In most of our articles, we have discussed cryptocurrency from an investment perspective. We received a few requests from the trader community to write articles related to trading, so here we are – Crypto Trading Bots. If you are short-term investors or crypto traders, this article will be helpful for you.
When you do stock (equity) trading, you know there are fixed market hours during which you can buy or sell shares. In crypto, there are no market hours. The prices of cryptocurrencies increase or decrease round the clock. For traders, it is essential to make entries at the right time and react quickly to small changes in price. Even though the market may have some good trading windows, you may not be able to cash that since you never know at which time of the day it will happen. What is a solution to the problem? Well, we are in the 21st century, and there is a solution to every problem. The solution for the problem is Crypto Trading Bots.
What are Crypto Trading Bots?
Crypto trading bots are a set of instructions written using a program to automate cryptocurrency trading for you. When you do trading, you look at charts and market statistics, and based on some rules you created as part of your investment strategy, you make a buy and sell call. With Crypto trading bots, you can automate analysis and interpretation. Once certain conditions are met, the programs automatically trigger buy or sell calls. In short, trading bots gather all the market data, interpret it, calculate the risk and reward, and then buy or sell.
Just like you hire a driver for your trip and you relax and enjoy the journey, similarly, you take help from crypto trading bots while you relish your time with family and get the profits.
How Do Bots Work?
As we mentioned above, crypto trading bots are programs (set of instructions). Hence, there are many options available in the market. You have to look for one that will be most useful for you. Once you have finalized one, you can download the code from a developer. Most of the bots come with a price – some of them are quite expensive.
Before you make any payment and download the app, you should check the bot’s software and hardware requirements.
You may get the impression that bots are like a magic device that can help you become rich overnight. Before we go ahead any further, we would like to disappoint you – they are not a get-rich-quick solution. You will still have to put in the time and effort to get success in crypto trading.
What Are The Components Of Crypto Trading Bots?
Most Crypto trading bots have the below components:
Market Data Analysis – This part of the code will save raw market data from all the available sources. Once data is gathered, it will interpret it and then decide whether to buy or sell the crypto coin. You can decide the input data that you want to feed the program.
Market Risk Prediction – It is a critical aspect of a trading bot. This module also uses the data received to predict or calculate the potential risk. Based on the risk, it will decide whether to put money or not. If a trade call has to be made, it calculates how much to invest.
Buying and Selling – The module uses APIs to buy or sell the coins strategically. If you want to buy coins in bulk in certain situations, this module takes care of all such aspects.
Advantages of Crypto Trading Bots:
Powerful – A human brain and hence a trader can process only a limited amount of data. Even if a trader processes the available data, it is impossible to analyze the data. With crypto trading bots, the sky is the limit – it can process any amount of data and arrive at logical conclusions.
Efficient – It is an efficient way of trading. If you have ever traded, you would know sometimes you lose money just because of delays in execution or human errors. Bots are very efficient and ensure there are no human errors, and they work 24*7.
Emotionless – Be it any investment or trading, your biggest enemy is your emotion. When you use crypto bots, there are no emotions – they are out of the equation.
Disadvantages of Crypto Trading Bots:
Below are some disadvantages of crypto trading bots –
- These are not perfect and will not always give you profit.
- The efficiency of bots lowers in a highly unpredictable market. For example, it cannot always predict the impact of events like Covid on the economy.
- Sometimes there are programming errors that can also impact the efficiency of crypto trading bots.
Crypto trading bots are an excellent tool to have and can help you make a profit. But you cannot 100% rely on them. You should first understand the trading process yourself and then use trading bots as a booster.