Exploring Grid Trading
There are many trading options for crypto, and one which seems alien to traders is grid trading. Traders are familiar with futures, spot, peer-to-peer, but grid trading, not so much, especially newbies.
So what is this grid trading? What exactly does the option do, and how do you use it? There must be so many questions running through your mind, and we have the answers. This guide is all you need for grid trading and we use Binance Futures as an example platform. Read on and enjoy.
What is Grid Trading?
Let's start from the very beginning; what is grid trading? Grid trading is a strategy where you create a simple price grid. So what do we mean by price grid, and how does it work? It means you place a buy stop at a specific price, then when the price reaches and passes the level, you sell off the position.
The same goes for the opposite case; placing a sell stop at a specific price, you buy back the position when the price drops below the level.
It looks easy on the surface, but there is more to it, just like many other strategies. These price levels where you set your stop orders are not ordinary. You can't randomly set stop orders in the market, hoping to make profits. While it may work in some cases, it is not profitable in the long run. That is why you must learn it the proper way.
You need to know how grid trading truly works and how you can use it for Binance futures.
How Does Grid Trading Work?
Grid trading is not about setting only one position; you set numerous positions. The first thing is to note your reference price. Do you want to buy or sell? Are you speculating whether the market will go up or down?
Let's assume you speculate an upward movement to happen very soon, and you have a reference price in mind as a minimum it will attain. So you set multiple buy orders above the present price levels. Your orders should not be at the same price but at different levels. Grid traders normally use even levels.
You also set a sell order to pair it and at multiple levels above for each order. So, it looks like a grid of long and short orders.
You also need to set other parameters like position size, stop losses, and others to make the system as automated as possible. Most importantly, your grid must have a highest price and lowest price, which mostly depends on how volatile the pair was in the past.
Basically, you have a full grid with several pending orders, stop loss, and take profit positions. The grids should preferably be on even levels and should not be too close to each other so that it isn’t too dense.
Your position size is also important, and make sure you factor it in to ensure that your profits cover transaction fees.
What are the Benefits of Grid Trading on Binance Futures?
Now you know what grid trading is and how it works; you may be wondering, why are we relating this strategy to Binance futures? What exactly is so special about Binance? What is in it for me, and why should I do my grid trading on Binance futures?
There are so many reasons, and we would justify our recommendations. Below are the benefits of grid trading on Binance futures.
Binance Automates the System
While you have seen how grid trading works now, it may still seem overwhelming. How do you keep up with such consecutive orders? How do you manage everything? Well, the answer is Binance.
The platform works with predefined models to help you set your grids. You don't need to set your multiple orders one by one. You could use either the arithmetic or geometric model on the platform. The arithmetic model creates grids with the same price difference, while the geometric model uses a price ratio.
This automated system works well if futures are within a price pocket. That way, you can see the true effect of grid trading.
Binance has one of the Lowest Trading Fees
If you regularly trade futures, you will know about the transaction fees. Platforms charge a certain percentage as trading fees to get profits from your trades. These fees could be significantly much on other platforms, however, Binance has some of the lowest you will find around.
Trading fees are important because you need to factor them into your calculations. If you don't plan your grid trading well, the fees may exceed your profits, which you don't want. Binance makes you think very little of trading fees.
Binance Grid Trading Bot Allows you to use Leverage
We all know the importance of leverage in futures. With leverage, you have high risk but higher returns too. The bot allows you to leverage, even in arbitrage. This underestimated feature is what many traders need, and this platform provides it on a platter of gold.
Binance has a Functional Referral Program
Have you ever heard of exchanges with referral programs? Well, if you haven't, then you will have now. Binance offers a functional and very competitive referral program for all traders. You get up to a 20% commission rebate at the entry-level, which is huge. It doesn't stop there; you could increase this percentage to 30%, depending on the volume of BNB you are holding. This referral program is functional, and it allows you to earn even off the charts.
Why Crypto Beginners need to try Grid Trading
So what is so special about this grid trading? Why do we highly recommend it for beginners? We understand that new crypto traders especially have difficulties forecasting the direction of cryptos, whether by technical or fundamental analysis.
The interesting thing about grid trading is that you don't need to know the next direction of your cryptos to use the system. Lesser market movements facilitate the effectiveness of this strategy because you capitalize on small price movements. So, you want a price range.
Grid trading is the answer if you are looking for a way to trade even in ranging markets. You need a very basic understanding of market movement, good risk management, and leverage, and you are good to go. We emphasize risk management because it will come in handy if you are ever on the wrong side of the market.
If you use higher leverage with your trades, you may want to use a rather conservative stop loss and profit.
How Novice Traders can use Auto Parameters in Grid Trading
Binance can significantly ease the process for you with its auto parameter function. You could supposedly create a grid trading strategy with 'just one click.' You can customize your grid trading parameters to have a pre-set range. So, how does it work? How can you use it as a novice trader?
First, locate the strategy trading tab; It should be on the top left panel of the interface of the future.
Immediately hover above strategy trading; you will find an option 一 Futures Grid.
On the new tab by your right-hand side, you will find the tab auto mode; click on it and find spaces to input your desired parameters.
Set up every requested parameter, including your initial margin, which is important for any grid trading strategy.
When satisfied, hit the create button and confirm your grid to see the automation in full effect.
It is easy to use the Binance auto parameters for your grid trading strategy with those few steps. The grid mode is set to Arithmetic by default, and the direction is neutral. If you prefer otherwise, you should change it before confirming your order.
