Volatility is an inherent property of the cryptocurrency market — such market swings can present an earning opportunity to the opportunistic investor, both bulls and bears. However, sitting in front of the screen to capture price fluctuations can be as much of a tedious chore as it is a heart-wrenching affair to watch the trade go against your prediction, invoking the emotional turmoil with which investors have become all too familiar, and which clouds judgements.
Take a look at the following chart which shows the price movement of Bitcoin for the past 1 day.
As you can see from the price chart of Bitcoin above — after an initial period of consolidation, Bitcoin made a rather quick move to break above the support level of $27,500 to reach the $30k mark, only to come down crashing to the that very same level from which it began the uptrend, in just a short period of time! Imagine having opened a long trade at the $30k mark, or having closed at a loss your short position at $30k!
Zooming out, we can see that the markets fluctuate reasonably well within a range, and that which can actually be used to our advantage!
Trading Bots As A Way To DCA Into Crypto ![]()
The price fluctuations in the cryptocurrency market present a conducive earning environment for grid trading bots, which in essence automate the tedious process of buying low and selling high, generating “grid profits” in the process, which add to the value of the cryptocurrency purchased. Simply put, if you believe in the long-term value of cryptocurrencies, there is no reason not to invest in a grid trading bot as an alternative and smarter way to DCA into crypto, rather than buying it off in one go!
The Concept of A Grid Trading Bot
Ofthe many types of trading bots, the grid trading bot remains as one of my favourite type, despite its simplicity. Essentially, a grid trading bot creates, within a predefined price range, multiple operational grids at which it sells (when prices hike) or buys (when prices dump), generating money in the form of “grid profits” in addition to unrealized gains/ losses from the prevailing value of the asset purchased.
To illustrate this concept, here is an example of a short-term grid trading bot which I have set up on Binance.
From the example above, I have invested a total of $298 into this bot, which has 26 grids operating within the predefined price range of $26000 to $31000. The size of each grid is $192, derived from (31000–26000)/26. In other words, each time the price of Bitcoin increases or decreases by $192, a trade would be executed in accordance to the grids placed.
The grid profit ($3.89) is generated by having bought Bitcoin low and selling it high. The floating profit ($4.85) is derived from the appreciation of the value of Bitcoin since the inception of the bot 6 days ago. This, along with the grid profits, gives the total profit ($8.74).
If you believe in the long term value of cryptocurrencies, the grid trading bot is a good way to DCA into the crypto market instead of buying your assets all in one go, as it averages out the prices at which assets are purchased or sold. Every time price fluctuates in either direction, a potential for earning is generated — if price dumps, more Bitcoin is purchased for the next rally; if price rises, more Bitcoin is sold into stablecoins for the next dump; and rinse and repeat. In the example of my short-term grid trading bot shown above, if the price of Bitcoin dips below the lower limit of $26000, I will end up with an entire stash of Bitcoin which has been purchased as the market dips, and which I am happy to HODL until the next bull run. If the price of Bitcoin soars above my upper limit of $31000, I will then end up with an entire stash of stablecoins which represents earnings from grid profits and from having sold Bitcoin at a high price! Either way, no matter the direction of the market, the grid trading bot can be a good investing aid.
How To Configure?
While various grid trading bots on different platforms may differ in their presentation, the underlying concept remains the same:
- Upper and lower limits define the limits within which the bot operates. These can be any arbitrary price level, or more preferably a support/ resistance level. The wider the range of these limits, the longer the span of time over which the bot can be expected to operate (as it allows for a greater degree of price fluctuation before the limit is breached), however the amount of investment required and grid size also increases. For a short-term bot, a narrower limit is desirable to capture more price fluctuations; while a longer-term bot may require a wider range of upper and lower limits to ensure its sustainability.
- Number of grids: The number of grids which will trigger a buy/ sell trade within the predefined price range set above. The more the number of grids, the more price fluctuations can be captured, but the more costs incurred in the form of trading fees. (Upper limit — lower limit)/number of grids, gives the size of each individual grid.
- Investment: The minimum amount of capital required for the trading bot depends on the above settings.
Why Binance? Binance recently offered BTC/TUSD as a zero fee trading pair, until further notice. It is worth noting that the smaller the size of the grid, the more profits can be captured from price fluctuations; however, trading fees can come into the picture to quickly negate such profits. Hence, by availing a zero-fee trading pair, these fees can be obviated, allowing for frequent, small trades to become profitable.
My Experience
As shown above, my short-term grid trading bot has captured quite a remarkable amount of grid profits from the price fluctuations in the volatile cryptocurrency market these few days.
My other longer-term grid trading bot (shown below) has also been doing rather well. This bot will be expected to operate over a longer period of time, as it covers a wider price range, but will not be able to capture as much price fluctuations compared to my earlier shorter-term bot, due to the larger size of each grid.
I also run a higher-risk DCA trading bot on 3Commas that helped me secure a quick $5.5 profit from a capital of $100 on a 10x leverage, from a single trade that took advantage of yesterday’s price fluctuation.
Disclaimer: Due to the high risk of cryptocurrencies, only invest money that you are comfortable losing! As you can see from above, my trades are typically rather small in size; you can earn more with a higher capital, but the risks involved would be higher accordingly — always diligently do your own research before undertaking any trades!
That’s not all!
There is a vast variety of trading bots in the market that cater to various preferences and risk tolerances; my favourites of which include 3Commas, Pionex, Jet-bot and those built into exchanges such as Binance, Kucoin, Huobi & MEXC — some of have been highlighted in my earlier article here.
Final Thoughts
Whether used for scalping or DCA-ing into the cryptocurrency market, trading bots have found much utility in the field of cryptocurrencies beyond automating an otherwise tedious process of trading. Then again, it is important to bear in mind that the profitability and viability of any trading bot heavily depends on its configuration — the setting of which is perhaps another art to learn. What are your thoughts on this? Feel free to leave your comments below. Happy trading!
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