Posted in:

What Are Grids in Bot Trading?

© by Adobe Stock

If you are interested in technical analysis and contemporary automated trading systems, you have undeniably heard about GRID bots. You can use a GRID trading bot to create a highly reliable, consistently performing trading strategy that will generate profits regularly. While the method has some downsides, it is one of the best preset bot options in the arsenal of advanced automation vendors like WunderTrading.

What is GRID trading?

The idea behind this particular build is to utilize a time-tested investment approach called DCA while adjusting it for use in day trading.

DCA stands for Distributed Cost Average or Dollar Cost Average. It is a system theorizing that most investors will benefit from splitting their asset purchases into smaller portions distributed across a chosen period to minimize risks associated with sudden price surges and dips.

On average, investors using DCA usually purchase assets at a lower overall price compared to those who make bulk purchases. It is especially significant for people who cannot afford to make investments using big capital. Retail traders using their income to slowly build up a large portfolio benefit from DCA buying the most.

The approach can be used by people focused on day trading or scalping. The idea is to identify a downtrend and place a series of buy orders to accumulate a big long market position. It will ensure that you don’t miss the dip and take a better stance compared to people trying to pinpoint the lowest price.

Here are some benefits of using DCA buying:

  •  You can make money during periods of high market volatility if you identify a good position for a take profit order.
  •  DCA is excellent for those who want to slowly accumulate a big portfolio with a goal of holding assets indefinitely.
  •  With strategically placed stop losses you can reduce the overall risk level of your long market positions.

Distributed Cost Average is commonly used in automated trading. It is the most popular strategy among Bitcoin and Ethereum enthusiasts who usually stick to the motto “hold until the moon” and continuously buy assets without any intention to sell in the nearest future. This approach may not work for everyone, but it does for many people in the crypto community.

Using GRID bots

Since DCA has proven its efficiency after decades of testing in the free market, it is logical to use this approach and expand it. Companies like WunderTrading offer preset bot solutions that allow users to build day trading systems that use the same principle as DCA buying robots. If you create take-profits and stop-losses for each market position, it is called a GRID.

The name comes from the unique shape on the price chart created by placed market orders. A series of orders form a distinct network of dots on the price chart that can be also called a grid. It is a beautiful sight to a trained eye!

Let’s talk about some interesting aspects of this system:

  • GRID levels are defined by take profit and stop loss orders that can be set in percentile points or price action points. You can make a bot place them when the price moves a certain percent of the entry price or by a couple of price units.
  • GRID size is the overall scale of the bots operation. It can be described as a combination of the maximum number of orders that are allowed to be placed and the size of the portfolio managed by this bot.
  • GRID spacing is one of the most important parameters that define the periodicity of orders. You can allow bots to wait for minutes before they can place a new order or set the timer to a longer period. It depends on your personal experience and preferences.

Many other parameters should be adjusted before you can find the right balance, but these are some of the most important technicalities that often determine the efficiency of your trading operation. A good idea is to run multiple bots with different settings to determine which is performing better.

Advantages of GRID trading

This method is an excellent choice for people who are interested in building highly consistent automated trading systems capable of performing without any further adjustments and user involvement. While you need to monitor them and evaluate their performances, these bots still can operate on their own.

Here are some tips for people who want to start running GRID bots:

  • Use a good technical analysis strategy to identify a good moment to trigger the cascade of buy orders. The system will work mostly autonomously, but it needs a signal when to start buying. Use a good strategy deployed on TradingView to generate good signals.
  • Run several bots on the same asset with different settings. Analyze which of them perform better. Sometimes, a bot that places just 7 consecutive orders with larger spacing outperforms a bot that places 20 orders in quick succession.
  • Work with platforms that offer 99.9999% uptime and provide a great user experience. The WunderTrading’s dashboard allows you to control all your bots effortlessly while providing a lot of valuable information and market insights, all in one place!
  • Do not use your whole portfolio to run GRID bots. Consider this particular method a good hedging mechanism against risks associated with riskier investment endeavors. You should not rely only on automation to make money in the crypto world.
  • Focus on identifying the best approach to adjusting GRID levels to minimize your exposure to market risks. It is necessary to use stop-losses properly to protect your bottom line in the long run!

In conclusion

GRID bots can be extremely efficient when utilized correctly with a reliable technical analysis strategy capable of producing good signals. It is also a great hedging strategy for portfolios that lean toward a higher risk level.

Since this is a preset product on platforms like WunderTrading, you can get started quickly without any issues. We strongly recommend learning more about proper risk management and strategic placement of take-profit and stop-loss orders