Grid Trading

Grid trading can be one of the strongest methods of trading that helps in making good profits out of the volatility in the markets. Building a grid trading system gives you the capability of leveraging price fluctuations upward to increase your trading profits. In this in-depth guide, we take a close look at what grid trading is, touching on the benefits, strategies, and common mistakes to be avoided.

What is Grid Trading?

Grid trading is a technique of trading that involves placing a number of buy and sell orders at fixed price intervals. This then creates a “grid” of orders which can be activated as the price heads higher or lower.

Grid trading is an attempt to make a profit from the difference between buying and selling, but not through forecasting the trend.

How does Grid Trading work?

Grid trading is a process of setting multiple buy and sell orders at measured price levels. Usually, they are set according to a grid pattern, whereby each of them triggers with every movement in the price upwards or downwards. In other words, you could be trading in crypto, setting a $50 buy order and a $55 sell order. Once the price reaches $55, the sell order is triggered, and you sell the crypto for profit. If the price heads lower to $50, it triggers a buy order, through which you will buy the crypto at a lower price.

Types of Grid Trading Strategies

You may employ several kinds of grid trading strategies depending upon your goals about trading and risk tolerance.

The most common grid trading strategy is the range-based grid trading. This strategy involves the establishment of a grid of orders that are to be triggered once the price starts to move within a pre-defined range. For example, assume the price is trading between $50 and $60, you’re going to set buy and sell orders at higher or lower levels from this range.

Advantages of Grid trading are many and from different perspectives; the essential ones are as follows:

• More profit: Through grid trading, you can have gains when there is fluctuation, even in a sideways market.
• Risk reduction: Setting up a grid of orders will actually allow you to reduce the risks and hence avoid making huge losses.
• Flexibility: Through grid trading, you can efficiently engage yourself with a variety of markets such as stocks, forex, and cryptocurrencies.

However, it also has some disadvantages.

• Complexity: Grid trading can be cumbersome to set up. As such, its setup can be very confusing to any trader who sets it up.
• Over-trading: Grid trading can cause over-trading. This also has the potential of raising commissions, along with slippage.
• Emotional stress: It can be very emotionally stressful to trade using grid trading, especially in cases where you are trading with a big chunk of your capital.

Grid trading bots

Grid trading bots, like OctoBot, are an automated program that automatically closes buy and sell orders based on pre-set parameters. It does this by creating a series of price levels or “grids” within which it will automatically execute trades in response to market fluctuations. It automatically performs partial sales when the price reaches a certain level within the set sell order and buys more in the event the price drops to a buy order level.

In this way, a trader can continuously make a profit from small price fluctuations without his or her constant monitoring of the market. Automation given by these bots has also helped them save traders from emotional stress while implementing effective strategies in both volatile and sideways markets.

Conclusion

The grid trading strategy, is among the best stategies to actually realize gains from volatility in markets. You will have all the opportunities to fully capitalize on the fluctuation in prices by creating a grid trading system that increases your trading profits. On the other hand, grid trading requires serious risk management and discipline in overtrading emotional stress.