GRID is a relatively new approach to trading crypto. It is based on a century-old idea that many refer to as DCA (distributed cost average). Contemporary GRID bots crypto systems are uniquely efficient products offered by only a handful of automation providers. You can build them using script-writing tools that you can find on many automation platforms, but preset solutions work best for newcomers and people without technological know-how.
What is a GRID trading bot?
Distributed cost average is a widely used approach in investment. It is a style of buying resources that allows buyers to reduce the average price by making a series of purchases over a relatively long period of time during downtrends or periods of uncertainty.
Imagine a scenario where you want to buy 5 BTC. You may purchase them in bulk at $30K right now or wait for opportune moments and buy 1BTC at $31K, 1BTC at $29K, 1BTC at $28K, 1BTC at a significant dip at $25K, and 1BTC at $33K. While some purchases may seem expensive, the average comes down to $29.2K which is much better than buying in bulk.
This idea was introduced to financial markets decades ago, but it makes sense to use it in markets where price action is rapid and changes occur frequently.
While DCA buying is considered one of the most reliable approaches in the crypto community and is usually used to accumulate BTC over time, it can be used for other purposes. GRID bots use this approach to create a series of market positions with fixed take profit and stop losses orders. This series of orders create a “grid” on the price chart, hence the name.
There are several benefits to using this system:
- Control over market positions. The defining advantage of crypto GRID bot trading is consistency. You can make money on a downtrend or uptrend depending on your chosen technical analysis strategy. With well-placed take profit and stop loss orders, you can control risks and profits.
- Safety and reliability. A crypto GRID trading bot operates around the clock and takes action only when conditions perfectly suit your strategy. At the same time, they automatically place stop-loss orders according to their instructions.
- Fast reaction time and execution. When trying to follow an algorithm, it is important to outperform the market and be faster than other retail traders. Humans depend on a variety of factors that determine how fast they can react to the market: the internet connection speed, reliability of their devices, physical condition, and more. Bots simply act with determination and speed that cannot be achieved by humans.
Do GRID trading bots work?
Given the advantages described above, bots are much better in very specific environments. They excel when speed matters the most. The crypto market is volatile with price action changing rapidly and millions of market positions opening and closing every hour. It also operates 24/7 meaning that humans often miss out on opportunities.
The same can be said about the derivatives market. For example, a futures GRID bot using a consistent technical analysis strategy will outperform a human trader in most cases.
These bots work perfectly in the cryptocurrency market and can be fine-tuned to generate profits reliably. There are two main aspects that you should pay attention to:
- The performance of the automation service provider. Try to choose companies like WunderTrading that offer a versatile toolkit situated in the cloud to work with 99.9999% uptime.
- The consistency of your trading system. Most crypto enthusiasts and experts prefer working on the TradingView platform, a powerful online analytical tool where strategies can be tested against the history of price action. Focus on selecting the right strategy and you will succeed.
Are crypto GRID bots profitable?
The question of profitability is closely related to the issue of consistency. Bots are as profitable as your trading strategy allows them to be. If you have a good set of technical indicators that produce signals that are slightly more often right than wrong, you will make money in the long run. However, optimizing a strategy is something that requires time, effort, and dedication on your part.
GRID bots can be highly efficient with the right trading strategy and a robust portfolio that can sustain potential losses in the short term.
Two things define profitability the most:
- How you manage your portfolio and risks. GRID bots should be used as a diversification tool. Dedicate a certain portion of your capital to automated trading and do not try to change an approach that works for you. Do not increase the portion when times are good or decrease when you feel that bots underperform. Remember that the goal is to be profitable in the long term, not right now.
- How frequently your strategy generates signals. If you have a trading strategy that identifies opportunities once a week, it is not a good idea to use GRID bots for it. This approach relies on having multiple openings that can be exploited. Your trading system must match this requirement and have many signals generated across any given week or even day.
Be mindful of your trading plan and focus on using GRID bots to increase the profitability of an already working strategy that can be expanded upon with automation.
Should you use GRID bots?
It depends on how you see investments and crypto trading. If you want to use a risky strategy and make it a little bit more consistent, bots can be quite useful. On the other hand, conservative retail traders looking for long-term market positions should use something more reliable like arbitrage or DCA buying.
Choose companies like WunderTrading where you can find GRID bots as a feature that can be activated with any strategy at any moment. It is a great way to test various approaches while minimizing risks to your portfolio. To top it all off, WunderTrading has a free plan that allows you to run up to five bots at no cost at all!