What is the role of crypto trading bots? The crypto market never closes and the crypto coins are extremely volatile.
Therefore, price swings are common in this market space which is what every crypto investor and trader should keep a check on in order to make the maximum profits.
This is where you will find that the crypto trading bots are extremely useful.
If you only know how efficiently you can use these bots, you will be able to do much more meaningful analysis and plan your next moves accordingly.
But, just like most of the crypto users, if you do not know what the crypto bots are and how they work, this, fortunately, is the right place to be.
In this article you will know how these crypto trading bots work and how significant are these to any crypto trader.
You will know how they work and how they are different from humans along with their significant pros and cons.
You will also come to know the right ways to choose the right crypto trading bot according to your trading and investing needs.
Finally, you will know how you can create your own bot.
What is the Role of Crypto Trading Bots?
Ideally, crypto trading bots are more like the chatbots that automate tasks and customer queries to enhance customer experience.
However, the difference between a crypto trading bot and a chatbot is that you can place crypto trading orders automatically.
This means that you will not need to devote a lot of time in monitoring the market events and changes but react quickly to them as and when these happen.
These automated tools will enhance your chances to make profits significantly.
The crypto trading bots are actually a set of programs.
These are meant to automate your crypto trading and therefore relieve you from the pain of paying constant attention to pick the right time to buy or sell crypto coins.
The crypto trading bots will also analyze the market statistics and interpret the current trends and opportunities that may result in higher profits.
In addition to that, these bots will assess the potential risks in a particular trade and execute your buy or sell order accordingly so that it works in your favor.
They will work just like an expert you hire to do the trading on your behalf while you can sit back and relax while your crypto portfolio grows.
This will not only save a lot of time and hassles in crypto trading but will also prove to be much more cost effective and result driven.
All you have to do is choose a particular crypto trading bot and then download the necessary code from the developer.
Yes, you will have to pay fees to enjoy such service and sometimes this fee can be quite steep.
Therefore, check it out first so that using a crypto trading bot does not make it difficult for you to break even.
You will also need to know the specific software and hardware requirement to use the bot because different crypto trading bots will have different sets of requirements such as proper account set ups.
Most crypto trading bots available out there typically comes with these key components that make them so significant for the crypto traders:
- Market Data Analysis – This module will store all raw data of the market available from varied sources. It will then interpret the data to determine whether or not it is the right time to buy or sell your crypto. Most of the bots will allow you to customize the type of data that you want to go into the signal generator sector. This will further refine the results.
- Market Risk Prediction – This particular and critical module of the crypto trading bot will also use the market data but to analyze the potential risks in a trading in particular. It will help you to decide how much amount you should put into a specific trade.
- Buying and Selling the Assets – This is another crucial module of the crypto trading bot that will help in buying and selling crypto coins more strategically with the use of different APIs.
All these components of the crypto trading bot ensures that you do not trade more than what is reasonable and do not buy tokens in bulk to lose more.
Taking care of such crucial aspects of crypto trading these bots are therefore extremely important for the crypto users.
Difference from Humans
The specialized set of skills and features of the crypto trading bots make them different from the humans.
These bots will provide consistent results even for the most monotonous jobs they need to do which is hardly possible for any human being counterintuitive to their nature.
This will enhance your chances to make more profits consistently.
Here are some other aspects which make using the crypto trading bots much more useful than humans.
- Longevity – The bots do not need to rest or sleep like the humans and therefore can work at the same level 24/7.
- Speed – The crypto trading bots can handle larger magnitudes of data and even operate faster in comparison to humans since they lack both thinking and reaction time.
- Emotion – The humans can be driven very easily by greed or fear. It is more likely that the humans will do what they ‘feel’ would produce higher returns. In comparison, the crypto trading bots will not have any such emotions to influence their results and decisions and will do what they ‘know’ will provide greater returns.
- Capacity – The crypto trading robots will not be affected with the amount of data they need to process. They have the capacity to handle enormous gigabytes of data and produce accurate results in quick time, much unlike the humans who have very limited capacity to process that much data within that specific timeframe.
The only way in which humans fare better than the crypto trading bots is when it comes to subjective or secondary process thinking when the given piece of data and information fail to provide the desired result or understanding.
Nevertheless, there is no need to worry too much about it because when a fairly subjective situation arrives, the crypto trading bot would rather choose not to make any investment at all.
However, if you choose to use a crypto trading bot you should keep one particular thing in mind which is – a bot is only a bot and is just like any other bot.
It will only be good if the human being creating it is knowledgeable and efficient.
Therefore, when you use it, follow the old proverb – the garbage in, is the garbage out.
Types of Crypto Trading Bots
There are different types of crypto trading bots available out there and you can choose one according to your needs and preferences.
However, the most commonly used one is the arbitrage crypto trading bot.
This particular bot is so favored it allows the users to examine prices of the crypto assets across different exchanges.
