As crypto markets are starting to slowly recover from the 2018 bear market, we’re noticing an increased trend of users interested in automated crypto trading bots and services. Cryptocurrency markets are famous for their volatility, which presents a lot of opportunities. Crypto trading bots are designed to leverage these opportunities better than a human could alone.
In general, trading bots mean a computer programs that utilize diverse indicators to recognize latest trends that execute trades automatically. The algorithmic trading software well-utilized by hedge funds with three basic verticals in the equity, commodity and currency markets. At first, this private trading bots appeared in the foreign exchange trading space. This made a very interesting way into the crypto asset market.
How cryptocurrency trading bots work
Trading bots are computer programs that log in to cryptocurrency exchanges and automatically make trades on your behalf. How good they are depends on how they’re programmed and how suitable their programming is to current market conditions.
There are many different kinds of bots to suit different market conditions and individual needs. Different types of bots are known as different strategies.
How to get and use a cryptocurrency trading bot
Build your own
These are bots that you create. You decide which signals the bot will read and which trading actions it takes in response.
Once you’ve created a bot, the next step is usually to backtest or paper trade with the bot against actual market movements, to see how it fares in real-world conditions before you entrust it with real money.
Building your own bots will always require some trading experience, but it won’t necessarily require any technical experience. On the easier end of the scale you can build you own bots with simple and intuitive graphical user interfaces. On the harder end of the scale you’ll need to have enough programming know-how to code your bot.
Use a preprogrammed bot
The other option is to use a bot that someone else has built. These will often be purchasable from the creators, and some platforms include bot marketplaces for people to buy and sell preprogrammed bots.
Other platforms will include a range of their own preprogrammed options, which are included as part of the subscription package.
In many cases bots will only be partly preprogrammed, meaning you won’t be able to trade with them directly out of the box, but will instead need to customize and adjust them
Steps for choosing a cryptocurrency trading bot
When comparing crypto trading bots, make sure you consider the following 7 factors at least:
- Trading strategy. What strategy or strategies can the bot implement? What sort of market data and technical indicators can it analyze and what parameters can you program in?
- Ease of use. Some bots have preprogrammed strategies set up and ready to go while others allow you to program them however you want so you can implement your own strategy. The right platform for you may depend on your level of trading and coding knowledge, so make sure any program you choose is easy to understand and use.
- How to make changes. How easy is it to adjust your trading strategy and parameters? Is the bot designed to automatically rebalance your portfolio on a regular basis, or is it up to you to make adjustments as you see fit?
- Some bots don’t charge trading fees but many do. Compare the cost of different options and make sure you know exactly what you’re paying for.
- How long has the bot been around? Is it a new program or does it have a long history of successful use?
- Does the bot have a good reputation among the wider crypto community? Check online forums for reviews from other users to see if the bot is legit and if they’d recommend using it.
- While most reputable bots will work with most reputable exchanges, make sure any program you choose will allow you to trade on the exchange(s) you want to use.
Benefits of cryptocurrency trading bots
- 24/7 trading. Unlike stock exchanges with their regular trading hours, global crypto markets are open 24/7. Humans have to sleep eventually, but a bot can keep trading 24/7. With cloud-based trading bots your computer won’t even need to be on for the bot to keep working.
- Fast execution. Cryptocurrency markets can shift extremely quickly, and some opportunities last only seconds. Bots can automatically process and act on information that humans can’t.
- Reduced human error. Manually entering trade details yourself always introduces the risk of human error. By automating trade execution via a bot, this risk is reduced. Just make sure you don’t make any mistakes while setting up the bot.
- Take the emotion out of trading. Effective trading is about having a plan and sticking to it, rather than running with gut feelings. Crypto trading bots take emotion out of the equation and react to pure data only.
- Ability to diversify. Using a bot can allow you to trade across numerous accounts or try out various trading strategies. This can help you spread risk across a variety of crypto assets.
- Want to test a trading idea? Use a bot to backtest, which is where you test your strategy using historical market data to see how it would have worked. You can also paper trade, which is when you use a bot to trade pretend money against the markets of today.