Contemporary crypto trading bots are capable of working with an impressive level of consistency and deliver good results even during periods of uncertainty in the crypto market. Among many commonly used bot systems, grid trading strategies stand out as some of the most reliable, easy-to-use, and profitable.
Many retail traders believe that profitable trading is possible only with automation. More than half of individual investors use automation to some degree with many institutional investors rely on automated trading in all their operations. WunderTrading spot grid trading bot is a powerful tool that can be used by all sorts of retail traders.
What is a grid trading bot?
One of the best approaches to reduce the average cost of asset acquisition is DCA. Distributed Cost Average is a system where you split a single purchase into multiple orders spread across a certain period to ensure that you are buying at a lower price in general. When used during a downtrend, you can often buy at a lower price than those who try to time the market and buy the low.
A grid bot takes advantage of this approach to place a series of buy orders and create a sell order for each new market position to ensure that you exit at a profit. If you make some adjustments to the preset and reduce the pause between order placements, you can create a high-frequency trading system that tries to make money quickly. On the other hand, increasing the gap between orders and position size is a valid approach if you plan to stay in control and leave some positions open for longer.
The spot market is excellent for both approaches. You can hold a position for an extended period of time by disabling sell orders and moving take profit limits up. In some scenarios, it is a great idea to do so. For example, Bitcoin grid trading is a great source of passive income since this asset enjoys massive liquidity and can be traded without any issues at any rate of order placement. At the same time, it can start going up rapidly and make you contemplate the idea of holding some position for much longer.
Here are some distinct aspects of a grid system:
t uses the DCA approach to place buy orders on the spot market.
It creates separate sell orders for each created market position.
Lines on the chart in the trading terminal start forming a visible net.
Many experts believe that a grid trading system is the best and safest approach for a retail trader to use if they are interested in using automation. Finding the right trading platforms with grid bots that can work for spot and margin trading accounts is not a challenge. However, you should pick providers that offer more than just grid bots to utilize all available trading tools including novel offerings like AI-assisted statistical arbitrage systems.
Which assets to trade with grid bots?
Picking a good target asset is quite important if you want to use grid bots for passive income. These robots will produce small profits consistently if assets they trade:
Have high liquidity;
Can be traded in large volumes;
Listed on centralized crypto exchanges.
The first factor is very straightforward. If you don’t have enough liquidity, some orders will be executed slowly or fail to meet counteroffers. When you launch a bot that creates multiple orders at once and also wants to liquidate them quickly under favorable circumstances, low liquidity may compromise the algorithm and cause financial losses.
If a token is not listed on many centralized exchanges, a retail trader working with them faces two risks. Firstly, it may not be available on their preferred CEX platform. Secondly, it may be a coin destined to fail with only a handful of centralized exchanges taking on the risk to list it.
Picking mainstream tokens seems like the best choice. Many retail traders prefer Ethereum grid trading instead of focusing on Bitcoin. ETH has a much lower price which often fluctuates strongly allowing traders to exit reliably and with a larger profit with appropriate bot settings.
However, altcoin grid trading in general is a lightly different game. You should not focus on tokens that may be compromised in the future or do not have enough strong price action movements. Tokens like Ripple (XRP), Cardano (ADA), Litecoin (LTC), and Monero (XMR) are all good target assets for a grid trading system.
Limiting risks and achieving consistency
If you want to build a source of passive income out of automated cryptocurrency trading, you need to focus on two things: avoiding losses and reliably making profit. Grid bots can do both perfectly well if you use common sense and utilize basic risk management techniques.
Here are some tips that will help you achieve consistent profitability:
Do not underestimate the importance of delayed orders. Some retail traders do not think that setting up stop loss and take profit limits is critical for the long-term success of their automated trading systems. Nothing can be further from the truth. SL/TP orders help you mitigate potential losses and determine profitability goals to create a balanced grid trading system.
Use position sizing wisely. Limiting your bots’ ability to place large orders is quite important. Remember that grid systems are based on splitting large positions into multiple smaller ones. If you don’t have to pay high commissions to CEX platforms, adjusting bot settings to make it place more small orders is a good approach. You should also never allow automated trading systems to use all available assets.
Test your bots before launching. If you have a technical analysis strategy to trigger bots instead of launching them manually, you should use the Strategy Tester at TradingView to check how it would have performed against the market history. WunderTrading (https://wundertrading.com/en) has a great feature called “backtesting”. Use it to test your bot settings before using them in real market conditions.
Never forget that your main priority when creating a source of passive income is to achieve consistent profitability even if returns seem small. Avoiding risks and ensuring that you always come out on top is much more important than trying to secure a huge profit in a handful of trades.