This means that it will make trades accordingly so that you can take the maximum advantage of the price variations.
This is because it will be able to move rapidly enough and beat those crypto exchanges that are late in updating the prices of the crypto coins in their lists.
Trend trading bots are different types of crypto trading bots that execute buy and sell orders of crypto coins based on the momentum of that particular crypto asset.
If there is an upsurge in the price of the coin, the bot will set a long position and enter into a short position if the price falls.
This bot uses several technical indicators apart from the price actions of the crypto asset such as trend lines, moving averages, momentum indicators, and chart patterns in order to find out a trend.
Coin lending bots are also good ones to use if you are looking to earn passive income from crypto by lending them to the margin traders and earning a percentage along with the principal when they return it.
These bots will ensure that you make the most of the potential spikes in the crypto lending options by automating the process.
Therefore, you will not have to spend time searching for the best interest rate.
It will also help you in configuring your strategy, choosing a currency and the date you want your coins back, and even withholding your coins until the interest rate reaches a definite threshold.
Finally, you can choose the market maker bots that use order book spread to ensure you make the maximum profit.
The spread will be wider for a more actively traded crypto asset and the market maker bots will return more profits.
The primary objective of the bot is to sell the crypto assets to investors at a higher rate than the selling price and do it as many times as possible.
This bot actually places an order price that is different from the market price therefore creating a new market.
It does this by scanning different market opportunities 24/7 and selecting the one with a wider spread which gives the crypto trader the advantage of price, time, and volume.
There are also some other crypto trading bots that use historical price data of crypto coins in order to determine the best trading strategies and test them to help you in your trades.
Apart from that, you will also find other types of crypto trading bots that are programmed to automate trades on the basis of specific signals such as trading volume.
There are typically three moving parts that make the crypto trading bots work. These are:
- Signal Generator – This is the stage where the right predictions are made. The data is sent to the signal generator and the buy or sell signal will pop out from the other side.
- Risk Allocation – This is the stage where the buy or sell signals are interpreted and the right amount of coins to buy or sell is determined.
- Execution – This is the final stage when the orders are executed based on the analysis and depending on whether or not there is a high likelihood of getting a favorable price.
All these three moving parts need their own optimization processes and algorithms to be applied in order to make sure that you stand a good chance to make the desired profit. These are:
- Momentum algorithm – This decides the momentum strategy so that it is right and the win is fairly large. Usually, when the prices of crypto coins are rising, people think it will continue to rise and therefore buy more coins. However, statistically, the algorithm determines the momentum based on the Win: lose rates of about 55% and gain: loss ratio of around 70%. This is fairly common.
- Mean-Reversion algorithm – This decides the mean reversion strategies. When prices are rising, people also tend to pull back or sell their crypto coins. Ideally, these strategies win more often than they lose but the gain to loss ratio is pretty low. This algorithm determines precisely on the Win: lose ratio of around 70% and gain: loss of about 55% to make a trade more profitable.
Typically, the algorithms manage the active to passive trade ratio.
This is done by trading across several crypto exchanges and then choosing one dynamically depending on the best transaction costs.
At this point, you should also keep in mind the trading fees because that will have a significant effect on your profitability.
The fees may include the transaction costs that you need to pay to the crypto exchange and the trading costs for the bid offer.
Both these will have a radical effect on the amount the bot eventually makes.
One thing that you may not be aware of is that the exchange fees may determine whether the crypto trading bot is a liquidity maker or active or a liquidity taker or passive.
Typically, the crypto trading bots that can make only a nominal statistical edge eat up the fees completely if it is more aggressive on every trade.
In short, the crypto trading bots basically work by communicating directly with the crypto exchanges.
They will place the orders automatically on these exchanges based on the preset conditions with utmost efficiency and speed.
However, these trading bots will only work after you authorize them to work on your behalf.
They will then access your account through the API or Application Program Interface keys.
This authorization can however be withdrawn or granted at any time.
Here are some examples of crypto trading bots that you can choose for you depending on what exactly you want to achieve.
You can use the built-in trading bots of Pionex crypto exchange if you intend to make trade in high volumes.
These bots are free to register and feature low trading commissions. The bots you can choose from are:
- Grid Trading Bot to trade within a particular price range
- Leveraged Grid Bot to get leverage up to 5 times
- Spot-Futures Arbitrage Bot to make some passive income of 15 to 50% APR at low risk
- Martingale Bot to perform DCA buy
- Rebalancing Bot if you wish to hold on to your crypto coins
- DCA or Dollar Cost Averaging Bot for frequent purchasing at regular time periods to compensate the upshots of volatility
There is also a Smart Trade Terminal that will allow you to set up features like take profit, stop-loss, and others.
For all these offers, the platform charges a maker-taker fee of 0.05% only.
You can use the Coinrule crypto trading bot if you want to trade with preset strategies.
