Reduce your risk and increase your gains with HODL++! 🔥📈 A winning combination of grid trading and rebalancing

Edward Tsang
10 min readApr 5

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(Updated 20230816) Since my HODL+ article, I have been playing with the Rebalancing Bot as well. And now sharing notes on my experiments so far. Left the bots running for a month or so already and the early results are not bad. *** Binance changed their Grid Trading Bot feature recently, which means it is not easy to take out the profit from grid trading to feed into rebalancing bot now, the only way is to stop/close the grid bot to get the profit. Hope they can fix it soon. Or we should all consider moving to other platforms which won’t lock in your grid profit. Write to Binance to request for this fix, previous grid bot didn’t just lock the profit. https://www.binance.com/en/my/user-support/feedback/entry ***

Read the disclaimer at the bottom (if you really need to). This is not investment advice. And I might make money from affiliate links, etc, etc. If you are considering crypto bots and don’t know these by now, please don’t read on. :) DYOR (Do Your Own Researc) is important for crypto. Be warned.

Please read my HODL+ article to get the background. The idea of HODL++ is mainly to address the weakness of only using grid trading to earn more base token but without auto compounding and missing out on very sudden out-of-range spikes and crashes. There is no moonbot-like feature on Binance, so I added the Rebalancing Bot to create my HODL++ strategy instead. And with the recent ~30% spike of DOGE as Elon Musk played around with new Doge logo for Twitter, I can see the obvious benefits of using this strategy. Grid bot is nice to pick up some more USDT from frequent/daily volatility, but for sudden spikes and crashes, rebalancing can work well if you already wanted to HODL to a few coins.

In essence, I put about 50% into Grid Trading bot to earn more base tokens (USDT) from market volatility and fluctuations, then reinvest every 20–30 USDT earned into the other 50% Rebalancing bot to be ready for the bigger swings.

To be more specific (now this is the part I only share for reference, but certainly not for you to copy), I focus on BTC, ETH, DOGE and SHIB, with a little bit of MATIC too. So I setup 5 grid bots of reasonable 30 day range or so to pick up 0.3% or so on each grid. Then reinvest every 20–30 USDT from grid bot to my rebalancing bots, one for BTC/ETH, another for DOGE/SHIB. That is inline with, I want to HODL these 4 coins regardless of actual USDT price, I only use the grid bot with USDT because they are the most volatile against USDT. I tried with BTC/ETH and DOGE/SHIB pair for gridbot, but they have much lower volume and volatility.

What is a Crypto Rebalancing bot?

It's a type of automated trading that adjusts the allocation of the portfolio to maintain a target balance. The bot does this by selling or buying tokens within the portfolio to ensure that the portfolio maintains its desired asset allocation. You can do that by regular time interval or by percentage change. (From my experiments, I use 0.5% ratio change as I can keep my trading fees very low, around 0.065% with my referral code kickback and paying fees with BNB.)

Here’s an example of how a crypto rebalancing bot could work:

  1. The user sets a target allocation for their portfolio, such as 60% Bitcoin, 30% Ethereum, and 10% Litecoin.
  2. The bot monitors the current value of each cryptocurrency in the portfolio and compares it to the target allocation.
  3. If the value of Bitcoin has increased, the bot will sell some Bitcoin and use the proceeds to buy more Ethereum and Litecoin to maintain the target allocation.
  4. If the value of Ethereum has decreased, the bot will sell some Litecoin and use the proceeds to buy more Ethereum and Bitcoin to maintain the target allocation.
  5. The bot repeats this process on a regular basis, such as daily or weekly, to ensure that the portfolio remains balanced according to the user’s target allocation.

Pros and Cons of using a rebalancing bot:

Pros:

  1. Automates the Rebalancing Process: A crypto rebalancing bot automates the process of buying and selling cryptocurrencies to maintain a target allocation, saving the user time and effort in managing their portfolio.
  2. Reduces Emotional Bias: A bot is not influenced by emotions or bias, which can lead to more rational and disciplined investment decisions.
  3. Ensures Diversification: Rebalancing ensures that the portfolio remains diversified and reduces the risk of holding a single cryptocurrency or a few cryptocurrencies.
  4. Potential for Better Returns: Rebalancing can potentially improve the performance of the portfolio by selling high and buying low, taking advantage of market movements.

Cons:

  1. Requires Technical Knowledge: Setting up and configuring a crypto rebalancing bot requires technical knowledge and experience with cryptocurrency trading and investing.
  2. May Incur Trading Fees: Every time the bot makes a trade, the user may incur trading fees, which can eat into their profits.
  3. Limited Customization: Most crypto rebalancing bots offer limited customization options, which may not meet the user’s specific investment goals or preferences.
  4. Risks of Market Volatility: Rebalancing a portfolio in a volatile market can lead to losses, as the bot may sell low and buy high.

It is possible to have fewer tokens in your portfolio when using a crypto rebalancing bot. This is because the rebalancing bot will sell cryptocurrencies that have increased in value and buy cryptocurrencies that have decreased in value to maintain the desired asset allocation.

For example, let’s say you have a portfolio consisting of 50% Bitcoin and 50% Ethereum. If the value of Bitcoin increases and the value of Ethereum decreases, the rebalancing bot will sell some Bitcoin and use the proceeds to buy more Ethereum to maintain the 50/50 allocation. As a result, you may end up with less Bitcoin and more Ethereum in your portfolio.

It’s important to understand that the goal of rebalancing is to maintain a desired allocation, not necessarily to maximize the number of tokens or cryptocurrencies in the portfolio. But generally speaking, as we are seeking to improve on HODL strategy, in the long term, it is likely to outperforming simple HODL. Outperforming can mean both gaining more when market it up or losing less when market is down.

