You might have heard about it before, a trading bot that automatically generates profit and provides a way of earning passive income. But how do you actually make money with trading bots and in this case a “grid bot”, and how does such a bot work.
In this guide we will give an in depth guide on how a Classic Grid Bot works and how to make money with a trading bot.
In this guide we will be using the KuCoin exchange for they have a build in Grid Trading bot. Sign-Up using our sign-Up link so you can follow along and set-up your own bot: Sign up to KuCoin.
So lets get started
A cryptocurrency trading bot is a piece of software that automatically trades on exchanges. The main premise of the bot is to buy low and sell high in order to make profit in a highly volatile market. The bot automatically sets a number of buy and sell orders and as the price fluctuates the order will get executed resulting in a profit.
Arbitrage means buying and selling a security with a temporary price difference in order to make profit. So when there is an opportunity to buy low and sell high you complete a successful arbitrage and make a profit.
Volatility is explained as the rate at which the price of a security or crypto asset changes in a certain period of time. A high volatility indicates that there is rapid price movement in a short time span. A highly volatile market is therefore the perfect opportunity to make high profits for a bot. So the crypto market is perfect!
Even though the trading bot is automated, before you can turn the bot on you need to configure some parameters. It is important to use the right parameters to insure a high profit, we will elaborate on that later. First let’s go through all the parameters and divine what they mean.
A trading pair is a pair of currencies and in our case cryptocurrencies that can be traded between each other. We need to assign the right pair in order for the bot to be profitable, usdt and btc are often used in combination with the chosen currency.
Usdt because of the high trading volume and btc because many traders have the main objective of obtaining more btc. On top of that you will earn on booth your chosen altcoins price increase and btc its price increase.
The price range indicates the range of price in which the bot will be placing orders, if the price of the coin goes above or below this price the bot will stop selling and buying until it moves back into the given range.
You should always aim for a narrow price range; If the range is too big your investment will not be effectively utilized and if the range is too small the smallest price fluctuation can drive the bot to leave the range.
The number of placed orders indicates the amount of orders placed in the price range you have set up.
More orders means lower percentage gains per arbitrage (filled orders) but a lot of orders will be made and a low amount of orders means less orders are placed but every filled orders will result in higher gains. We will later elaborate on how you can find the equilibrium.
This indicates the price range between trades the bot will execute. This will be automatically calculated with the combination of price range and number of placed orders. If the price range is for example 0.2 usdt this means that every time the price goes up or down and order is executed.
This is the amount of profit the bot makes for every successful arbitrage
Trading bots are a great opportunity but just like normal trading, if you do it wrong you will lose money. If you do not know what you are doing, using non volatile or barish coins with random parameters will often result in losing money.
So how do you pick the right coins and find the right parameters?
(Stay tuned for a little secret on getting the perfect parameters for your trading bot at the end of this article)
First of you need to find a good trading pair, this might be the most important step in the process. The perfect coin would be an altcoin with high volatility in a slow upwards trend.
Identifying profitable coins for a crypto trading bot can be done in numerous ways;
Analysing market trends and important factors like announcements, updates, media exposure, utility accomplishments, partnerships, competition and other market developments that influence the coin you are researching.
Technical analysis is the process of reading candle charts, this is more advanced for beginning users and should always be combined with fundamental analysis. The most important indicators are resistance and support which shows what price bottom is supported by buying power and what price top is resisting due to people taking profit (selling their assets).
Next up we have a price range. To determine the right price range we should have a look at the candle charts. We will use the 4 hour and 8 hour charts to see price movement of the past 48 – 72 hours. Like we mentioned earlier, it’s important to pay attention to the bottom price (support) and peek price (resistance) over the past couple of days and sometimes even weeks.
If you chose a coin that is slowly moving to the upside you should analyse the charts and find the resistance and support. The price range also depends on how long you want to run the bot. Remer, the smaller the range the more trades the bot can make.
In this example we see the ADA/USDT pair with 4 hour candles. As you can see, ADA has been bouncing off the 1.15$/1.16$ support level for a couple of days and has been making big moves to the upside. In addition there has also been a lot of media attention, positive narrative around the coin and a lot of good news which indicates a bullish scenario, or in short; the coin is likely to pump. From other analyses we can indicate that the highest price it could reach in the upcoming weeks is 2$.
So if we combine this info we could set a price range of 1.16$ – 2$ and let the bot run for a view weeks. This is likely to be extremely profitable and takes away a lot of stress and time.
The numbers of placed orders we will use depends on the volatility of the asset. If the coin is very volatile you can set a smaller number and vice versa. In our example there is a medium amount of price movement so we should set the amount of orders a little more to the higher side(e.g. 50).
This depends on what the goal is for the bot, if you are using a bigger price range it’s often wise to let it run for longer and close it when you are above your entry price. For short term bot with a smaller range it’s wise to close the bot once it runs out of the given price range.
Here are some situations in which you should consider closing the bot;
There are a couple things to pay attention to. Firstly, the coin has to dip in order for it to make money. Secondly, the “Total Profits” are not always the most important indicator. If you are trading a coin that’ll surely rise in the future, then you should look at the Grid profit. Grid profits shows you the realized profit compared to your initial investment. Total profit displays the current value of your investment and grid profit put together.
As we mentioned there are some tricks to make get the best possible trading bot parameters. There are services out there that provide daily bot parameters so you can run profitable bots without the hassle of finding the perfect pairs. Currently one of the view services doing this is SignalSupreme, the parameters we tested have all been very profitable with up to 150% returns over the course of a week. Of course always be careful and do your own research before investing.
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