Going Through A Volatile Market? Don't panic! Grid Trading Gets You Through Bulls & Bears!

After FTX declared bankruptcy, risks continued to spread in the market. Recently, another victim, the cryptocurrency lender BlockFi, announced that it has filed for bankruptcy protection with its eight subsidiaries. After the news came out, the cryptocurrency market suffered another setback. In particular, Bitcoin fell nearly 3%, reversing the previous rally, Ethereum fell 5%, Dogecoin fell 9.2%, and some niche cryptocurrencies suffered from a strong decline.

1. Market Focus
In November 2022, the price of Bitcoin fell to the bottom after two years, and people worried that the collapse of the cryptocurrency platform FTX would impact the entire market. On November 21, the price of BTC briefly fell below $15,500 amid concerns over the future of Genesis Global Capital, a cryptocurrency lending firm with close financial ties to FTX. Then BTC recovered the amount of $1,000 within a few days. Yet by the end of last week, the asset stalled at around $16,500

On Monday, the price fell again before climbing to $16,500 and breaking $17,000 for the first time in the past two weeks. Recently, the price trend of Bitcoin can be said to be full of ups and downs, which is elusive. Bitcoin has fallen back to $16,959.93, down 0.70% in the past 24 hours. The global cryptocurrency market rose 1.96% to $852.85 billion in late November, boosted by the rise of cryptocurrency including Bitcoin (BTC) and Ethereum (ETH). Can Bitcoin lead the cryptocurrency market to continue to rise?
Everyone has their own opinions on this matter. While some investors are bullish about Bitcoin, ready to make a big profit. Some are hesitating, arguing that it's unlikely to recover significantly for some time. QCP Capital, the trading platform, said that the US consumer price index data on December 13 and the Federal Reserve's policy decision on December 14 could be risk factors as many investors could be "forced to continually sell assets to boost liquidity". QCP expects the situation to become better in the second or third quarter of next year only after the Fed changes their decisions and unleashes systemic liquidity.

In any case, it is certain that the crypto market, led by Bitcoin, has been beset with a lot of confusion and small twists and turns, which is more difficult to handle than a big bear market or a big bull market. The mood of many investors also rises and falls with the volatile market. Everyone differs from each other in investment mentality. Some investors just want to exist, while some want to do bottom fishing.
Many crypto enthusiasts have such an experience; the more volatile the market is, the more likely it is to make mistakes in the direction and investment strategy. They often sell prematurely when the market is falling, and buy prematurely when it is rising. Emotional investment is a big "killer" in trading. In addition, due to the rapid changes in the market, it is almost difficult for investors to grasp the exact timing of entry and exit.

Therefore, under the current market conditions, investors should not blindly predict and open/close positions based on their feelings. So how do you avoid emotional investment when the market is turbulent? How do you accurately capture the market, and maximize the benefits? In this article, we mention a very practical investment strategy for a volatile market - "grid trading".

2. Grid Trading - The Sharp Tool for A Volatile Market
What is Grid Trading? Grid trading can also be called fishnet trading, which is to divide the price of the investment portfolio like a fishing net, set the upper limit price and lower limit price of the grid, and then divide the entire grid into several sub-grids with different prices, on which each buying and selling price is marked. Then when the marked price reaches a certain line of the grid, the robot will automatically buy or sell for you. Let's make a metaphor. On this fishing net woven by time and price, traders are like fishermen, who set up fishing nets at different prices and wait to fish. Buy when the price falls, and sell when it rises. As long as the price fluctuates within a certain range, you can make money and will get a definite profit once you buy and sell.

The core of grid trading is volatility. By taking advantage of market fluctuations, you can buy low and sell high within the grid range, and earn profits through repeated cycles of price differences. Simply put, it is buying down and selling up. Therefore, grid trading is a sharp tool to help investors capture returns in a volatile market. The more volatile the market, the lower the cost of grid investment, thereby earning a higher price difference. As you can see, it's the perfect time to use grid trading in the recent crypto market.

