Arithmetic vs Geometric Grid Bots on 3Commas: A Comprehensive Overview

Introduction

Cryptocurrency trading has evolved significantly with the advent of automated trading bots. Among these, grid bots have emerged as a popular choice for traders looking to capitalize on market fluctuations without constant monitoring. Grid trading bots operate on a straightforward yet effective strategy of buying low and selling high, within a predefined price range. This strategy allows traders to automate their trading processes, thereby reducing emotional decision-making and ensuring consistent execution. In this article, we delve into the specific functionalities and differences between arithmetic and geometric grid bots, helping traders choose the best tool for their trading needs.

What are Grid Bots?

Grid trading bots are automated tools designed to implement the grid trading strategy. This strategy involves placing buy and sell orders at set intervals above and below a predetermined price, creating a "grid" of orders. The primary goal is to profit from the natural ebb and flow of market prices. Here are the key characteristics of grid bots:

1. Automated Trading: Grid bots execute trades automatically based on pre-set parameters, reducing the need for manual intervention.
2. Predefined Price Intervals: Orders are placed at specific price levels, which can be adjusted based on market conditions and trading strategies.
3. Profit from Volatility: Grid bots are particularly effective in volatile markets, as they capitalize on price fluctuations by systematically buying low and selling high.
4. Risk Management: By setting upper and lower limits, grid bots help manage risk by ensuring that trades occur within a controlled price range.

Main Settings and Options

Investment: Traders can set the investment amount for the bot. If the available funds do not meet the settings requirements, the bot will perform market balancing before starting trading, buying or selling a portion of the base currency to meet necessary proportions.

Backtest: The backtest function allows traders to test their strategy on historical data, calculating realized profit and the number of closed trades over a 120-day period.

Optimize: After completing a backtest with 50 or more lines, the Optimize function can automatically adjust the grid step based on volatility to maximize potential profit.

Customize: The Customize tab offers a wider range of settings and options, varying depending on the exchange and type of bot.

Features of Arithmetic Grid Bots

Arithmetic grid bots are designed with simplicity and consistency in mind, making them particularly suitable for volatile markets with small price ranges. Here are the key features:

1. Fixed Price Steps: The steps between orders are determined by a fixed value of price change in the quote currency. This means that each buy or sell order is placed at regular intervals.
2. Order Size in Base Currency: The size of each order is determined by the volume of the base currency. This ensures that traders can precisely control the amount of the base currency being bought or sold.
3. Max Active Orders: This feature allows traders to limit the number of active orders at any given time, helping manage exchange limitations and reduce risk.
4. Suitability: Arithmetic bots perform well in markets with high volatility, but when the market trades sideways within a given range and when the bot executes the last sell order it stops trading. However, the bot remains active and will resume trading if the price returns to the trading range.

Example of an Arithmetic Grid Bot:

• Trading Pair: BTC/USDT
• Price Range: $60,000 to $70,000
• Grid Steps: $500 (fixed interval)
• Order Size: 0.01 BTC
• Number of Levels: 20

In this setup, the bot will place buy and sell orders every $500 within the specified price range. For instance, if the price of BTC is $64,700, the bot will place buy orders at $64,500, $64,000, $63,500, and so on down to $60,000, and sell orders at a price of $65,000, $65,500, $66,000 and so on until the price hits $70,000. If the price drops to $64,500 or below, the buy orders will be executed on each step. If the price goes back up, each buy order will convert to a sell order. This strategy allows the bot to profit from price movements.

Features of Geometric Grid Bots

Geometric grid bots, on the other hand, offer a different approach that can be more advantageous in trending markets. Here are the distinctive features:

1. Percentage-Based Steps: The steps between orders are determined by a percentage value of the price. This creates a proportional spacing between orders, allowing the bot to adjust to larger price movements dynamically.
2. Order Size in Quote Currency: The size of each order is based on a fixed amount of the quote currency. This means that as the price drops, the bot buys more of the base currency, averaging down the purchase cost more effectively.
3. Max Active Orders: This feature allows traders to limit the number of active orders at any given time, helping manage exchange limitations and reduce risk.
4. Trailing Up: This feature, supported only in geometric bots, allows the trading range to follow an upward trend. As the price rises, the bot adjusts its orders to continue trading within the new price range.
5. Suitability: Geometric bots excel in up-trending markets with large price ranges. The bot averages the position when the price falls, making it profitable when the price rises. Additionally, the Trailing Up functionality helps the bot continue to make a profit as the market grows.

Example of a Geometric Grid Bot:

• Trading Pair: ETH/USDT
• Price Range: $1,500 to $3,000
• Grid Steps: 5% (percentage interval)
• Order Size: $100 USDT
• Number of Levels: 20

In this setup, the bot will place buy and sell orders at intervals of 5% within the specified price range. For instance, if the price of ETH is $2,000, the bot will place buy orders at $1,900, $1,800, $1,710, and so on down to $1,500, and sell orders at $2,100, $2,205, $2,315 and so on until the price hits $3,000. If the price drops to $1,900 or below, the buy orders will be executed on each step. If the price goes back up, each buy order will convert to a sell order. As the price continues to rise, the trailing up feature will allow the bot to adjust the grid upwards, ensuring it remains active within the new price range.

Key Differences

1. Order Placement Strategy:

Arithmetic Bots: Use a fixed price change to place orders, ensuring consistent intervals between them.

Geometric Bots: Use a percentage of the price to place orders, resulting in a proportional grid that adapts to price changes.

1. Order Size Calculation:

Arithmetic Bots: Determine order size based on the base currency volume.

Geometric Bots: Determine order size based on the quote currency volume, allowing for better cost averaging during price drops.

1. Trailing Up Feature:

Arithmetic Bots: Do not support trailing up.

Geometric Bots: Support trailing up, making them more flexible in upward-trending markets.

Conclusion

Choosing between arithmetic and geometric grid bots on 3Commas depends largely on market conditions and trading goals. Arithmetic bots offer stability and frequent profit opportunities in volatile markets, while geometric bots provide proportional adaptability and potential for significant gains in trending markets. By understanding these features and differences, traders can make informed decisions to align their trading strategies with market behavior, enhancing their chances of success in the dynamic world of cryptocurrency trading.