What is Grid Trading?
Grid trading is a quantitative trading strategy that involves automatically placing buy and sell orders with a view to profiting from fluctuations in cryptocurrencies. Grid trading is a form of algorithmic trading that utilizes a grid trading system to automatically execute orders.
Typically, the trading system constructs an automated trading grid by placing buy/sell orders within a predetermined price range. This automated feature allows cryptocurrency traders to benefit and profit from small price fluctuations, avoiding emotional decisions and thus increasing profit potential in both bull and bear markets.
Cryptocurrency prices are highly volatile; therefore, experienced cryptocurrency traders rely on cryptocurrency market charts to make trading decisions. However, when cryptocurrency prices fluctuate dramatically, it can be difficult to keep up, leading to missed opportunities and sometimes market FOMO.For traders who trade in multiple cryptocurrency assets and on multiple cryptocurrency exchanges, things get complicated and constant monitoring becomes a daunting task.
This is where a grid trading strategy may become a useful method of quantitative cryptocurrency trading. Grid trading helps to buy and sell cryptocurrencies within a range set by the trader. The strategy is based on the idea that the price of an asset will fluctuate within a certain range, and by placing orders at different points within that range, the trader can profit from the price fluctuations. This actually creates an area or grid in which the grid trading system will work and calculate profitable buy and sell orders.
Benefits of using a grid trading system
Trading cryptocurrencies can be very time-consuming and automated tools can help investors make better, more logical and profitable decisions. Grid trading systems have the following benefits:
Automated Trade Execution
Grid trading systems save time and reduce emotional decisions by automatically executing trades based on predetermined rules. Traders can also scale up their trades by creating multiple grid trades for different currency pairs at the same time.
Faster, more rational decision making
Systems can make decisions faster than traders. In addition, because they are unaffected by emotions, miss-phobia, peer pressure, or social media trends, they can maintain trading rationality even in unstable and volatile markets.
Risk Management
Grid trading robots can be programmed to automatically close trades when specific risk thresholds are reached, which helps minimize potential losses. Additionally, spreading trades across multiple currency pairs rather than trading just one is a well-known risk management strategy. Using grid trading makes it easier to trade in multiple currency pairs at the same time.