The ways in which crypto can be traded vary widely. There are countless trading styles, strategies, or systems that different traders use. Each trader has their own style that is tailored to their preferences.
Still, traders can choose to leave the trading in the hands of an automated trading robot or bot. But what is this exactly? On this page, we present you everything you need to know about crypto trading bots.
Table of Contents
What is a crypto trading bot?
A crypto trading bot is an automated computer program that will execute trades based on underlying signals. You can set these up so that the bot can go to work independently and trade for you. Sometimes the trading bot may also send alerts on which the user decides to trade or not.
Does this sound too good to be true? Well, it’s not meant to be because a trading bot is not just a magic money machine. The automated program will perform tasks based on their programming. For this, of course, the bot will have to be well programmed in order to make a profit. Applying the “set and forget” principle is not so evident because these automated systems still need human support.
How do I use a crypto trading bot?
Trading bots are available on the Internet or can be self-coded by people who know something about them. How it will work depends explicitly on the person who programmed it.
The majority of bots will trade within a certain range where the program will make a certain percentage within the range and use small orders to pick up small profits. Some bots will also be set differently when the trend changes. This all depends on the program that was purchased.
Why would I use a crypto trading bot?
The best crypto trading bots offer several advantages, such as eliminating faulty human tendencies. Like for example, emotional stress when making decisions or applying a strategy consistently.
They can also analyze more trading pairs across different exchanges. Something that saves a considerable amount of time and stress for the trader. This will be because automatic trading programs are available 24/7, which is very convenient for a 24/7 market.
Are trading bots profitable?
One thing is pretty much inevitable, the developers offering bots make money on their programs with every purchase. Developers will capitalize on the dreams of people who want to become rich by doing nothing.
Nevertheless, one must be careful with some programmers who promise unrealistic returns. One can ask themselves the question: if the trading bots do what they are supposed to do, why are they asking a high subscription fee?
Ultimately, trading comes down to knowledge and skill. It takes much more than just turning the bot on or off. Since the market is dynamic, it is important to adapt to it and know when one can turn a bot on and when not. If one masters this, a bot can ensure to bring in an additional income.
What should I look out for when buying a crypto trading bot?
The market of crypto bots is gigantic. Due to enormous demand, there is a massive amount on offer. There are also not too sincere projects among them. It is essential to be vigilant for possible scams.
When do you know you need to be careful?
- If the program is offered for free. (Almost) no one will put time and money into developing a trading bot just to give it away for free on the Internet.
- If it guarantees profits, no one can guarantee anything in a constantly changing market. Trading is done based on probability and not on absolute values.
- If it is based on an “incomprehensible” underlying technology. It will be assumed that the users are too stupid to understand how it works, but they are smart enough to pay for it.
- If the price is far below or far above the average of its competitors
- If it is presented as ‘set & forget.’ Most bots are scalpers. So these will not be able to be turned on and forgotten.
What are the pros and cons of a crypto trading bot?
Trading in manual trading for automated trading has its advantages. But every advantage has its disadvantage. You can check whether buying an automatic trading program is something for you based on this overview.
- Instantaneous analysis of the market and order processing
- Eliminates emotional and psychological judgments
- Can be used to test out strategies
- Can keep more trades open than manually possible
- In a 24/7 market a bot will be able to trade 24/7
- Subscriptions can be quite expensive
- Can be complicated for users who have no (trading) experience
- You will still have to somewhat manage the bot
- Software can fail/have bugs
- Changing market conditions can affect performance
- When used incorrectly it can lead to unexpected losses
- Sometimes requires your computer to be connected to the internet 24/7
Conclusion Trading Bots
Crypto trading bots will trade on underlying signals that originate from technical analysis. As a result, they are limited to the information they will receive about market conditions.
To be a profitable one, the user must have some form of experience as a trader or know something about programming. Nevertheless, there are legitimate bots on the market, and a program can be looked forward to when one has realistic goals in mind.