This bot offers probably the widest range of such strategies that includes over 150 trading templates including stop loss settings and long term holding strategies that can be executed automatically depending on the market conditions and the set parameters.
You can choose a number of trading strategies depending on the plan you have chosen.
However, as of now, you can use as many as 7 complimentary templates for up to $3,000 monthly trading volume.
If you pay extra, you can use packages that include features such as unlimited template usage, advanced charting options, and one-on-one trading lessons and tutorials.
The crypto trading bot of Shrimpy is also a good one to use by the beginners and to connect with as many as 18 crypto exchanges and add as many wallets as you require.
Its bot will manage your portfolio, choose an account style of your preference, maintain your investments, test investment options, copy an expert by using a social copy, and even consolidate your investments spread across several crypto exchanges.
You can use the 24/7 Cryptohopper trading bot if you are a copy trading investor and looking for an all-round performance.
It offers a wide range of services using cloud storage completely.
This means that there will be no downtime and you will continue receiving regular updates.
The best part is that the bot will work even when your network goes offline.
The setup process is easy and intuitive and needs no installation platform or credit card information to join.
The bot will integrate social sentiments as well with other crypto investors which will help you to improve your trading strategy even further.
If you want to automate your strategies and create an extremely intricate and super-creative algorithm using a community driven and educational infrastructure, Trality is the platform to go for.
You will develop a lot as a trader learning how to code more advanced crypto trading algorithms with their Rule Builder, a state-of-the-art tool.
This is a Graphical User Interface that will let you build the logic of your trading bot by dragging and dropping different strategies and trading indicators simply.
If you know Python coding you can also use their browser-based Code Editor tool to build intricate and more sophisticated trading strategies quickly and more securely.
Good thing is that you can perform backtesting with both these tools quickly to validate the algorithm you created before you use your bot in a live market.
You can even paper trade to find how it is doing at present without needing to use real money.
Remember, these are not the only ones available out there.
You will also find a lot of other useful bots that will meet your needs while trading crypto coins with almost similar features as the crypto trading bots mentioned above.
Factors to Choose the Best Crypto Trading Bot
When it comes to choosing a crypto trading bot, here are a few specific factors that you should look into in order to make sure that you end up making the right choice.
Look for the professional experience level and well as the performance track record of the senior leaders of the firm.
If they have not managed more than 100 million dollars, they may not be worth considering.
Also, find out how popular and useful their algorithms are and whether or not they are openly available.
Do not choose one that provides only trade-level data because these can be replicated very easily and the benefits can be arbitraged away quickly.
Finally, check their success rate and find out whether or not it aligns with yours.
Find out whether or not they are willing to waive the fees if you lose.
If they simply hand you a platform and leave there to find your own way out, it is certainly not worth considering.
Remember, the final choice is in your hands and therefore consider your needs and preferences and certainly do not give in to the marketing gibberish.
Steps to Create the First Trading Bot
The steps to follow when you want to create your first crypto trading bot are pretty straightforward.
First you have to visit the website and register with your email address and a password and click on the confirmation link sent to you.
You are now all set to create your bot by following these simple steps:
- Go to the dashboard and click on ‘Create new bot’
- Give the additional info such as bot name, its type, preferred exchange, quoted asset, and color
- Select the crypto asset from the ‘Assets’ tab of the bot setup
- Choose the parameters to set and fine tune them
- Select your trading strategy form the ‘Strategy’ tab
- Click on ‘Add new’
- Backtest and
- Start the bot for paper trading or live trading.
Remember, there may be some additional instructions to follow when you run your crypto trading bot.
There are several benefits that you can enjoy when you use crypto trading bots. Some of the notable ones are:
- There will be no emotional attachment of the bots with the trade which will negate negative consequences.
- The process of crypto trading will be much more efficient and result driven due to the multitasking abilities of the bots.
- The investment process will be much simplified with proper data and price analysis along with a clear understanding of the trading charts.
- The crypto trading bots are more powerful to handle larger sets of data than humans.
- The automated investing options will eliminate the chances of FOMO and panic selling.
- You will not need to spend more time in front of your computer and even not need to monitor the market movements all the time.
- Backtesting and paper trading options will allow you to know how things will perform and are performing.
- The trading bots will minimize the risks of crypto trading by diversifying your portfolio and managing it properly.
Most importantly, you will have consistent returns from a volatile crypto market.
As for the downsides of using crypto trading bots, the list includes:
- Limited access to cryptocurrencies
- Making unexpected decisions at times and
- Chances of programming errors.
And, if you are a beginner, using crypto trading bots will need you to have some prior knowledge about the templates and predefined settings so that you know when and how to change them.
If you want to stay ahead of other traders and do well in the crypto market, using a crypto trading bot may be very useful. Now that you have gone through this article, you surely know how you can use such automated software properly.