How or why to combine it with grid trading to achieve HODL++?

Here are a few suggestions for combining the usage of grid trading and rebalancing bot trading:

  1. Set grid trading parameters based on rebalancing goals: When using a grid trading bot, you can set price levels and buy/sell orders that align with your rebalancing goals. For example, you can set your buy orders at price levels that correspond to the underperforming cryptocurrencies in your portfolio and your sell orders at price levels that correspond to the overperforming cryptocurrencies.
  2. Use rebalancing bot to adjust grid trading parameters: Rebalancing bots can help you adjust your grid trading parameters as market conditions change. For example, if one cryptocurrency in your portfolio significantly outperforms the others, a rebalancing bot can sell some of that cryptocurrency and use the proceeds to buy more of the underperforming cryptocurrencies, which would lead to an adjustment in your grid trading parameters.
  3. Combine rebalancing with grid trading to manage risk: By using rebalancing to maintain a target asset allocation and grid trading to take advantage of price movements, you can manage risk in your portfolio more effectively. For example, rebalancing can help you reduce risk by ensuring that you don’t hold too much of one cryptocurrency, while grid trading can help you take advantage of short-term price movements to increase returns.

The last idea is what I have been doing with my HOLD++, to use rebalacing to maintain asset ratio and using grid trading to earn from the fluctuations.

My Goals — Why I spent time playing around with this? And what are the results so far?

  • Back in August 2022, I started playing around with Grid Trading Bot and shared my notes here. It is still a great idea for such “crypto winter” period, horizontal trading, picking up a 30% or so a year if you can keep the bot in the trading range.
  • There is no auto compounding with the Binance Grid bot (Kucoin have this option, but I have not tried it). And it can be expensive to keep ending the bot and restarting with new parameters. Initially, I just bought more tokens with every 10 USDT worth of earnings and kept it there.
  • BTC is having a good year, 70% ROI in 2023 year to date so far. It can be harder to keep Grid Trading Bot in trading range. With the next BTC halving coming in April 2024, it can be even harder to predict if we are near the bottom of the current down cycle.
  • After experimenting with various settings and tracking the results for about 50 days. I found that rebalancing bot can gain up to 25% of tokens a year for me. And it can easily add or reduce investment amount, minimum of 20 USDT.
  • I will be sharing more detailed results soon, but generally, looking at a totol of about 30–40% gain in a year.

Here is a short list of what I learnt so far:

  • Just as the name suggests, it is based on the HODL idea. Don’t try it with coins that you have no idea about and just hope for catching the “trend”. Pick the tokens you like and have long term plans to hold on to. And use these strategies to improve on the returns.
  • Fees are important. As you will be doing many many trades. If you signed up to Binance without using any referral codes, you are missing out on trading fees kickbacks. But these are only available to “new” accounts, your ID can only be used for KYC with 1 account. Deleting (not just suspending) your account can done via the mobile app easily, just follow the instructions on this page, but click the Delete Account rather than Disable Account open. But this can be very annoying as you lose all previous trading records and you need to transfer all crypto out, etc. But then again, you will get to save 10% on trading fees forever, if you use it together with paying for fees with BNB, you get to save a total of 35% on fees, which is significant if you trade often. (Use my code to get your 10% fees kickback. You will see the 10% icon when you sign up. I get referral bonus from Binance, you will get 10% of all your trading fees forever as a kickback.)
  • Learn about how to set these up. Experiment it with your own settings. Monitor the results and try different options. Start with small amounts, but leave it running for many many days, say a month. Track the results. Be good with Excel.
  • Grid trading bot, you can only setup 1 for each crypto pair. But for rebalancing bot, you can have multiple bots for the same token pair with different settings. So you can compare the results. I tested the trigger by time and token ratio as well as setting the different target allocation. I found that trigger by 0.5% change and allocate by market cap ratio working “best” for me.
  • Not recommending this, but this is basically what I do now. I focus on BTC, ETH, DOGE and SHIB. I have 4 grid bots for each of these USDT pairs. Together, I pick up about 25 bucks every day or so. And then when I get over 20 bucks of USDT earnings, I add it to either the BTC/ETH rebalancing bot or the DOGE/SHIB rebalancing bot with 0.5% change trigger.
  • Around 60% invested in the grid bots, and 40% in the rebalancing bot. So I am kind of using the rebalancing bot to catch the sudden spikes/crashes outside of the grid bot trading ranges. It kind of worked well for me during the recent spike caused by the Doge Twitter logo change. My rebalancing bot worked well during the spike and I gained a lot of SHIB.

Risks

  • Keeping crypto on a particular exchange for too long can be a risk. Binance is the biggest of 3rd gen exchanges, but there is no such thing as “too big to fail”.
  • Stablecoins are not that stable. Can’t remember LUNA/UST already? Even Tether or USDC might not be that stable. But I am a fan of Circle USDC because the guy behind it was a world class investment banker, but for trade volume, I still have to choose USDT.
  • Yes, you can end up with fewer tokens than you started off with in a prolonged bear market with rebalancing bot.

Links to check out

This is an early draft, I am still editing this. I will be updating this note every now and then. Please feel free to leave me with comments, etc.

Disclaimer

No financial advice, no warranty of any kind. This article is provided as is, just some random words on a page, not financial advice or any orders or instructions for you to do anything with it. Read my other articles if you want to know about my views on crypto. Yes, there might be affiliate links or ads on these which I make money from.

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Edward Tsang

Experienced technologist, focused on selective combinations of blockchain and AI. I am not a writer, I use Medium like an online notepad to share my thoughts.

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