Strategy Testing 02 ｜ OKX and AICoin Research Institute: Grid Strategy

OKX, in collaboration with the high-quality data platform AICoin, has launched a series of classic strategy studies aimed at helping users better understand and learn different strategies through core dimensions such as data testing and strategy characteristics, thereby avoiding blind usage.

Grid trading is a systematic trading strategy whose core principle is to divide multiple grids within a preset price range and implement contrarian operations—buying when prices fall and selling when prices rise. This strategy reduces emotional interference by maintaining a balance between long and short positions and automating trade execution, accumulating profits through frequent small transactions. It emphasizes flexible parameter adjustments to adapt to market changes and focuses on risk control and capital management, making it particularly suitable for long-term operations in volatile markets. While it performs well in sideways markets, it may miss significant trends in trending markets. Successful implementation of grid trading requires flexible application of these principles based on specific assets and market conditions, while cautiously controlling risks and avoiding excessive leverage.

Generally, grid strategies are divided into two types: spot grid and contract grid. Among them, the contract grid is further divided into three modes: long mode, short mode, and neutral mode, each suitable for different market conditions. (Note: The neutral mode of the contract grid will be referred to as "neutral contract grid" hereafter.)

Issue 02 introduces the grid strategy, using three major data models to test the [neutral contract grid & spot grid]:

Model 1: Neutral contract grid and spot grid under sideways fluctuation with a 1-hour running period

Model 2: Neutral contract grid and spot grid under downward fluctuation with a 4-hour running period

Model 3: Neutral contract grid and spot grid under upward fluctuation with a 1-day running period

In this data test, the operational standard for the neutral contract grid is to determine the lower and upper limits of the grid based on the market price of the trading pair at the time the strategy is initiated. Orders are divided into above and below the market price. When the price is above the market price, a sell short is executed each time the price breaks through a grid, and a buy long is executed each time the price falls below a grid, thereby capturing profits from price declines.

One-sentence summary of the neutral contract grid & spot grid strategy: Focus on range trading, providing a rational trading method under careful risk management and parameter optimization.

Pros and Cons Comparison

Overall, the sideways market reduces trend risk, allowing both strategies to focus more on range trading. However, one must be cautious of the possibility of the market breaking out of the current fluctuation range, which may require adjustments to the grid parameters. Users may consider optimizing the grid spacing based on observed price fluctuation ranges. Attempting to dynamically adjust the grid to accommodate potential changes in fluctuation ranges is advisable.

Additionally, there are significant differences in operation methods and risk management between the two. The neutral contract grid is suitable for bidirectional trading and high-leverage contract markets, emphasizing capturing opportunities in volatility and bearing higher risks; whereas the spot grid is suitable for unidirectional trading and more stable spot markets, aligning with more conservative trading strategies. While the core concepts of both are similar, actual application requires selection based on the trader's risk tolerance and market conditions.

The neutral contract grid trading strategy combines the advantages of grid trading and market-neutral strategies, offering multiple benefits. It reduces systemic risk through long-short hedging, profits from high-frequency small trades and market volatility, while also lowering directional risk. This strategy is characterized by strong flexibility and high adaptability, allowing for automated operations across various assets and providing liquidity to the market, but it is relatively complex to implement.

Model One

This model is: Neutral contract grid and spot grid under sideways fluctuation with a 1-hour running period

Image 1: Neutral contract grid under sideways fluctuation with a 1-hour running period; Source: AICoin

Image 2: Spot grid under sideways fluctuation with a 1-hour running period; Source: AICoin

Model Two

This model is: Neutral contract grid and spot grid under downward fluctuation with a 4-hour running period

Image 3: Neutral contract grid under downward fluctuation with a 4-hour running period; Source: AICoin

Image 4: Spot grid under downward fluctuation with a 4-hour running period; Source: AICoin

Model Three

This model is: Neutral contract grid and spot grid under upward fluctuation with a 1-day running period

Image 5: Neutral contract grid under upward fluctuation with a 1-day running period; Source: AICoin

Image 6: Spot grid under upward fluctuation with a 1-day running period; Source: AICoin

Analysis and Summary

Grid strategies perform differently under various market conditions, and traders need to choose appropriate strategies based on market trends while weighing risks and returns. In Models One and Three, the return rate of the neutral contract grid is significantly higher than that of the spot grid, especially in the upward fluctuation environment of Model Three, where the return rate of the neutral contract grid reaches 11.28%. However, in the downward fluctuation environment of Model Two, both the neutral contract grid and spot grid incurred losses, indicating that both perform poorly in declining markets.

