the trading strategy and conditions assigned to the bot.

Grid trading takes advantage of the volatility of the market by setting grid levels where the higher and lower price is expected to fluctuate. Every time the price reaches the specified grid, it either makes a buy or sells order depending on the set condition and direction of the market.

Grid Trading
Grid Trading

Here’s a quick view of what a chart that uses a Grid trading strategy looks like on the Binance trading platform.

The yellow horizontal lines represent the set or designated grid where the price is expected to fluctuate. The upper grid line serves as a sell level while the lower grid serves as a buy level. The strategy dictates that every time the price hits the designated grids, a sell or buy order is made. Therefore, buy orders are made every time the price hits the lower grid line, and sell orders are made every time the price reaches the upper grid line. The buy orders are shown by the green arrows while buy orders are shown by the red arrows.

Setting up a Grid Bot

Grid Bot Settings
Grid Bot Settings

Many platforms and sites offer grid bot services. Among the most popular choices include 3 Commas, Binance, Bitsgap, KuCoin, and many others. Trading bot services usually require a fee however, free access is also granted but with limited features. To set up a Grid bot on any grid bot trading platform, all you have to consider are as follows:

Identify market trend

First and foremost, when trying to set up your grid bot you need to identify the market trend of the asset. While the grid bot can be used on any kind of trend, it is best when used for markets that are moving sideways. Trends sideways give a clear view of the price range, fluctuations, price levels, or grids. So, before actually using a grid bot, you should at least know how to find an asset that is moving sideways.

Identify a trading range

The next thing that you need to bear in mind when setting up your grid bot is to identify the ideal trading range for the asset. The trading range refers to the channel or levels in the chart where the price fluctuates. The range involves an upper and lower limit where they sell and buy orders are assigned.

Assign indicators

Indicators or technical indicators are tools, signals, and patterns that are derived from the historical data of a chart. These indicators are used to determine possible entry and exit levels, as well as possible market direction, reversal and bounce levels, and many others.

Assigning or using technical indicators is recommended when using a grid bot to avoid errors and continuous orders. Without using a technical indicator in grid bot trading, the bot will execute orders repeatedly even when the market becomes unfavorable. Among the commonly used indicators in grid bot trading include the RSI, MACD, and Bollinger indicators.

Assign a Stop Loss

One thing that you need to understand when using bots is that they are not immune to mistakes. Bots are designed to do what it is supposed to do under any market circumstances. So, when the market drops, the bot is also bound to go down with the drop. What you can do is assign a stop-loss order which will minimize any potential loss in case the market drops.

Depending on your risk appetite, you can have a stop loss of 5%, 10% to 15% of your capital. By setting up a stop loss, you’ll be able to avoid huge losses over a market that is bound to plunge deep.

Advantages of using a Grid Trading Bot

Advantages of Grid Bot
Advantages of Grid Bot

More and more traders – both experienced and newbies are using Grid Trading Bots because of these advantages.

Credible Crypto Trading Strategy

Grid Trading bot is among the tried and tested trading strategies there is. Risks, as well as potential wins, depend solely on the appetite of the trader. With its tested credibility, it is used on almost all trading bot platforms – especially concerning crypto trading where price fluctuates more frequently over other markets.

User-friendly

Likewise, the grid trading bot is easy to use and it doesn’t require much technical knowledge about the functions and features of a trading platform, and trading in general. As mentioned earlier on how to set up a grid trading bot, you don’t need to be an expert to use the bot. All you need is a keen eye to find opportunities in a chart.

Flexible

Another thing that’s great about the grid trading bot is that it can be set up to adapt to changing requirements. The bot can adapt to any trading strategy, various indicators, risk/reward appetite of the trader, and even market behavior. Furthermore, you can even assign the frequency of your trades through the bot.

By being able to change the settings as you see fit, you’ll be able to create your ideal bot settings that are bound to produce favorable results.

Trading Automation

Lastly, you get to automate your trading with the Grid Trading Bot. One thing that’s tiring about trading is the repetitive work of finding opportunities to buy and sell in a chart. With the grid trading bot, there is no longer a need to deal with this repetitive work. With the Bot, you are not only able to save time but also effort.

No More FOMOs

‘FOMO’ is a common trading term that stands for ‘’Fear of Missing Out”. As its name suggests, when a trader fears that he or she is missing out on something, the trader tends to make rash trading decisions without having second thoughts or without even assessing the decision. A common example of a FOMO situation is when an asset is suddenly skyrocketing and a trader immediately jumps into buying the asset with the thought that the asset will continue to soar because of the immense volume involved. As soon as the trader completed a buy order for the soaring asset, it starts to fall from a very high price thus making the trader incur substantial damage in his or her portfolio. FOMO is one lethal enemy of a trader which is often neglected by both the expert and newbie trader.

Fortunately, a grid trading bot does not apply rash decisions as well as emotions that bring about FOMO instances. A Grid trading bot runs using specified rules or settings and it sticks with it unless changed therefore it does not react to psychological blunders such as FOMO.

Additional Notes about Grid Trading Bot

The only difference between grid trading bots is the fees and features involved. Many platforms offer free grid trading bots however they usually come incomplete with the necessary features and functions for better-automated trading. When considering a grid trading bot, some considerations to bear in mind would be the features that you need and the price. While more expensive bots usually have more features, they may not be the ideal choice for your specific strategy and requirements.

If you want to start yourself with trading bots and Learn it to fits your needs and budget, do check out our free course about DCA bots.  It features all you need to know about Dollar Cost Averaging and how to take advantage of it with the trading bots. Also, you’ll get to know the best bot service plans available for your particular needs and budget.

Enjoy and Good luck trading!

DCA Trading Blog

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