Everybody is talking about them, but what are crypto bots, and do they really work?
In this blog post, we answer the question of what is a cryptocurrency trading bot and give you the pros of crypto trading bots, and highlight the crypto trading bots’ cons so that you are fully equipped with the knowledge to become a successful automated trader.
Note: Learn how manual trading works before you jump into using crypto bots so that you understand the financial vehicle behind the trading bot.
What are Cryptocurrency Trading Bots?
Trading bots are programmed algorithms that are designed to react to certain market conditions based on predefined parameters. These parameters are either set by the trader or pre-set by the trading platform or from another trader where you can buy trading bots on the marketplace of the platform – (if they have one).
Cryptocurrency markets are open 24 hours a day, seven days a week. This makes crypto trading harder than you might expect, especially if you’re more familiar with traditional markets like Forex or the stock market as they are open within certain time frames each week and also you will find that they are closed on holidays.
Something else that you should know before you begin trading crypto. Cryptocurrency markets are extremely volatile, with a Capital E. Cryptocurrency investors know the emotional strain of checking your portfolio to find significant gains or worse sudden losses that have occurred overnight or in the split second on your 78th trading app opening of the morning. Therefore with the cryptocurrency market being open for business 24/7, it is driving more and more investors to turn to automation tools like crypto trading bots.
Why use cryptocurrency trading bots?
Traders have started to find that the use of crypto trading cannot play an important part in their day-to-day trading because it helps them to control emotions, specifically fear. The fear of missing out – FOMO. The fear of profits becoming losses, and the fear of getting out too early. A trading bot can help to predict and automatically get in and out of trades profitably.
Bots allow us to trade round the clock, which is perfect for those investors whose eyes are glued to the market throughout the day and night. At the end of the day, traders are just human after all and need to sleep. Once you take your eyes off your trade you can be sure that will be the moment it spikes one way or the other and you do not want to miss that.
There are many different types of crypto trading bots from simple Spot trading to DCA bots (Dollar Cost Averaging). Some platforms have become clever with the options that they provide giving traders the tools for Grid trading, Arbitrage trading and Options trading automatically.
Before you start using crypto trading bots you should consider the following factors before you start trading large amounts of Bitcoin or other currencies:
Crypto bot security is key
Strong security is a must-have for any online software business that deals with sensitive data. Determining how secure crypto trading bots are can be tricky, but you can look to online communities and reviews to help yourself make the smartest, safest choice.
Here is a short list of things to make sure the crypto trading platform has to protect your data and the all-important crypto portfolio.
- It is basic but password protected – and make sure to use something unguessable and store that password somewhere safe.
- You can enable 2-factor authentication – Google Authenticator is a great app that you can download for both IOS and Android.
- It is always better to keep your money close to you. If you can, choose a crypto platform that gives you a NON-CUSTODIAL option. In short, this means that your trading fund stays on your crypto exchange like (Binance) where it should be safer.
- The URL of the bot trading service is HTTPS, you may see a locked padlock in the search bar.
Platform reliability for peace of mind
Cryptocurrency markets operate 24/7. That means the trading bot you choose has to be reliable. If you choose a bot service that loses connectivity often, even if it is just for just a few minutes, you could miss out on an opportunity to secure big profits. Not only that but if you are in a trade and want to close but your connectivity is lost just to their servers it can be very frustrating.
Tip: Search for crypto bot reviews like the ones on this site from other users. Try a variety of review communities such as Trust Pilot to gather insights from their customers.
Most Crypto Bot and Crypto Exchanges also have dedicated Telegram channels for delivering important information and for building a community of traders so make sure to hang around there for a few days. A Satisfied Trader = A potentially reliable and well-respected crypto bot platform.
As cryptocurrency trading bots are designed to keep the trading process simple, and with that, the crypto platform should also have an equally user-friendly interface. An intuitive design and streamlined layout with a great onboarding process reduce your risk of becoming confused and overwhelmed especially if you’re a beginner. You want to find a platform that offers your support with plenty of knowledge-based crypto trading tutorials.