By observing the performance of the spot grid in Models One, Two, and Three, it can be seen that the win rate of the spot grid fluctuates significantly under different market environments, making its performance relatively unstable. Although the neutral contract grid yields higher returns, it also comes with higher risks due to the use of leverage; for instance, in the downward fluctuation of Model Two, leverage amplified the losses, while spot trading remained relatively stable but may incur losses in unfavorable market conditions.

Specifically:

1. Strategy Performance

The contract grid strategy generally shows higher potential returns in different market environments but may also face greater risks.

The spot grid strategy performs well in sideways and upward markets but incurs losses in downward markets.

2. Risk and Return

The neutral contract grid strategy achieves higher absolute returns through leverage but also carries higher risks. The spot grid strategy, while having lower absolute returns, may offer more attractive risk-adjusted returns in certain situations due to the absence of leverage.

3. Market Adaptability

The neutral contract grid strategy performs relatively stably across different market environments. The spot grid strategy performs well in rising or sideways markets but is prone to losses in declining markets.

4. Trading Activity

The neutral contract grid strategy typically has higher trading frequency and transaction amounts, which may help capture more market opportunities but could also lead to higher trading costs.

5. Suitable Investors

The neutral contract grid strategy may be more suitable for investors with higher risk tolerance and a deep understanding of the market. The spot grid strategy may be more appropriate for investors with lower risk tolerance who seek stable returns.

6. Risk Management

When using the neutral contract grid strategy, more cautious risk management is required, including setting stop-loss orders and monitoring leverage levels.

In summary, both strategies have their advantages. The neutral contract grid strategy offers higher potential returns and better market adaptability but comes with higher risks. The spot grid strategy, while relatively lower in returns, also carries lower risks and can still provide stable returns in certain market conditions. Investors should choose the strategy that suits their risk tolerance, investment goals, and market judgments.

OKX & AICoin Grid Strategy

Currently, OKX strategy trading offers convenient and diverse strategy varieties, mainly covering: spot grid, contract grid, and infinite grid. Whether it is the OKX spot grid strategy or the OKX contract grid strategy, they essentially execute an automated strategy of buying low and selling high within a specific price range. Users only need to set the highest and lowest prices of the range and determine the number of grids to start the strategy; if needed, they can also pre-set trigger conditions, and when the market reaches the trigger conditions, the strategy will automatically start running. The strategy will calculate the buy low and sell high prices for each small grid, automatically placing orders to continuously profit from market fluctuations.

However, there are three key differences between OKX contract grid trading and spot grid trading:

1) Contract grid strategy trades in the contract market, while spot grid strategy trades in the spot market.

2) Contract grid strategy can use leverage, while spot grid strategy cannot.

3) Contract grid strategy supports three trading strategies: bullish, bearish, and neutral, while spot grid strategy only supports unidirectional trading.

Currently, OKX grid strategy supports two creation modes:

1) Manual creation: Set parameters and trigger conditions based on one's judgment of the fluctuation range. Currently, OKX spot grid strategy and contract grid strategy can set two types of triggers: price trigger and RSI technical indicator trigger.

2) Intelligent creation: Directly use the grid strategy parameters recommended by the system.

How to access more strategy trading on OKX? Users can enter the "Trading" section of the OKX APP or official website, switch to "Strategy Trading" mode, and then click on the strategy square or create a strategy to start the experience. In addition to creating strategies themselves, the strategy square also provides "Quality Strategies" and "Quality Strategies from Strategy Leaders," allowing users to copy strategies or follow strategies.

OKX strategy trading has multiple core advantages, including ease of operation, low fees, and security guarantees. In terms of operation, OKX provides intelligent parameters to help users set trading parameters more scientifically; it also offers graphic and video tutorials to help users quickly get started and master the platform. Regarding fees, OKX has comprehensively upgraded its fee rate system, significantly reducing user trading fees. In terms of security guarantees, OKX has a security team composed of top global experts to provide bank-level security protection.

Additionally, AICoin also provides users with various strategy trading options, allowing users to quickly and intuitively understand the current market. Users can find the "Strategy Square" option in the "Strategy" section of the left sidebar of the AICoin product. By clicking here, users can find grid trading strategies in the "Featured Strategies" section at the bottom of the interface.

At the same time, the AI Coin grid strategy supports both manual creation and AI grid forms. Users can find the "AI Grid" option in the "Market" section of the left sidebar, where they can see the AI-recommended grid strategies for the trading pair as well as manual creation options. In addition to grid trading strategies, this series will also introduce several other trading strategies, including all-coin DCA strategies, etc. These trading strategies can be found in the "Strategy Square" in the left sidebar.

Disclaimer

This article is for reference only and represents the author's views, not the position of OKX. This article does not intend to provide (i) trading advice or trading recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/trading professionals regarding your specific situation. You are responsible for understanding and complying with applicable local laws and regulations.