The Beginner’s Guide on Crypto Trading Bots

A trading bot is a software program or an algorithm that can automatically access and interpret the changes occurring in crypto trades and place buy or sell orders accordingly. Usually, the cryptocurrency trading software (or the bot) is pre-programmed to collect data such as trade volume, number of orders, crypto prices, and time of trading.

Unlike a human, the bot can monitor the markets and trade 24/7. It will also carry out each trade without any emotions, which is the most common reasons for loss in manual trading. However, it will act only according to the set of predefined instructions and rules assigned by the user.

Being a software program, bot-based crypto trading requires a well-defined strategy. Today, investors can access a variety of trading strategies depending on their trading goals. Some of the popular strategies include

Owing to their decentralized nature, prices of a cryptocurrency may vary on different cryptocurrency exchanges. Arbitrage involves buying and selling on exchanges with different prices simultaneously to make a profit. However, this low-risk trading strategy requires simultaneous execution of trades at lightning speed which is impossible to accomplish manually.

That’s where a trading bot comes in. It allows you to carry out many such trades simultaneously and add up the small profits into a substantial amount. Usually, the robot uses cryptocurrency arbitrage software to execute this strategy.

This strategy involves placing buy and sell orders within the same exchange. Investors usually set buy and sell limit orders (buy when there is a set low price and sell when there is a set high price) on both ends of the order book. As the prices fluctuate, bots can make money by placing buy and sell orders continuously.

The Mean-Reversion strategy is based on the assumption that while the price of a digital asset continues to fluctuate, it will eventually revert to its average value. This average value is usually the historical mean of the asset’s price. With this strategy, bots can utilize the “buy low, sell high” principle to make a profit while lowering the risk.

This strategy allows investors to ride a trade momentum, but sell at the peak of the trade just before it crashes. In other words, using bots investors can capture the vital entry and exit points in every crypto trade as the momentum builds. Using a bot allows you to save time, cost, and lower the risk.

Most bots rely on the exponential moving average (EMA), which in turn, tracks market data over a set time interval. However, past trends are not always indicative of future market fluctuations. So, using trading bots is a multi-faceted approach that also requires human monitoring.

A flash-crash involves a fast decline in the price of a cryptocurrency. The high volatility and unregulated nature of the crypto market often lead to flash crashes. In June 2017, Ethereum briefly crashed from $319 to 10 cents in seconds causing huge losses worldwide. Without appropriate stop-loss limits, bot-based trades may lose a lot of money in such flash-crashes.

Unfortunately, not all trading bots are the real deal. Some are outright scams designed to steal your crypto assets. Dubious sources claiming to offer an advanced bot that can help you make millions are usually scams. Make sure to research the short-listed bots before making the final decision to avoid being scammed.

Presently, there are plenty of trading bots in the market offering varied features. Let’s take a look at the three most popular ones.

CryptoTrader is cloud-based digital asset trading software that doesn’t require a set up on your computer. It supports almost all crypto exchange software and platforms for back-testing as well as live trading. It also offers the email notifications feature to users.

It boasts a marketplace where you can sell trading strategies created by you or purchase strategies developed by other traders. You can choose a bot depending on your goals ranging from aggressive short-term profits to long-term conservative investments. It offers five different subscription plans with varying features. However, you can make these purchases only in Bitcoin.

This one is also a cloud-based crypto trading bot. You can run the bot 24/7 for trading regardless of whether your computer is on or off. Cryptohopper offers a wide range of professional external signals based on machine learning, intelligent algorithms, and mathematical calculations. These signals allow inexperienced traders to use bot trading strategies set by experts to place profitable trades.

It also features an easy-to-use dashboard with analytical features such as Stoch, RSI, Bollinger Bands and MACD. It is one of the few trading bots offering a free one-month trial, making it an attractive option for beginners as well as seasoned traders.

Gekko is open-source trading and back-testing bot. You can download, install, and modify the software for free. Currently, it supports 14 different white label crypto exchanges including Bitfinex, Bitstamp, and Poloniex.

You can use the built-in trading strategies or design your own. The back-testing feature allows you to trial run various trading strategies. However, this is not a high-frequency trading bot. Still, it is considered as one of the best trading bots for newcomers who want to learn about automated crypto trading.

Crypto trading bots can help you to keep track of the market 24/7. They can also help you increase your profit, lower risks by eliminating emotions, and make timely entry and exit in a live trade. However, they are only as effective as the preprogrammed strategy you are using. In short, you need to use the bots judiciously and only as an added layer of security and profitability in your current trading practices.