The only catch to using the auto parameter function is that you must have enough trading history on such crypto assets. If you don't meet this requirement, you could simply hit the 'Copy parameters to Manual settings' button and do a few tweaks to get your strategy moving.
Why Experienced Crypto Traders need to use Grid Trading
Experienced crypto traders are not out of the equation either. Grid trading is an amazing strategy to adopt for so many reasons. Let’s consider why experienced traders should employ this strategy in their system.
Grid Trading Gives you Less Screen Time
Grid trading is not a screen time-intensive strategy. Experienced traders are well known for staying with the screen to set and monitor their parameters. It is quite tiring, but you can significantly reduce your screen time with grid trading.
All you need to do is to utilize the Binance auto parameter feature. You set up your grid when you see a crypto asset that validates the strategy. Since you know the hang of things already, it should only take a few minutes. Once you are done, Binance does the rest for you so you can walk away from your screen.
Occasionally, you only need to check back to see if the market has taken a different turn. If the market is going in an unfavourable direction or your equity changes, you may need to reconfigure your grid system. Asides from that, everything else is hands-free.
Grid Trading Gives You Good Risk Control
If there is something about experienced crypto traders, they love good risk control. Their years of experience set them apart from the hungry newbies who have very little consideration for risk.
If you are highly considerate of risk, then grid trading offers what you love. The system demands that you calculate your risk, margins, and other forms of exposure before you execute any trades. This simple move removes the possibility of the occasional indiscipline and nonchalance to risk management that experienced traders occasionally face.
The system relies heavily on pre-calculated parameters to thrive. If the trade is not worth it, you will know beforehand.
You Don’t Have to be Right About the Direction to Profit
Being right about direction is the essence of trading in the first place. It dictates whether you profit or lose, and how far it moves in your favour determines how much you profit.
With grid trading, you could profit from the markets even when the market goes against you. Sounds too good to be true, isn't it? How is that possible?
We all know that the market doesn't move up or down in a straight line. If the market is going to move up, there will be little retracements downwards. If it is going to drop, there will be little upward retracements. Those are the basic market movements, except for a few exceptions.
Grid trading strategy capitalises on small market movements, and with the help of leverage, the small movements generate big profits.
If you set up a short grid, and the market moves more to the upside, ideally, it should be a loss with other strategies. However, the little retracements with grid trading could trigger your orders and still net you some profit.
Grid Trading is not Analysis Intensive
A grid trading system is not analysis intensive; it demands very little from you. Unlike many other strategies, you don't need to employ excessive tools like indicators or any other analysis method.
Since you don’t exactly need to be right about the direction all the time, you don’t need to put in a lot in terms of analysis. Simply set up your grid and watch price do its thing.
Grid Trading Favours All Types of Traders
Irrespective of your trading personality, grid trading favours you. The system is not reliant on timeframes. Since price is fractal, you can apply this strategy whether you are on the five-minute or four-hour timeframe.
It is not dependent on any open, high, low, or close, so you can employ it whether you trade long or short term.
If you prefer to execute trades frequently, or only a few, the system works for you. All you need to do is adjust the grid spacing. If you don't want frequent trade execution, you can space the grid a little more. If you prefer more action and execution, fine-tune the spacing to suit your taste. The system works for all trading personalities.
How to Set Up a Custom Grid Trading Strategy
Now you know what the strategy entails, and you have an idea of how to use it and how do you implement it. Many traders struggle with implementing a proper system, so they think the strategy is bad.
Let us give you an overview of how you can set up your custom grid trading strategy.
Long or Short Term Trades?
Are you a long-term or short-term trader? Which one do you prefer? If you prefer the short term, then you should stick with lower time frames like the five minutes chart. If you prefer the long term, then you may go as high as the one or four-hour chart.
Short-term traders work with lower grid intervals like 5-10 pip or tick movement. Long-term traders go with the higher grid intervals like 15-20 pip or tick movement.
For short-term traders on lower time frames, it is best to work earlier in the day when the market is in a bit of range. The early hours of the day see more ranging movement because of the inactivity in the markets.
So you simply set your buy parameters slightly above the current price or sell stops below. Stop loss and take profit levels should also be conservative. Once some orders are hitting your take profits, you should break even on the immediate ones to be risk-free. If stop loss hits, close some of your pending orders and wait for possible price retracements to gain your equity.
For long-term traders, you need to first identify your grid intervals. Depending on your preference, you could use 10, 15, or 20. Identify your starting grid with your preferred direction to set your parameters.
It is best to use a trailing stop in this second case since your traders are longer. So after the price may have gone about two steps in the grid, you should break even. And as the price continues to move, breakeven on more positions and trail on the earlier ones.
Short-term traders should have conservative take-profit levels, so exiting trades is easier. However, long-term traders must rely a bit more on market momentum. You also must identify potential reversal points for your take-profit levels. Once the price shows no more signs of moving in your direction, you should take your profits.
We outlined a simple grid trading strategy for both long and short-term traders. You may need to practice on a demo account for a while to get a full grasp. When you fully understand it, you should consider automating the whole process with the Binance auto parameter feature.
There should no longer be any doubt that grid trading is one of the best strategies you can employ in futures. If you want to enjoy the strategy, you should use the exchange platform, Binance. It contains the tools you need for a perfect grid trading system. Join Binance today and get the most automated grid trading experience!
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