There’s a lot of confusion about what trading bots are. Or even how they work, making beginners and those more advanced confused about the benefits of trading bots or if they’re worth it. This makes It tough to decide if you should invest time understanding them, while you’re mastering the basics of trading.
Trading bots and their benefits
A trading bot is an automated strategy that is always executed according to the rules. There’s nothing more to it. In crypto, you can buy ready-made bots, automate your strategy using software, or jump into programming and spend time on the execution part as well as the strategy.
The benefits of using trading bots are clear:
- You catch every opportunity in a 24/h market
- Trade with perfect discipline
- You don’t have to waste time on the charts for the whole day – most traders have jobs and other obligations
Yet there’s a better and worse way to go about trading bots as a beginner. The first will expedite your trading knowledge, let you think for yourself, and eventually help you reach long-term profitability. The second, may cost you time and money and leave you stuck in the same place. Never becoming good at trading. Let’s start with what should be avoided.
Common mistakes beginners make when starting with trading bots
Starting to trade crypto can fill you with such a sense of urgency! People are boasting about their gains, and you want to start catching up. This often pushes you to want to trade more which is rarely the way to success. You miss moves while you sleep and don’t really have confidence in your approach, so you start looking into possibly buying a bot.
When you start to research the promises are staggering: “make 200% every month”, “5x your stack in a year”, “trade like the best and make a million in 6 months.” Sounds too good? Because it is.
The truth is in the numbers
You can find solid bots out there, usually backed by plenty of statistics. Performance comparisons across ranging and trading markets, max drawdown, Sortino ratios, backtesting results on long-term data and much more down-to-earth returns. The rest that comes with empty promises may win a position or two, but in the longer term, they will cost you.
Stay away from bots you don’t understand
Be especially cautious if the seller is not saying a word about what goes into the strategy behind the bot. Some secrecy may be fine with excellent, detailed statistics offered, but not knowing anything about what goes into it is a waste of time in terms of trading.
You have no idea if they are using an effective approach for the type of market, nor know how to improve it in the future. Does it work on a different trading pair? Are you working with the optimal base currency? Does it beat holding? You’re risking your money based on nothing. In the end, you don’t learn a single thing that will help you progress and think for yourself.
The sooner new traders realise that independent thinking is the only way to succeed in the trading game, the sooner they stop wasting time and start working towards the only worthwhile goal: long-term profitability.
The right way to start with trading bots as a beginner
If you accept that becoming independent and gaining skills is the only way to make it in trading you’re ready to do this right.
We covered what to look at if buying a bot above, but the most beneficial way to go about it is to try to build your own. Even if you have no programming skills and are just starting out with trading it will be much more worth your time than risking your funds into something shady. And with the right tools, it will take you 80% less than it used to.
This is what you need to do:
1. Start on a strategy
Researching a strategy will get you to use data and this will put you ahead of the competition. Take an indicator, price level or anything tangible and start making it specific. “I will buy when Bitcoin touches the lower Bollinger band and sell when it touches the higher”, “I will buy any time price reaches $30,000 and sell at 5% gain,” or “I will buy any time there’s a bullish engulfing and sell when there’s a bearish engulfing.” That’s all a strategy is.
The longer you trade randomly the longer you have no insight into your success or how to improve. Yes, starting to specify things will face you with some errors but that’s what traders do – improve their success rate.
2. Get to testing
This is where you see what works and what does not by seeing how the strategy would have performed in the past. You can backtest on TradingView, by using Python or by simply typing on CLEO.one. Play with timeframes and see what matches your temperament. It used to take a ton of time to set up your backtesting but today with some platforms you can get it done in an afternoon.
The first few attempts might not yield what you want but as you improve and stay persistent, your trading skills will improve too. Backtesting will also reveal if any of your preconceptions about what is effective are correct, saving you a lot of money in the process.
Backtesting is a must for serious traders, legacy markets like forex and stocks rely on it and it’s a matter of time before crypto catches up too.
3. Start by piloting your best ideas
You can start trading your strategy on live funds or demo it on paper trading. On CLEO.one this can be done through simple typing. If you want to program yourself that’s an option too.
It’s exciting to set your ideas to trade live and know that your strategy is perfectly executed. No influence by fear, greed, or other emotions – perfect discipline in every position.
You can start small and if working well – add more funds to trade with. If the demo is working, transfer to live.
Within a couple of days, you’ve gone from starting out, to running and controlling your own trading bot. The process exposed you to check if you’re trading good ideas or duds. It made you investigate historical performance. Now you’re building confidence through perfect execution. Pretty soon you’ll be looking into optimising and how to make things even better – engaging in the planning process that successful traders are good at.
Yes, this will be harder than just buying a bot, but you will thank yourself you’ve put in the work now, rather than needing to start over when losing your funds.
Trading bots can help beginners learn to trade fast
Trading bots can be great tools for beginners and experienced traders alike. Beginners get to experience so much in terms of understanding strategies and trading presumptions by trying to develop their bot, that it’s strange it’s not mandatory training for new traders.
It could be because tools used to be technically challenging and a simple backtest required programming and gathering data. But today the process has shrunk to 10% of what it was, and it can give data-driven traders a real advantage.
If you still choose to buy a ready-made bot make sure you can really evaluate it. Don’t be gullible or deceived by overly optimistic promises. Of course, consider if it’s worth it or eventually you would like to trade independently and if you’re fine with risking your funds without developing any skills.