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02.Grid Trading Strategy
When investing in stocks, investors usually seek to “buy low and sell high”.
There's a quantitative trading strategy that can "buy low and sell high" automatically in a volatile market.
We call it "Grid trading".
In this strategy, buy orders are placed at different “price grids” within a set price range. Once the share price hits any of the levels, the order will be executed automatically.
Let’s take a closer look.
Suppose you’re a grid trading bot. The first step is to set an initial price as a reference price. Then, you’ll place multiple “price grids” below the initial price at even levels.
When the share price hits a grid, a buy order is executed, buying in a specific number of the underlying asset. After filling the orders, if the stock price goes up and reaches a grid, a sell order is executed, selling out the same number of the underlying.
Let’s say the underlying asset is stock A. Suppose you start with 100 shares of stock A at $110 per share. Then, you’ll place a series of orders of 100 shares at the interval of $10.When the share price falls to $100, 100 shares will be bought in automatically. If the price continues to drop to $90, another 100 shares will be added. And if the stock rebounds by 3 price grids,100 shares will be sold at $100, $110, and $120, respectively, totaling a sale of 300 shares.
What is a favorable scenario for grid trading?
Is this strategy made for ranging markets or trending markets?
We believe the strategy has better potential in a volatile market because grid trading allows you to add positions gradually,
which brings down the average cost of a falling stock, even if you don’t buy at the bottom.
However, grid trading is not without its problems, especially in trending markets.
For example, this strategy may cause investors considerable losses in a downtrend. So remember to set the Stop Loss price and disable leverage in an attempt to limit a potential loss.
Another issue is that profits can be limited if the stock price rallies, triggering selling orders at different levels.
How to construct your grid trading strategy?
It’s available in Moomoo’s Quant feature, where quantitative trading is made as easy as building with LEGO bricks.
Open Quant, after completing getting-started tasks, we’ll offer you 3 strategies for free, including grid trading.
All you need is to set the parameters, including the underlying asset, the position size, the starting price, and the price interval.
Then tap Backtest to run the strategy and see how it performs historically.
When everything is all set, the strategy is ready to be executed through your brokerage account.
Again, apart from grid trading, there are other free strategies available. You can even construct your own trading strategy using Quant on moomoo!