Profitability always matters
Before you get started again look for a review and do a little research on the profitability of any cryptocurrency trading bots you’re considering. In an ideal crypto world, all trading bots would be profitable but that’s just not the case.
This can be down to trader error, not knowing how to trade markets correctly or setting the parameters of a trading bot up with crazy instructions that are just unrealistic. Remember, even trading bots are not getting rich-quick schemes. Use them with caution, care and be responsible for your risk.
This is a good time for a disclaimer: We are not a financial advisor and nothing on the blog post or website should be taken as such. Trading cryptocurrencies is high risk and you could lose some or all of your money even with the use of crypto trading bots.
Crypto trading bots pros
Ok, now that you know what crypto trading bots are and how to find the best trading bot.
Let’s take a look at the pros and cons of trading bots.
Take the emotion out of the game
As cryptocurrencies have high volatility, it’s easy for traders to get overly emotional with panic and FOMO in and of trades chasing losses. Emotions affect your decision-making and can lead to lapses in judgement and poor choices which can lead to closing trades at a loss, hitting a stop loss or becoming liquidated.
One of the main pros of using a crypto trading bot is that they have no emotions or attachment to the trade and get in and out based on the market, not a gut feeling.
Better efficient trading
Crypto trading bots are designed to be masters of multitasking. Bots run and monitor many analytical data sources of multiple currencies and can create multiple trades at the same time. They’re not hindered by the same narrowed focus as humans, and bots won’t miss a potentially profitable trade because they were too busy on another task or away from the screen.
Remember, you are only human. You have to sleep at some point. But cryptocurrency trading bots operate 24 hours a day, seven days a week, making potentially profitable decisions for you while you sleep. They’ll never miss a valuable opportunity. Think of them as an employee that never complains, never sleeps, never asks for time off, and never asks for a pay rise.
Well, so far, all of this sounds great and you are probably excited and ready to get started but before you create a trading bot let’s take a quick look at the cons of using a crypto bot.
Crypto trading bots cons
Now that we know the pros as to why crypto bots are good, let’s dive in and look at some of the cons of using a cryptocurrency trading bot.
The still required some supervision
While cryptocurrency trading bots automate most of the repetitive tasks you face when manually trading, you’ll still need to check in regularly to make sure everything is working and that your bots are profitable. You can’t leave the bot to work independently forever without monitoring its performance. You will need a solid understanding of crypto trading to set effective rules and ensure the bot is running smoothly.
Crypto trading bots conduct trades via API keys, allowing them to connect to your crypto exchange and trade automatically, with no manual input from you.
Cyber-criminals or Hackers tend to stay clear of blockchains as they are generally speaking secure. We are not saying they don’t try to hack exchanges, they do but most crypto exchanges have top-notch military-grade security to protect their trader’s funds. There is the chance though that they could decide to check out a trading bot platform. You can reduce your risks by deactivating withdrawal permission and being very secretive with your API keys. Do Not Share Private Keys With Anyone!
Some crypto bots are just not profitable
There are now 100s of crypto trading platforms for crypto trading now with some platforms even offering a marketplace where you can buy other trading bots from users. Be careful, do your homework, and make sure you test the bot with small amounts, in the beginning, to make sure the crypto trading bot is profitable for you.
Crypto traders can see great results with cryptocurrency trading bots, particularly when paired with manual trading knowledge. But it’s crucial that you check reviews, look into the history of the company, and verify that you’ve chosen a secure option to maximize your investment’s value. DO YOUR HOMEWORK.
Now that you know some of the pros and cons of crypto trading bots it’s time to start choosing one to begin your automation trading journey. To see the full list of crypto trading bots that are available on this site you can click on this link for the best crypto trading bot reviews.
If we have missed a very important pro or con of using bots, please leave a comment below and let us know so we can add it.