Crypto trading involves monitoring, analysis and predictions, but manual trading comes with several down sides. The emergence of trading bots has also reached the crypto market and we’re going to give you a short 4-1-1 on crypto trading bots.
Because trading bots automatize the trading process. Brokers and financial traders have been using automated software to make their trades for them. Nearly 75% of trades on U.S. stock exchanges are made on an automated basis. Even people without prior trading experience are able to get involved into the Bitcoin and altcoin markets with the use of such bots. Just set basic rules and the software automatically performs the trading. Sounds like an easy thing to do, right?
How Do Crypto Trading Bots Work
Trading bots use an algorithm that completes a defined task based on its set parameters. These algorithms allow the user to set certain rules of execution, such as the timing of the trade, the price or volume of the asset before trading, and many others.
The algorithm allows you to set your trading parameters, and when it receives the trading signal that matches these parameters, the algorithm proceeds with the bid. To increase its accuracy, the bot looks through a large amount of historical data and proceeds to compare it to the current market trends. This technical analysis allows it to generate trading signals based on which it executed the most profitable trades.
Most sophisticated trading bots are based on a three-part system consisting of:
This is the part of the bot that makes predictions based on the inputted data into the signal generator and then outputs the buy or sell signal. Some bots use technical indicators for these predictions, which include historic price, volume, or open interest information.
This part takes the buy or sell signal and decides on how much it should place on the order. For example, the bots weigh in if it should allocate their owner’s entire capital in one particular trade or just a share, or if the purchase should be executed in one instance or a series of several others.
The part of the bot that places the order on the exchanges you have selected.
These three instances require their own distinct algorithms and optimization processes and should all be working in perfect sync if you want to make the most of your trading.
Pros of Crypto Trading Bots
Automation: The software automatically analyses and predicts trading opportunities on your part. You just have to set your trading parameters.
Easy to use: Bots can be used by both new and experienced traders, as everything is neatly displayed on a compact interface.
No risks of human errors: It is very easy to be affected by your emotions and make a trade you will regret in the midst of a very volatile market. The bot effectuates the trades as it was supposed to.
One note of advice though: When changing or updating your strategy, it is best to switch to manual mode for up to the first 100 trades and then automate the process with the help of a bot. That’s just sound advice.
We’d would love to hear from you. Are you a manual trader or do you like to use bots? Share your experience with us.
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