How to use grid trading for cryptocurrency trading
Cryptocurrencies have a reputation for being high-risk investments. This is due to their inherent volatility. In this case, when dealing with such assets, it is necessary to turn their peculiarity to your advantage – and grid trading helps. This strategy involves placing orders at different levels from the reference price. They can appear below or above the display. This approach is also known as grid trading. The main idea is to actively buy at the minimum price and sell at the maximum price.
Features of grid trading
When using grid trade, sell orders will be higher than the asset price and buy orders will be lower. When the cost of the asset is at the planned point in advance, the order is executed. This creates a series of orders that look like a grid. The more orders there are, the more likely you will profit on both your buy and sell orders.
It is important to mark the minimum and maximum price extremes when using Grid Trading. If the value of the cryptocurrency exceeds these limits, the orders will not be executed. The trader makes a profit because the average selling price is higher than the average buying price. This strategy works best when the movement of the cryptocurrency value is limited to a narrow corridor over a long period of time.
In order to use grid trading, it is necessary to:
– select the pair to trade and the time period to trade;
– set the maximum and minimum price and mark take-profit and stop-loss levels;
– place orders and monitor price dynamics;
– periodically adjust the order grid to reflect current market conditions.
The cryptocurrency market is in constant motion, so a trader cannot always react to its changes in a timely manner. To increase efficiency, trading bots analyse the current situation and automate several operations. When the asset reaches a certain price level, the bot automatically creates and places an order. It also executes the sale.
Advantages of grid trade
Grid trading is a profitable strategy for the volatile cryptocurrency market, but it is essential to be able to assess the risks and monitor fluctuations carefully. At the same time, grid trading is easy to use because only the price matters. It is also possible to set both one and many price levels.
Although the strategy is considered universal and suitable for trend or sideways ranges, it is vital to analyse the dynamics regularly, as the market can change direction quickly.
Grid trading is becoming increasingly popular, especially with automated systems. Bots take over some of the processes and reduce the risks, allowing the trader to become more familiar with the market’s peculiarities without incurring significant losses.