Crypto Trading Bots Insights
The rise of bots has empowered crypto traders with a valuable tool for buying and selling cryptocurrencies in a more profitable way. That’s their primary goal, and the way in which they achieve this is fascinating: crypto trading bots observe the market and respond based on a range of pre-set rules. Users can specify how their bots should evaluate certain actions, including volume and price.
All of this can seem daunting to newcomers, but don’t worry: this Complete Guide to Crypto Trading Bots has all the information to help you get started.
When were bots created and why are they so important?
Automation is something we take for granted today, but when Richard Donchian created the concept of automating a trading system in 1949, it was groundbreaking. He envisioned a system based on a list of rules for the purchase and sale of funds, and other traders (John Henry, for example) ran with the idea during the 1980s, taking rule-based trades further.
Bots have become increasingly important to the market in the decades since, but their high price may put many traders on tighter budgets off. But there are tangible benefits available to those with the money to invest.
The first (and perhaps most attractive) advantage is that crypto trading bots make the entire process of investing much more streamlined, freeing up time to focus on other tasks. You can leverage bots for constructing indexes, diversifying your portfolio, and more to good effect.
Another advantage, and another way to use bots altogether, is that they’ll attempt to make consistent profits for you by beating the current market. But utilizing bots in this way for optimal value demands considerable research.
The proliferation of cryptocurrency buying and selling has led to ongoing changes within the world of automated trading. The market for cryptocurrency trading operates 24 hours a day, seven days a week, and is incredibly volatile. This is why bots are proving to be so important.
For example, a lot of traders choose to focus on Bitcoin (the original cryptocurrency) passively, and can rely on crypto trading bots to trade efficiently on their behalf when they don’t have time to invest in managing the process manually.
What are the key elements of crypto trading bots?
Trading bots tend to feature similar elements, including backtesting, strategy implementation, job scheduling, and execution of actions. Let’s take a closer look at each.
What is backtesting?
It’s crucial to perform comprehensive backtesting ahead of making any trades with your crypto trading bots. You should use historical data from the market, and don’t forget about factors like slippage and fees. Accurate data can be accessed through such libraries as CCXT, which connects you to multiple exchanges.
What is strategy implementation?
Another core task before rolling out your crypto trading bots is putting a predetermined strategy into place. This involves specifying the calculations and logic that help bots know what they should trade and when, based on your personal goals and preferences. Once you’ve finalized your strategy, it’s time to backtest it and gauge its efficiency.
What is execution?
After completing your strategy, it’s vital to perform real-time execution: the logic you created for your bot is transformed into API requests which can be understood by exchanges. Certain bots are designed to let you implement your strategy using fake money, all in real-time, for risk-free execution. That’s a helpful feature if you can find it.
What is job scheduler?
After working through the three elements above, it’s time to automate the whole trading process. This is where the job scheduler comes in: this puts your strategies to work and aims to generate profits while you go about your daily business.
Knowing when the time is right to invest in Crypto Trading Bots
So far, we’ve established that bots can perform such functions as collecting data and management of portfolios, but there are two essential automation rules to follow.
First, while automation reduces the amount of manual input required in your cryptocurrency trading, you’ll still have to be involved at a basic level, such as practising due diligence. Secondly, those tasks which you consider unnecessarily complicated and, frankly, repetitive should be automated. Don’t expect to be hands-off completely, but do look forward to having some of the more time-consuming functions removed.
Let’s dive deeper into the improvements you can expect to see with crypto trading bots.
Less repetitive tasks to manage
We all find repetitive tasks a challenge after a while. But trading bots allow you to cut valuable time out of these chores by almost copying and pasting certain functions, making trades much faster. For example, bots prove helpful with rebalancing your portfolio on an hourly basis.
You can either rig an alarm to trigger once per hour to remind you or set-up a trading bot programmed to handle this for you every 60 minutes for … well, the foreseeable future. The latter is the much simpler, less time-consuming option, so why bother with the former if you don’t have to?
Achieve better timing and accuracy
Timing and accuracy are key for successful trading. If you avoid automated trading and cling to manual processes, you may be at risk of missing out on optimal opportunities. For example, if you intend to make a sale as soon as a cryptocurrency value reaches a certain level, you’d have to monitor the market yourself, though that doesn’t guarantee you’ll still pull it off. You have to sleep sometime.
Cryptocurrency trading bots, though, can be programmed to watch the market and make a trade exactly when they need to.
Make day trading quicker and easier
Few of us have time to stare at our laptops monitoring the market all day, every day. There’s a lot of research required in efficient day trading, perhaps too much to handle on your own, while the sheer amount of repetitive tasks brings a risk of severe boredom. Fortunately, you can automate all of this with cryptocurrency trading bots.
Stay active in a sleepless market
As the crypto market operates 24 hours a day, seven days a week, with thousands of exchanges in action globally, prices are liable to fluctuate at any time, day or night. And that means you’ll have to give up on sleep if you want to make the most of your funds and never miss out on a valuable transaction.
Trading bots take care of this for you, putting your strategies to work while you enjoy a good night’s sleep — so you could make profits between going to bed and rising the next day.
Make complicated processes simpler
You can leverage trading bots to automate those complicated strategies, such as smart order routing, much easier. For example, this strategy involves routing pairs trades via various trading pairs, but each has to be chosen with care and completed within a specific time-frame.
Putting this strategy into action manually demands research and market-vigilance. That’s a lot to take on, especially if you’re a newcomer to trading. Bots change all of that for good.
