Everything You Need To Know About Crypto Trading Bots
Knowing how to analyze the crypto market is key in becoming a successful crypto trader. Even more important, though, is knowing when to execute trades.
The crypto market is volatile, and the prices of digital assets fluctuate widely. To maximize profits in this market, you need to be quick and precise when making trades. Minor delays can cost you profits or make you incur losses. This is why most crypto traders prefer to use bots.
If you are new to cryptocurrency trading, you’re probably wondering what these bots do or how useful they are. Don’t worry, we have got you. In this guide, we walk you through everything you need to know about crypto trading bots.
What are crypto trading bots?
Crypto trading bots are software programs designed to analyze trading data and execute buying or selling orders on your behalf. These bots use an Application Programming Interface (API) to interact with your account and automate crypto trading based on pre-programmed criteria. They collect market data, break it down and also work out the potential market risk.
Most bots come with predefined trading strategies, but others have a provision for user customization. There are also advanced crypto trading bots that incorporate traditional market signals with technical analysis signals like relative strength index. These are particularly suited for experienced traders
Pros and cons of using a crypto trading bot
Trading bots are effective when it comes to automating trades. Here are some of their advantages.
First let's look at the pros
Eliminate impulses
Crypto coins are inherently volatile, and it’s not unusual to see wide price fluctuations. These price shifts can push traders into making erratic decisions like panic selling, which can be costly. Trading bots get rid of this risk by executing orders based on the gathered data and preset instructions.
Efficient
Trading bots, unlike humans, can easily break down complex data and execute plays across
different crypto assets or exchange platforms. They can also spot good opportunities that traders are likely to miss, especially if they manage multiple cryptocurrencies.
Fast
Speed and accuracy is everything in the turbulent crypto market. Trading bots can be set to carry out trades instantly, allowing a trader to make the most out of good opportunities.
Can work all around the clock
Even the most committed crypto traders need a break from the crypto market. Trading bots come in handy in such cases allowing users to continue trading even when they are away.
Now let's look at the cons
Useful as they are, trading bots are far from flawless. They have their drawbacks, and here are some of them:
They are not independent and need human input
Crypto trading bots aren’t set-and-forget solutions. You still need to monitor their performance occasionally and make changes when necessary. They also don’t factor in changes in the external world that affect the price and value of crypto assets e.g. statements from governing bodies, regulators, and influential crypto players.
Require traders to be familiar with crypto
Trading bots typically come with trading strategies already preloaded. However, these strategies aren’t enough, and to maximize profits, a user needs to make additional configurations. A user who is not very experienced with the crypto market and technical aspects of crypto trading may struggle to make the best out of them.
They can be compromised
Automated trading bots use APIs to interact with exchange platforms. Their centralized nature makes them more susceptible to exploits like hacking. This is why you need to ascertain that the security of the bot you intend to use is top-notch.
Crypto trading bot strategies
Crypto trading bots follow specific strategies to automate trading. Some have provisions that allow users to reconfigure and customize configurations according to their needs. The common crypto trading strategies are:
Trend following
This strategy involves observing the directional movement of an asset and the momentum of this movement. Typically, a bot using this strategy will execute short when an asset is plunging and long when it is on an uptrend.
Arbitrage
This strategy helps traders take opportunities that arise from the price difference of an asset across various exchanges. To realize profits, a trader needs to simultaneously buy crypto assets in an exchange and sell them in another where the crypto’s price is high.
Market making
This strategy helps traders avoid massive price swings as it involves continuous buying and selling of crypto assets near current market prices. The aim is to capture the spread between sell and buy price as the market progresses.
Copy-trading
As the name suggests, this strategy lets traders automatically copy plays made by other traders in the same ecosystem. Copy-trading works best for exchanges that have leaderboards and communities where traders interact.
Let's wrap it up
Crypto trading bots follow specific strategies to automate trading. Some have provisions that allow users to reconfigure and customize configurations according to their needs. The common crypto trading strategies are:
Wunder Trading
Probably the most time and resource-consuming task when making your own trading bot is its right technical realization. You need to have solid programming skills to write the code for your bot that will allow it to collect market data and transform it into concrete actions on the exchange via its API. You also need to have a PC that will be connected to the Internet 24/7 in order for your bot to operate efficiently. Remember, the crypto market does not sleep.
As even a little bug or flaw in the bot’s architecture can lead to it not functioning correctly and posing a threat of funds loss, one has to be sure that every component is stable and reliable.
Wunder Trading has set up a system that allows anyone to make and utilize their own cryptocurrency trading bots seamlessly not worrying about their workability. An intuitive yet functionally powerful interface and the support of the most popular exchanges make Wunder Trading the perfect place to start the journey in the world of automated cryptocurrency trading for both newbies and experts.
Moreover, Wunder Trading provides you with various instruments to track your bots’ performance and compete with other traders for followers. All of these can be accessed for free. Join now!
