Advanced Guide to Trading Bots
Q: How should I set grid limits and the number of grid intervals when grid trading?
The more grids you have (higher grid density), the better you are at capturing minor price fluctuations. However, maintaining higher grid density also requires more capital, and may incur higher transaction fees while using the bot. Doing this can reduce the profit rate per grid, so more grids are not necessarily always better.
Grid Profit = Profit Rate per Grid Interval × Investment per Grid Interval × No. of Trades Completed
There are two strategies for setting grid limits:
1. Using trend lines: The upper grid limit is calculated based on the descending trend line on the daily chart, and the lower grid limit based on the ascending.
2. Using support and resistance levels: Daily support levels are used as the lower grid limit, daily resistance levels as the upper grid limit.
As such, the number of completed trades depends firstly on the degree of price volatility, and secondly, the price difference per grid interval (known as the grid spread).
Grid Spread = (Upper Grid Limit - Lower Grid Limit) ÷ No. of Grids.
No. of Grids = (Upper Price Range - Lower Price Range) ÷ 20-Day ATR of the 15-Minute Candlestick
Note: ATR stands for Average True Range. This is a technical indicator that calculates the average market price volatility of an asset over a 20-day period.
The ATR does not indicate trends or price directions, but shows the price volatility during a specific time frame. A high ATR implies high volatility, whereas a low ATR suggests low volatility.
Knowing this, you can use historical data to set optimal upper and lower grid limits, and employ real-time ATR values to determine the appropriate number of grids. These techniques will help maximize your profits during grid trading.
Q: Under what market conditions will grid trading be profitable?
Grid trading is only profitable during consolidation phases and uptrends. If you’re able to open a position during a support bounce, the likelihood of profiting from both of the above scenarios significantly increases. When dealing with cryptocurrencies that have already begun a long-term upward trend, it's easy to miss out on profits once they’re above the upper grid limit. However, it's possible that as long as you manage to enter the market at a low point still within the grid spread, even if prices drop further, they won't drop by much.
Q: What should I do if prices move out of the range of my grid?
If prices move beyond your grid range, your trading bot will automatically stop operating.
When this happens, you have three options: 1. Terminate the bot. Take profits or cut losses. 2. Reset the grid range. Or, 3. Wait for prices to move back into your grid range.
When prices move out of the price range of your trading bot, it's generally advisable to modify the upper and lower grid limit parameters so that your bot can continue trading and arbitraging.
Of course, you can also choose to cancel the orders and place them again, or you can set new take-profit and stop-loss parameters in advance. This way, whether the market is rising or falling, as soon as it goes beyond the original grid range, your preset orders will automatically execute.
Q: How do I choose the right cryptocurrency for grid trading?
The two main factors to consider are liquidity and volatility.
Liquidity refers to the market depth of a particular currency. If trading volumes are low, you may encounter a situation where you’re able to buy but unable to sell. You can also take a look at the number of pending maker orders in the order book to gauge liquidity. This will help you determine which cryptocurrency you should select and how much you should invest.
Volatility, on the other hand, refers to whether the asset has price action in both directions. If the price of a cryptocurrency only trends in one direction, your trading bot will probably not be able to operate for long. This is because once the price leaves the grid range, it will stop making arbitrage trades. Ideally, you would want to choose a cryptocurrency that also has enough historical data, so that you can roughly predict a probable range for its price fluctuations.
In summary, you would want to choose cryptocurrencies that have high market volatility, adequate market depth, and strong fundamentals. Cryptocurrencies you would try to avoid are those with single-sided price actions, low market depth, and weak fundamentals.
Q: Who is grid trading suitable for?
Those with no time to monitor the markets: Particularly, those who are working full-time. Even if you have price alerts set up, you might miss trading opportunities due to work or other reasons.
Those who dislike having to monitor the markets: Setting up automated parameters in advance for your trading bot means you don't have to worry about monitoring the market every day. Once set, your return on investment is also calculated in advance. This way, it doesn't matter even if the market exceeds the upper or lower limits of the grid.
