Automated trading platforms operated by crypto trading bots are rising in power. The crypto market needs 24/7 attention and is highly volatile, so bots are becoming prevalent. Bitcoin storm auto trading is catching the attention of investors.
The cryptocurrency trading market offers traders many opportunities to gain. However, reacting quickly enough to the changing price chart is not always humanly possible. There are moments when the exchanges slow down, and transaction times are delayed.
How Do Bots Help In Crypto Trading?
As the market is always active, it becomes challenging to dedicate so much time to the market to achieve the best trades.
The immediate solution to this is bots. These automated tools are programmed to conduct trades according to the user’s trading rules. They are capable of executing transactions on behalf of humans. However, whether to use automated bots remains a controversial topic.
Advantages of Automated Systems
Cutting back on Emotions
The market minimizes the chances of emotions overlapping throughout the trading process if you have a computer monitor. As the feelings are kept in check, traders find it easy to stick to the initial plan. Every trade order is set to execute automatically, and once the trade rules are met, there is no way traders can hesitate or question the trade. Not only traders who are not confident enough to “pull the trigger” but also people who overtrade benefit significantly from automated systems.
Backtesting
Backtesting is a way of testing a strategy according to historical market data. All rules must be definite for automated trading to succeed, as there is no room for guesses. Traders can tally the rules with historical data to gain confidence in the strategy before live trading.
Backtesting is very helpful to traders as it helps evaluate the plan and rectify it if necessary. It also predicts the system’s expectancy, the average amount a trader can gain or lose per unit of risk.
Maintaining Discipline
Trade rules are established in advance in automated trading, and the execution responsibility is automated; hence, Discipline is preserved even in the most volatile situations. Sometimes, people get carried away by the desire to earn a little more profit from the trade, and at other times, discipline is compromised due to the fear of losing.
Automated trading helps maintain a balance because the trading plan should be followed precisely.
There are also fewer chances of “pilot error.” You will never hear cases where an order to buy 100 bitcoins has been incorrectly entered as an order to sell 100 bitcoins.
What traders often fail to do is ‘plan the trade and trade the plan.’ Despite a trading plan having the potential to gain money, traders divert from the rules, dodging any expectancy the system had planned. Automated trading systems allow Bitcoin traders to achieve consistency.
Generate Income
Crypto assets are very different from stocks. They will not earn you dividends. Investors think of crypto assets as commodities. Hence, there is no point in holding onto a commodity in a bear market as you will not receive any return apart from price appreciation, which is impossible in bearish conditions.
Trading bots allow crypto holders to earn a passive income by leveraging their assets through trades. This Income method is not as safe and reliable as receiving dividends, but it is one form of Income for people planning to hold their assets for the long term.
Automated trading depends on the strategy a trader designs. If the strategy performs well over a consistent period, the trader can earn a long-term passive income. Freshers who do not have experience in trading can use ‘copy trading platforms,’ which allow them to take inspiration from professional traders and set their algorithmic trading strategies.
Risks of automated trading
Trading bots are only another tool.
They cannot promise you a guaranteed profit. Automated trading needs human supervision. Crypto market conditions are highly volatile, so traders must closely examine the market’s direction and adjust the parameters accordingly.
Mechanical failures
The system is not infallible. Sometimes, trading platforms only allow a trade order to be stored on a computer, not a server. The order will not be sent to the market if the internet gets disconnected. Bots can sometimes get bugged or suffer from poor programming and might also get confused by unusual market conditions.
A flash crash or a major news event can drastically change the Bitcoin market in moments. Therefore, it is better to start with small trade sizes.
Scams and hidden fees
Bitcoin trades are unregulated, and prices are booming, which can attract hackers. Unethical crypto trading bots designed to exploit traders by hacking their data and stealing funds exist. Hence, check the credibility of your platform, read reviews, and connect with the support team.
It is essential to have a background check. Many bots only provide marginal returns even when programmed correctly. Many bots are not designed well. The crypto bot space, or for that matter, the whole cryptocurrency world, is not regulated.
The use of bots can be tricky. Successful utilization would require intricate knowledge of the cryptocurrency market and a supportive investment plan. Bots are beneficial tools for investors to assist in cryptocurrency trading, but for some, they might only prove to be an inadequate service.
Over-Optimization
There is a chance that the strategy employed through backtesting will give a good impression on paper but perform terribly during live trading. Excessive scrutinizing can produce a trading plan not applicable in a live market.
Strategies for Automated Crypto Trading
Automated trading bots allow you the scope to change configurations when needed to implement different trading strategies. Whether it’s a simple trend-following strategy or a more complex one that deals with a wide range of data points, these bots are highly customizable.
Following the trend
This strategy aims to follow an asset’s directional movement and profit from its momentum. If the asset is trending upwards, this strategy can take you far, and if it is pointed downwards, you go short.
Arbitrage
Arbitrage trading takes advantage of the difference in the price of an asset among various markets and exchanges. The discrepancies are enormous for a new market that is just emerging, but prices are tight when the market grows.
Market making
It is a strategy of vigorously buying and selling bitcoins to profit from the difference in the buying and selling prices.
Copy-trading
Anyone wishing to enter an automated crypto trading world with minimal experience can benefit from this trending strategy. Copy-trading exposes you to a social community where people with experience help you, and improvements are noted on a leaderboard. When a copy trading user gains experience, it becomes easier for them to avail of this feature.
When to use Crypto trading bots?
Repetitive task
Trading often involves repetitive steps that consume a lot of time and effort. A trading bot will automatically copy and paste specific tasks to conduct the trade smoothly. Period rebalances are the best way to make use of bots.
Timing
To achieve a high degree of accuracy while trading, timing is essential. Every trade you carry out will determine your potential earnings. Let’s say the price of Bitcoin is purging, and you plan to sell your position when the price hits the $8,750 support line. Doing this manually requires effort and anxiety as you must patiently observe the price chart. There is a chance you might miss the price. However, a bot programmed to execute at the correct time will not fail.
Day trading is a full-time job.
It allows you to sit 24/7 in front of the computer & monitor to evaluate the price chart. This kind of research is a difficult task when done single-handedly. The trading process also needs repetitive tasks to be carried out. A trading bot can take away those responsibilities from you.
Complications are handled well.
Processes like ‘smart order routing’ require using numerous trading pairs. Every pair must be checked according to timing, asset quantity, and trading price. The process must be finished within a specific time limit before market conditions change. Such complex trading strategies are humanly complicated, but trading bots make things easier.
Cryptocurrency trading bots allow inexperienced traders to try their luck. They make generating profit from your investment much more accessible and remove the stress, repetition, and boredom of trading. However, it is essential to choose the right kind of platform.