How to Make Passive Income by Grid Trading with Crypto Bots

Can automated robots with simple instructions help you earn passive income while you sleep?

Jun 27, 2021

A few weeks back, I dove into Grid Bot Trading for the first time. I used a few different platforms: KuCoin and Pionex. Grid Trading continuously allows you to buy low and sell high while you sleep, work, or spend time with your friends and family. Its a neutral strategy that works best for high volatility crypto pairs in a consolidating or mild bull market.

We did a podcast on this topic on 5/16/21

Getting Started

Download KuCoin or Pionex apps and setup a free account. No KYC required for these at this time. KuCoin bots are mobile only, while Pionex lets you also manage your grid bots in a browser.
No need to use a credit card to buy new crypto. You will get new wallets for any coin you wish to use as your base currency. Fund your wallet with LTC, BTC, or ETH using another platform such as Coinbase. (I like first converting to LTC and sending because the fees to move the crypto are really cheap and fast, don’t get me started on ETH gas fees!)
Determine how much money you want to invest. I am starting with about 100$ per crypto pair, running about 3–4 bots at time. Some pairs have minimum investments so you’ll need to take that into consideration if you chose a popular pair with high volatility BTC. (Pionex had higher minimums so I did most of my bot Basic Grid Trading with KuCoin).
Choose a high volatility trading pair, KuCoin lets you sort by volatility when you’re setting up the bot. BTC/USDT, DOGE/USDT, or some of the new alts are interesting places to start. You can also “copy” other people’s bots, but don’t pay attention to the APR returns…they only apply if you were to leave the bot running for 1 year, and you entered at the exact same time the creator did.
Determine the duration you expect to stay in the trade. I’ve gotten lucky a few times and was able to exit trades for over 10$ in profit after a few hours, but in general, I’m trying to stay in my trades for about 1 week.
Determine the max and min thresholds you expect to see during the duration of the trade. Both bots offer “AI” to help you, and consider your expected tome frame. You can override the AI.
Determine how many grids you feel are appropriate for your trade. (More grids do not equal more money). Each Grid will bring you a pre-determined amount of profit. I usually shoot for 1% so each arbitrage (a buy then a corresponding sell) will earn me a few cents. The wider the grid the fewer arbitrages, but each arbitrage will be higher in value. The narrower the grids the more arbitrages, but each arbitrage will be smaller in value.
Optional — Consider setting a stop loss. You can always stop the trade and take your profits or losses at any time, but if you’re not comfortable with the idea that your PNL is negative for a while, set one up. You will only see a totalprofit above 0$ if the crypto is above your entry point and you’ve had a few arbitrages.

How does Grid Trading Work?

Arbitrage. The best visual example I could find online was from valuetrades.com. Looking at the image below, you can see that the bot will buy at (green) Level 1, then sell at (green) Level 2. At the same time it buys at Level 2, and sells when it hits Level 3. This is all done in ahead of time by setting up a bunch of orders to execute in advance before the bot hits those levels. The advantage of this type of trading is that an uptrend will probably pull back again and you’ll be able to profit again at the same levels when it follows the same path upward again. The other advantage is that it takes all of the human guesswork out of the trade.

In the pic below we have a hypothetical range between 2.10 and 2.16 that is set before the trading is ever started. You can use ATR (Average True Range) or Bollinger Bands to help you identify the high and low thresholds for the trade. This ensures trading is only happening when the bot is in this range.

There are 2 types of profits you’ll see in my examples below, grid profit, and floating PNL. Grid profit is the money you made on the rise from one level to the next. For example, if you bought at 2.14, and sold at 2.15, your grid profit is .01. Your floating PNL is the profit or loss you have that is from your first entry point. If you have a large drawdown, your floating P&L will be negative, and subtracted from any grid profit you made. The idea here is to wait it out, and let the underlying return to a level your comfortable closing out the trade. Hopefully over time, even if the crypto you choose is below your entry point, the grid profits can make up for a potentially negative PNL.

In the image below from KuCoin you will see an ideal underlying (the purple like) that oscillates up and down as time goes on, this is the type of crypto that works best for this strategy.

If you think the crypto will skyrocket, then just buy the underlying as you’ll make more from a parabolic rise if you own 100% of the crypto rather than purchasing small bits at various levels (you’re also taking on more risk if it falls).

If you think you have identified reasonable levels for the next few days/week/months, pick a high and low, set your grid spacing metric, then let probability play out! Good luck and let us know how you’re doing!

Other Resources —