Dynamic Grid Trading Strategy: From Zero Expectation to Market Outperformance

ArXiv ID: 2506.11921 “View on arXiv”

Authors: Kai-Yuan Chen, Kai-Hsin Chen, Jyh-Shing Roger Jang

Abstract

We propose a profitable trading strategy for the cryptocurrency market based on grid trading. Starting with an analysis of the expected value of the traditional grid strategy, we show that under simple assumptions, its expected return is essentially zero. We then introduce a novel Dynamic Grid-based Trading (DGT) strategy that adapts to market conditions by dynamically resetting grid positions. Our backtesting results using minute-level data from Bitcoin and Ethereum between January 2021 and July 2024 demonstrate that the DGT strategy significantly outperforms both the traditional grid and buy-and-hold strategies in terms of internal rate of return and risk control.

Keywords: Grid Trading, Dynamic Trading Strategies, Cryptocurrency Markets, Backtesting, Risk Control, Cryptocurrency

Complexity vs Empirical Score

  • Math Complexity: 5.5/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Holy Grail
  • Why: The paper employs mathematical induction and finite automaton models to prove expected value properties, giving it moderate mathematical complexity. It then applies this theory through a detailed backtesting framework with 1-minute Bitcoin and Ethereum data from 2021-2024, including transaction fees, demonstrating strong empirical rigor.
  flowchart TD
    A["Research Goal:<br/>Develop a profitable trading strategy<br/>for cryptocurrency markets"] --> B["Methodology:<br/>1. Analyze Traditional Grid Strategy<br/>2. Propose DGT Strategy<br/>3. Backtest & Compare"]
    
    B --> C["Data & Inputs:<br/>Minute-level BTC & ETH data<br/>Jan 2021 - Jul 2024"]
    
    C --> D["Computational Processes:<br/>1. Expected Value Analysis<br/>2. Dynamic Grid Positioning<br/>3. Performance Metrics Calculation<br/>(IRR, Risk Control)"]
    
    D --> E["Key Findings & Outcomes:<br/>1. Traditional Grid: Near-Zero Expected Return<br/>2. DGT: Significant Outperformance<br/>3. Superior Risk Control<br/>4. Backtest Verified"]