Take the following picture as an example, suppose a user opens a BTC/USDT grid order, with the upper limit price set at 10,000 USDT, and the lower limit price set at 5,000 USDT. With the position opened at 7,500, 4 grid lines were set at the price of 6,000/7,000/8,000/9,000. When the BTC price changes to 7,000, 6,000, and 5,000, a buying order will be placed; when the BTC price changes to 9000 and 10000, a selling order will be placed. When the BTC price is above 10000 or falls below 5000, the strategy will be suspended, and will work again when the BTC price falls back into the grid price range.

In fact, grid trading tends to have higher yields compared to holding.For example, when the price of BTC rises to $8,000, the user terminates the transaction after selling, with the transaction fee rate being 0.1%. At this time,what he will gain from grid trading is:

Note: "a1" stands for the upper limit of the grid price, "a2" stands for the lower limit of the grid price, "n" stands for the number of grids.

According to the above formula of Grid Trading's ROI:
Minimum ROI = (10000-5000) / (5-1) / 10000-2x0.1% = 12.3%
Maximum ROI = (10000-5000) / (5-1) / 5000-2x0.1% = 24.8%

However, if grid trading is not used, the user will gain a ROI: (8000-7500)/7500 = 6.7%, which is far less than the profit brought by grid trading. It can be seen that there is a large space for profit by grid trading.

3. Practice of Grid trading
As a very professional and technical trading auxiliary tool, grid trading is not a universal product. Currently, due to it's strict requirements for exchanges, grid trading is only available on some Top exchanges like Gate.io, Binance, and Huobi. Entering Gate.io's leaderboard of Strategy Bot, we can find that most of the strategies with the highest income have used grid trading. Especially in the case of extremely volatile markets of recent days, the ROI of grid trading has risen significantly. According to the data, in the past 7 days, the annualized yield of spot grid has reached 45.73%, and the annualized yield of contract grid has reached 60.83%, both of which gain much higher returns than other strategies.

Grid trading must be in an extremely volatile environment where the price curve is in the shape of a V or W in order to make stable profits. Therefore, it is suitable for turbulent markets, but not suitable for investment portfolios with steady growth in annual interest rates. The figure below shows the actual performance of a certain spot grid strategy of Gate.io. In the past week, the crypto market was greatly fluctuating, nevertheless the yield of grid trading maintained an upward trend amidst fluctuations. It can be seen from the yield curve that during the period from November 29 to December 1, the ROI of this strategy skyrocketed exponentially.

7-Day ROI of recent Grid Trading Strategy

7-Day Price Trend of BTC

According to the K-line chart of BTC, from November 29 to December 1, its price trend showed a cliff-like inverted V shape, which is in line with the profit conditions of grid trading. Therefore, the spot grid in the above figure has achieved a surge in income during this period. Recently, the market has been in a similar turbulent mode, so the profit space and potential of grid trading are very considerable.

Gate.io grid trading is a humanized and personalized platform. For beginners, the "AI Smart Grid" mode is specially designed. The system will recommend the best parameters for grid trading settings based on the backtest income of the past 7 days, which is more suitable for those who are new to grid trading to do a short-term trial. Experienced investors can choose to manually configure the grid, which enables them to freely configure parameters according to their needs, with a higher degree of freedom in operation.

4. The Market Fluctuates, Grid Trading Offers A Solution
According to historical data, about 70% of the time, the cryptocurrency market is volatile, so it is difficult for investors to grasp the accurate market direction. That's why grid trading came into being. In fact, every trading strategy has a market environment that is more suitable for it, which means a certain strategy will be more effective when the market is operating in a certain way or is in a certain state. Investors must first establish a cognition that no strategy can always be profitable in any market state. As we all know, the market operation mode can be divided into uptrend, downtrend, and sideways oscillating trends. If it is a unilateral market, grid trading is of little significance. Instead, it will affect the overall efficiency of funds due to the reservation of too many funds, thereby reducing the rate of return. However, the market conditions at this stage are full of ups and downs, twists and turns, which provide a suitable place for grid trading to come into play.