I. What is Grid Trading?
Grid trading is a trading strategy by which users can automatically buy low and sell high in a specific price range through an automated program. In the volatile digital asset market, the use of grid trading can help to avoid erroneous trading decisions caused by human factors. Grid trading robots will assist users in executing a user-defined buy low-sell high transaction strategy without any emotional or psychological pressure.
II. Application Scenarios
With its core of “buy low and sell high”, Grid Trading is considered to be most effective in a sideways market. Please be aware that sustained rises and falls in asset prices will increase the probability of asset losses to grid trading users.
III. How to start grid trading?
Operation Procedures for Huobi Global web desktop interface:
- At the Spot Trading interface, click ‘Grid Trading’ to enter the Grid Trading page.
- Set the parameters on the right side, and click ‘Continue.’
- The invested digital assets will be automatically transferred to the “Quant” account after the strategy is created. When grid trading program stops, the invested assets plus generated profits (or less net losses) will be automatically transferred to the “exchange” account. However, users will not be able to withdrawal those profits during operation.
- The system will buy a certain amount of digital assets in accordance with parameters set by the user, and will open the corresponding buy & sell orders in each grid.
- The opened order will be executed once a pre-set price point is reached. (Please note: fees will then be charged based on the spot fee rate. For more discounts, please click here to get point cards.) The sell order will be opened in the nearest grid above upon the completion of the buy order; the buy order will be opened in the nearest grid below. One grid, one order.)
- All base digital assets will be sold and exchanged into quote assets like USDT and HUSD when users manually terminate grid operation or the market price rises above Stop_upper_limit or falls below Stop_lower_limit.
Order Opening Mode
1. Manual: User-defined
Users are allowed to manually set the grid parameters, such as the upper/lower limit, grid number, invested digital assets, and so on.
2. Auto: Intelligent Recommendation
The system will set the most appropriate parameters based on the analysis of historical data, in which users only need to set the investment amount.
Please note: Data such as the backtested 7D annual yield and profit margin per grid are generated from backtesting with historical data, and are no guarantee or representation of future profits.
Glossary:
- The upper limit: The highest price of the grid. No orders will be placed if prices rise above the upper limit. (The upper limit should be higher than the lower limit);
- The lower limit: The lowest price of the grid. No orders will be placed if prices fall under the lower limit. (The lower limit should be lower than the upper limit);
- The grid number: Split your price range into multiple smaller ranges (Grids). An order will be executed when prices move to a price point.
- Investment: The amount of digital assets that users invest in Grid Trading.
- Take-Profit Price: The grid will stop working when prices increase to a certain level. The base assets purchased through Grid Trading will be sold and exchanged into quote assets like USDT and HUSD, which will be transferred to the exchange account. (The take-profit price should be higher than the upper limit.)
- Stop-Loss Price: The grid will stop working when prices fall to a certain level. The base assets purchased through Grid Trading will be sold and exchanged into quote assets like USDT and HUSD, which will be transferred to the exchange account. (The stop-loss price should be lower than the lower limit.
- Profit margin per grid (%): The profits made in each grid will be calculated on the basis of backtesting after the setting of parameters. (The highest price – the second-highest price – (The highest price + the second-highest price)*fees of spot trading/the second-highest price
- Backtested 7D Annualized Yield: The expected APY based on parameters set by users. Backtested 7-day annualized yield= historical 7D yield/7*365
Take BTC/USDT as an example:
Parameters:
- The upper limit: 21,500 USDT;
- The lower limit: 19,500 USDT;
- The grid number: 11;
- The investment: 10,000 USDT
- The current BTC price: 20,000 USDT
As the figure shows, positions will be opened at the current price after the creation of strategy, meanwhile buy & sell orders will be opened in all grids. (A sell order should be set at a price higher than the current market price, and a buy order should be set at a price lower than the current market price.)
A buy order will be executed when prices slide to 19,700 USDT, and in the meanwhile, a sell order will be opened at a price of 19,900 USDT; If prices regain 19,700 USDT after a pullback, a sell order will be executed when and in the meanwhile a buy order will be opened at a price of 19,500 USDT.
The grid trading will stop working when prices exceed 21,500 USDT or break below 19,500 USDT. We sincerely recommend you set “stop loss” to prevent asset losses caused by unilateral fall in prices.
IV. Risk Reminder and Notes:
- If the price falls below the lowest price in the range, the system will not continue to place the order. When the price returns above the lowest price in the range, the system will continue to place the order. If the user sets a stop-loss price. And when the stop-loss price is triggered, the grid strategy ends.
- If the price exceeds the highest price in the set range, the system will not continue to place the order. When the price falls below the highest price in the range, the system will continue to place the order. If the user sets the take-profit price, and the take-profit price is triggered, the grid strategy ends. However, due to strategic reasons, you will be in a short position in a rising market and miss trading opportunities.
- The capital use efficiency is low. Because the grid strategy will place an order based on the price range and grid quantity set by the user, if the grid quantity set by the user is extremely low and the price fluctuates between the two points set by the user, the system will not perform any automatic orders.
If the asset encounters unpredictable circumstances such as suspension or delisting during the operation of a grid trading algorithm, the grid trading algorithm will be automatically suspended.
V. Advanced concepts for Grid Trading
According to the recent feedback from users, some advanced concepts are listed here for your reference. Please note that the following resources do not constitute any suggestions.
- What digital assets to choose for grid trading?
Major digital assets are the preferred choice. The major digital assets usually have more trading volume and better liquidity, so you will not miss trading opportunities.
Digital assets with higher volatility. Choose an asset with a relatively long-lasting fluctuation in the near future for grid trading.
*If you are new to Grid Trading, it is recommended that you choose major assets such as BTC/USDT and ETH/USDT. If you are an experienced user, you can try to find highly volatile digital assets for grid transactions.
- What price range should be set?
In order to maximize the profit of your grid, how to make your “net” catch more fish should be at the core of the strategy. This depends on the price range set by the user, so how to determine a reasonable price range is an important consideration.
Taking day trading as an example, we can determine the price range by using “The upper limits = daily resistance level, the lower limits = daily support level”. This is a relatively simple way to determine the price range.
- How to set the grid density?
Grid density is the size of each grid, and the higher the grid density, the lower the profit per grid, the more frequently you trade, and the higher the commission cost. The lower the grid density, the higher the profit per grid, the lower your transaction frequency, and the lower the fee cost. Therefore, reasonable grid density is also very important.
How to determine a reasonable grid density? The Average True Range (ATR) of fluctuations can be followed, which is a reflection of the price fluctuation range of digital assets. The ATR can be viewed as shown in the figure below:
When your grid spread is less than the ATR, your grid strategy has a higher transaction probability and a higher return rate.
* Grid spread= highest price -lowest price/number of grids
However, it is important to note that the denser the grid, the higher the payoff.
To sum up, when using grid trading, a more reasonable price range can be measured through Candlestick charts, and a more reasonable number of grids can be determined by the ratio between the highest and lowest prices of the range and ATR, so as to improve the benefits of any grid trading strategy.
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