Automation entails assigning tasks to machines that were once undertaken by humans. Just as the industrial age saw mechanization replace manual labor, something similar is occurring in financial markets. When you view the order book for a major crypto exchange, the majority of the buy and sell orders you see are being placed by bots. They may be under human control, but it’s the bot that’s deciding the precise point at which to enter and exit the trade.
Trading bots do more than simply relieve humans from the drudgery of having to place trades over and over, day after day: they also perform the role more efficiently. A well-designed bot can be programmed to enter a trade at the optimum time and to exit at the right point (or points) to maximize profit. Although just as popular within the forex, stock, and commodity markets, we’ll consider them here in the context of cryptocurrency.
There are two types of crypto traders: those who use bots and those who are being replaced by them. Which are you?
What Makes a Bot Better
Trading induces strong emotions in traders tasked with pulling the trigger, as you would expect when there is serious money at stake. The high of executing a winning trade or the low of making a bad one is something even experienced traders struggle to shed. Enter the bot, a faceless and emotionless trading machine that can execute trades quickly, consecutively, and correctly. And through it all, it doesn’t feel a thing. It’s impervious to the agony and ecstasy of crypto trading and it’s all the better for it.
There are a number of benefits to using automated trading bots for cryptocurrency markets:
- Frequency: A bot can operate 24/7, completing hundreds of small trades that can convert into significant profit over time.
- Analysis: A bot can analyze more data points in real time, allowing it to enter a position only when multiple indicators are aligned to increase profit.
- Risk Management: Bots can act quickly to reduce exposure or exit a trade if conditions change. Traders don’t have the luxury of being able to monitor a position around the clock.
- Backtesting: Using historical data to simulate thousands of trades, a bot’s ability to outperform the market can be gauged before putting real money on the line.
Also read: Best AI Trading Software for Traders
Know Your Trading Bots
While skilled traders can code their own bot, most people seek out third-party solutions. These are easily configurable, with no coding required, and with hundreds of bots and filters to choose from, there’s a brimming marketplace of automated trading options. The type of bot you go for will vary depending on your budget, risk profile, and trading type.
For example, some bots are designed to DCA (dollar cost average) into a particular coin, making frequent small buys when conditions are right. Others capitalize on arbitrage, when an asset on one exchange is out of sync with spot prices on another, which allows astute traders – or rather astute bots – to profit from the difference. More sophisticated crypto traders, meanwhile, might utilize a TradingView bot that can make use of advanced strategies for entry and exit, including trailing stops and multiple take profit levels.
No bot is perfect, but give a well-designed bot enough trades and it’ll consistently outperform humans. Thanks to their supremacy, the crypto market is now awash with automated trading algorithms.