The Benefits of Crypto Bots in Sideways Markets

More often than not, markets tend to move unpredictably. This is part of why making consistent long-term profits can be difficult, especially at the outset of your trading journey. 

However, there are ways to make the most of the market’s unpredictable behavior and volatility. 

Bots allow us to automate our trades, giving us the precision of computers and opening up otherwise inaccessible trading strategies. 

In this article, we’ll talk about how you can use bots to make the most of sideways markets, which see prices moving in a fixed channel without trending in any particular direction. 

What Are Sideways Markets?

Sideways markets, also known as “ranging” markets are periods of market consolidation. What this essentially means is that an actively traded crypto token is seeing neither more buys nor sells, for any meaningfully long period. This creates a channel, constraining the price’s movements. Prices go up, reach the upper border of the channel, and bounce down from it. The same happens in reverse.

How Do You Identify a Sideways Market?

On the hourly chart, if you have just 2 candles that have neither gone above the latest high nor below the latest low, you don’t have enough data to make an informed judgment call about the current state of the market. Is it going sideways? Perhaps this is the start of a ranged movement but you don’t have enough to go on to tell.

However, the scenario shifts significantly when observing greater numbers of candlesticks that consistently stay within the same high and low range (i.e., channel). This pattern offers a strong indication of a market moving sideways. It suggests a period of consolidation, where buyers and sellers are in equilibrium, and there's no dominant direction in price movement. 

To get a better idea of how long trading will stay within a given range you would need to incorporate several additional indicators and techniques into your analysis.

Note: The concept of a sideways market is relative and depends on the specific timeframe you're examining. On one timeframe you may observe a sustained sideways movement, while on a bigger one, that move could just look like a small period of price consolidation part of a strong directional trend up or down. 

How Can Bots Help You Better Trade Crypto in Sideways Markets?

Crypto trading bots like a grid trading bot or a DCA bot are excellent tools for ranging markets and can be used to supercharge your trading in a few key ways:

• Bots don’t get emotional and don’t make irrational decisions.
• Bots can help you track your trading performance over time with precision and ease.
• Bots can manage a huge number of open orders simultaneously.
• Bots can work 24/7.
• Bots can systemize your risk management strategies making them far more effective.
• Bots can be configured to use strategies known to be effective in sideways markets.

We made an article covering the enormous benefits of crypto trading bots. Give it a read!

Grid Bot Trading in Sideways Markets

One particularly powerful bot strategy to use in sideways markets is the grid strategy.

Grid trading is defined by placing a series of buy and sell orders across different price levels which creates a sort of grid of orders — hence the name.

These stacks of orders have upper and lower bounds which, if set up correctly, can align with those of a sideways channel in a ranging market. As market volatility takes the price on a roller coaster ride up and down within a range, the open orders get filled and new ones are placed. 

To visualize it even better, let’s look at an example from Dash 2 Trade’s grid bot configuration page:

In the image above we see the price of BTC has dropped from its brand-new all-time high (ATH) down to a strong support level at $61K. We can also see that after climbing for a while the price bounced back significantly after reaching $69K. Investigating further we notice that this corresponds to another bounceback at the same level prior to the price reaching ATH. And in fact, looking even further back we see that $69K was the historical previous ATH for BTC which went unchallenged for two whole years.

We have found a potential channel between these two price levels of support and resistance where we can set up our grid trading bot.

The longer trading continues within this range and the more volatility there is, the more we stand to profit if we configure our grid correctly.

DCA Bot Trading in Sideways Markets

Dollar Cost Average (DCA) trading is another popular strategy pro traders use to tackle ranging markets. DCA can be applied in a few different ways.

The most well-known is buying an asset at regular intervals in time. This is time-based DCA and it works by buying identical amounts of a crypto asset at evenly spaced time intervals (e.g., buying 100 dollars worth of BTC every day). 

Another approach is price-based DCA (this is what Dash 2 Trade does). With this method, the bot doesn’t buy at regular intervals in time but rather at evenly spaced price levels, just like a grid bot! The only real difference is that the DCA bot has one take profit order for the entire grid, unlike the grid trader which perpetually creates new orders when old ones are closed. 

The benefit of price-based DCA is that you can dial in a range for your bot to make its buys and thus target sideways markets.

Regardless of the approach, the goal is the same — to minimize the impact of volatility by distributing your trades and averaging the buying price over time. This may yield smaller returns than attempting to time the market at the bottom of a channel, however, it leads to simpler trading and more predictable outcomes which can make risk management much easier.

Choosing Between Grid and DCA Bots in Sideways Markets

The choice between grid and DCA bots, when it comes to trading in ranging market conditions, comes down to two main things: 

 

• Your risk tolerance
• Your trading experience

In general, grid trading is more involved, requiring frequent monitoring and strategy adjustments but can yield higher returns if expertly executed. 

In contrast, DCA bots offer a more straightforward way of “buying into” a market that’s moving sideways allowing you to accumulate an asset at an average price and sell it for a profit if the price breaks out to the upside. It’s easier to conceptualize for beginner traders and can be a great primer for more complex bot trading later on.

Start Crypto Bot Trading with Dash 2 Trade

Novice or expert, you can benefit from bot trading because it removes much of the hassle associated with manual trading, replacing it with granular control, accurate profit and loss reporting, and historical data which you can analyze to become more profitable in the long term. 

We offer automated crypto grid trading, DCA bots, a custom bot strategy builder, and the fastest no-code crypto backtester on the market at the lowest price anywhere! 

Take the leap with us, and start trading crypto like the pros. Click here to learn more.