Those who prefer steady growth: The greater the profits, the higher the risk. The benefits of grid trading accumulate over time, much like dollar-cost averaging. In the short term, it provides arbitrage gains, while in the long term, it's about earning compound interest. Think of grid trading as a flexible form of dollar-cost averaging that you can cancel whenever you like.
Those unfamiliar with trading techniques: Particularly, those who aren’t adept at technical analysis or don't wish to learn it. These investors tend to buy high and sell low, missing out on opportunities to profit. However, even if you can’t tell a bear market from a bull market, grid trading by using a trading bot can take care of that.
Q: What's the difference between being trapped in a spot trade vs. being trapped in grid trading?
The most apparent difference would be the time cost. Suppose the market first declines and then rises. If your spot position is stuck due to a decline and you haven't set a stop-loss, you might think of holding the position and waiting for a rebound. However, in the case of grid trading, during a decline, the grid is actively buying for you. As such, when the market bottoms out and rebounds, you would likely be able to start selling faster with grid trading as compared to a spot investment. Compared to investors trapped in spot positions who still have to wait for markets to return to their break-even points, grid traders would have already begun profiting. Even when it comes to the time needed to break even for a trapped position, grid trading is quicker than spot trading. The time saved in this back-and-forth can be used to invest in other assets.
Q: How should I set the parameters for a Martingale Bot?
Buy-In Trigger: This parameter affects how much price change (in percentage) is needed before the bot adds to your position, and is based on the volatility range of the cryptocurrency. Typically set between 1% and 5%. If this percentage is set too high, the number of buy-ins you make to increase your position will be much fewer, leading to lower capital utilization. On the other hand, if it is too low, you risk buying in too frequently, which may increase the risk of being trapped in a position should prices begin to tumble.
Take-Profit Amount: Generally, this is set around 1%.
Position Multiplier and Buy-In Frequency: These two parameters are closely related to the buy-in trigger. For example, if you anticipate large price fluctuations, you might want to set a higher percentage buy-in trigger, a greater buy-in frequency, and a bigger position multiplier. On the other hand, in conditions of low volatility, you should use a lower percentage for the buy-in trigger, set a lesser buy-in frequency, and use a smaller position multiplier.
For beginners, it's safer to use a lower position multiplier to minimize risks. For instance, consider using values such as 1.1x, 1.2x, 1.3x, etc. In volatile markets with high fluctuations, the Martingale Bot can generate steady returns, and its risks are considered relatively manageable. However, in severe cases of one-sided downtrends, it’s best not to stubbornly hold onto positions while allowing the bot to continue running. You should always have an appropriate stop-loss strategy, even if it means promptly terminating the bot to cut losses. It’s always possible to re-enter at a more suitable point, and start a new Martingale Bot when market conditions are more favorable.
Q: Why use an ETH/BTC grid strategy?
The essence of an ETH/BTC grid strategy shifts your approach from trading between the fixed amounts of a specific cryptocurrency, to trading with a fixed amount in terms of USDT. This allows you to reap the benefits of holding multiple valuable cryptocurrencies, while also capitalizing on the price swings between them—potentially increasing the amount of cryptocurrencies you own. This is the power of coin-based grid trading. As a trading pair, ETH/BTC is known for its volatility. Over the years, it has exhibited an exchange rate ranging between 0.016 and 0.123. This is particularly advantageous for those who like to hold both BTC and ETH. When the price of ETH rises against BTC, the grid bot can automatically sell ETH at higher prices to acquire more BTC. Conversely, when the exchange rate of ETH to BTC drops, the bot can sell BTC to buy more ETH at lower prices.
In short, an ETH/BTC grid strategy offers four major advantages:
1. Direct Investment: Ideal for existing crypto holders, allowing you to invest current assets while paying profits in the same form, thereby increasing your overall holdings.
2. Asset Flexibility: Whether you end up with more BTC or ETH, it helps those bullish on either (or both) of these coins in the long run. The more they fluctuate, the better.
3. Extra Profit Sources: Since returns come from both the cryptocurrency’s price appreciation, and also from trading on their volatile exchange rates, this means higher returns even as market volatility increases.
4. Stability and Reliability: With their high market caps, robust trading volumes, and relatively stable exchange rates, an ETH/BTC strategy is among the most reliable trading moves in the crypto trading sphere.