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How Grid Trading Works – Process, Risks and Potential Rewards

Grid trading is buying and selling an asset within a range for price of the asset to profit in a sideways market!

“Hey bro, let’s buy this new coin. It’s going to be up 10x in a month”. I am sure that you have heard such recommendations from your friends or people you follow in the crypto world. Sometimes these predictions come true, but more often, such predictions fall flat on their face. Yes, you can take a position on a coin, and that coin could moon, but there is no way to predict when it will moon.

Given these uncertainties, you need a consistent strategy, tried and tested. A correct entry point and exit point for executing a trade might seem like throwing darts in the dark. As they say, in life, the only certainty (besides death and taxes) is volatility in crypto. Grid trading is a great strategy for people who want to take advantage of the inherent volatility

What is Grid trading?

The grid strategy involves placing limit buy and sell orders in predefined price intervals (by percentage).

We buy a certain amount of the quote asset at the current price, which is the starting point of the grid.

Any price movement above the current price would mean selling the quote asset.

Any movement below the current price would result in buying the quote asset and reselling it once the price recovers.

How Grid trading works
Current price as the starting point of the grid

Here is an example below of the DODO/USDT pair.

DODO USD Grid Trading Setup
DODO/USDT Grid

The range defined by my me is between $2.8 and $9.

The range indicates the lowest and highest near-term price possibility in view.

The green lines indicate the limit buy orders and the red lines indicate the limit sell orders. The above chart shows how my investment has been divided equally within the range. The buy and sell orders have been placed with a grid spacing of 2.1 %.

Grid spacing essentially means that any price movement of 2.1 % upward or downward, will execute a limit buy (if the movement is downward) or a limit sell order (if the movement is upward).

Downsides of Grid Trading

Upward or Downward spike – Strategy works best when the pair stays within the pre-defined range. A spike either way could be problematic. In case of a downward spike scenario, you could end up fulfilling all your limit buy orders which would result in excess quote asset if the price does not recover. An upward spike in all your limit sell orders would be fulfilled reducing your potential profit.

Things to remember if you want to implement this strategy 

Selection of the range and the percentage between in each trade, also known as grid spacing, is extremely important for being successful using this particular strategy.

  1. The grid cannot be too narrow – If your range is very narrow then you could find yourself selling prematurely both upward or downward, the key to this strategy is that you continuously keep trading
  2. Having enough capital – Many people find themselves setting up with very little capital which results in a narrow grid making this strategy less effective.
  3. Stop loss and Entry point – Setting up grids in trending markets may end up slowing down profit accumulation in case the price goes below the entry price even if the grid is still functional. Setting up stop-loss levels in case of a market correction is also prudent and recommended.
  4. Choosing a correct range – This involves your study of the market and selecting a pair that you are confident about. One can use technical indicators such as fib levels, moving averages to decide a good range. This part involves your expectation of the worst- and best-case scenario for that particular trading pair.

This strategy is difficult to execute manually as setting up so many limit orders manually would be time-consuming since the limit orders need to be updated.

There are several bots available in the market that allow users to create their own strategies. Exchanges like Binance, FTX allow users to create Grid on their platform. Hypertrader can also be used for placing grids on multiple markets of Binance. Bitbns also offers grid trading using the Bituniverse bot.

Grid trading works best in Kangaroo market instead of Bull or Bear markets.

About the Author: Ivaangelic is a crypto and technology enthusiast who has been trading in crypto since 2016. Users can join their telegram group or check it out at ivaangelic.com

Disclaimer: Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. Coin Crunch India does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

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