Identifying the right strategy for your Crypto Trading Bots
Here are a few strategies you may want to consider hard-coding into your trading bots:
Momentum investors base their trading decisions on market momentum. This is based on a primary belief that an asset’s value will increase beyond its average before losing its momentum and, ultimately, begin a fall. Momentum investors want to take advantage of the rise but sell at the right point, before the momentum drops.
This strategy revolves around the concept that when a coin’s pricing strays from the average, it will revert back at some point. This is due to the general market psychology: if asset A has an average price of $5 but this increases to $5.50, traders will bulk-sell it, knocking the price down to the original $5 again.
And if the price were to drop, this would be considered a bottom, and traders would buy as much as available. This would level the price up to $5 once more. That’s mean reversion.
This algorithm utilizes machine learning to identify the likelihood of an event taking place, and if you can give your crypto trading bots the right information, you can increase the chances of pinpointing accurate times of entry & exit.
Asset prices can differ from one exchange to another, primarily because of pricing fragmentation across multiple marketplaces. So, for example, asset A might be $2 at one exchange and $2.01 at the next.
The arbitrage strategy enables you to profit by investing and selling on more than one exchange at the same time. You would have to buy and sell a specific asset simultaneously to take full advantage of the differences, though.
NLP (Natural Language Processing)
Asset prices may change rapidly in the crypto market, reacting to key news updates and events. You can leverage NLP to program your bots with an ability to interpret phrases or terms, analyzing the inherent meaning, to recognize when valuable opportunities arise. For example, a bot that’s able to recognize such news as “A and B partner with C to increase global reach”, it will start investing in the relevant asset automatically.
What different Crypto Trading Bot types are available?
Multiple types of crypto trading bots are available — market making, technical trading, profile automation, arbitrage, and auto crypto bots. Let’s look deeper:
A market making bot is designed to place multiple buy & sell orders, attempting to earn a fast profit. These profits could be very small individually but all add up over time. Market making bots offer an extensive range of trading options, such as granting access to numerous indicators and are supported by large exchanges. They can be welcoming to newcomers and cloud-friendly too.
Technical trading bots are particularly popular with traders taking a conservative approach. They’re designed to leverage signals and indicators for predicting price movements in the future to turn profits.
Portfolio automation bots are made to help you build, gather, and keep a portfolio you’re satisfied with, as opposed to trading actively. They automate a lot of repetitive tasks that devour time you don’t have to spare.
Arbitrage bots won’t sell your coins precisely. Instead, they facilitate sales on the short exchange, as this strategy is market-neutral and requires no transfer of funds between exchanges. The process of buying and selling is performed independently on different exchanges.
Auto crypto bots
Crypto trading bots are created by experts, and empower you to automate your process of trading cryptocurrencies based on your personal specifications.
Choosing the right Crypto Trading Bots for you
Research is vital when considering crypto trading bots. Here are a few of the most important factors to think about.
The reliability and experience of the bot’s makers
Putting faith in a crypto trading bot handling your portfolio is a big step, and you want to feel reassured that the team behind it is trustworthy. Try to find out key information about them, such as their qualifications, their portfolio, documentation of the bot’s functions, source of funding, etc.
Aim to find a team which is transparent about its development process, and, as a result, accountable.
Availability of relevant strategies
You have strategies that you want to implement with your crypto trading bot, so you have to find one which aligns with your ideal strategy. There’s no point choosing a bot that can’t do what you want it to, so check reviews from like-minded users for hands-on insights.
Furthermore, try to determine how much manual input is required to configure the bot properly. Avoid investing in one that’s too technical for you, no matter how enticing it might seem.
Ongoing support from behind the scenes
Support should be available when you need it. The option to reach out to the team behind the bot and have your questions answered provides valuable peace of mind, especially when you’re new to crypto trading bots.
Check if the company that developed the bot has an active online community (such as on Reddit or Discord), and if the team itself actually interacts with the users. Ideally, they should be open to communicating and provide ongoing updates to maximize the bot’s performance. Any bugs that might surface should be addressed as soon as possible.
The overall cost
Bot prices can vary from being free to massive monthly subscription fees, catering to different budgets. It’s a fair assumption that the most expensive crypto trading bots will offer a stronger service than its free counterparts, but don’t rush into subscribing to the most high-end option you can find.
You could end up investing big bucks into a service that basically does the same as a more affordable alternative.
Again, look for reviews from users and check the communities. Try to learn as much about those bots that appeal to you before committing to a price. A little research into the advantages and disadvantages of each option can help you find the most valuable bot for your personal trading goals.
Accessibility and ease of use
Crypto trading bots can be difficult to get to grips with. Even if you’ve used several online platforms and automation tools before, as many of us have, you might struggle to dive straight in. Bots are extremely helpful and can make a major difference to your experience of trading cryptocurrencies, but there’s a definite learning curve involved.
As a newcomer, plunging into a bot’s backend is a daunting process, even if you have step-by-step instructions to hand. Choosing a bot with an active community increases the likelihood that you’ll be able to find assistance when you need it. But even so, try to find a bot that aligns with your current expertise (not the expertise you aim to have).
If you’re a complete novice, it might be best to pick a bot that’s streamlined and user-friendly, with few sophisticated features to worry about.
We hope this guide has given you a valuable insight into crypto trading bots, no matter how inexperienced you might be.
As you can see, implementing bots into your daily trading can help you secure a profit from ongoing investments and create a far simpler trading experience. Automating repetitive tasks is a major plus, eliminating much of the boredom that seasoned traders may complain of from time to time.
But remember: cryptocurrency trading bots are different. That’s why it’s so important to research any that you’re considering and make sure they meet all of your needs. Look to other users online for advice, and check into the teams behind the scenes to clarify their credibility.
Choosing the right bot can transform your cryptocurrency trading, so make sure your investment is worthwhile.