One of the key features of the cryptocurrency markets is that they never close.
In order to be an effective crypto day trader, you need to be able to take advantage of price movement whenever it happens.
If you’re just getting started it can be incredibly stressful to log off and wonder how your investments are doing. Thankfully, crypto bots allow you to put your crypto trading strategies into practice 24/7.
Read on to learn what trading bots are, how they work, and why any serious cryptocurrency trader should be using one.
What are Trading Bots?
Trading bots are specially designed software programs that carry out your trading strategies without you monitoring them. They interface directly with your chosen cryptocurrency exchange and constantly look out for preprogrammed buy or sell conditions.
Crypto trading bots are based on software designed to automatically trade stocks. They work in very similar ways. You generate a strategy for trades then program in conditions your bot looks for.
If it sees movement or indicators that match your programmed strategy it will execute an order. All of this without ever disturbing you.
Benefits of a Crypto Bot
Many of you reading this are probably wondering why anyone would want to turn over control of their investments to a computer. Using a bot is a big step to take, but once you understand the benefits it becomes much easier.
Day trading only works if you have a well-designed strategy based on good analysis. Almost more important though is the ability to carry out your strategy without letting emotion cloud your judgment.
A cold, emotionless machine is actually a good thing to have when you’re dealing with day trading. A crypto bot isn’t going to be swayed by a ‘feeling’ and make an emotional decision. It’s going to look at the information it’s receiving, compare it against an algorithmic strategy, and make an emotionless decision.
In financial matters, logic always trumps emotion.
Improved Trade Speed
Day traders have to be fast. The conditions that separate a good trade and a bad trade can appear and disappear in seconds. If you’re manually watching price movements you may not have time to react to an advantageous position.
A trading bot has none of these restrictions. It literally thinks and acts at the speed of light. This allows you to take advantage of tiny movements over very short periods of time. Having that extra instant can be the difference between a gain and a loss.
Detailed Analysis Tools
Many crypto trading bots also include high-quality analysis tools. Backtesting is one of the tried and true tools in a day traders arsenal. It allows you to test out your crypto trading strategies on historical data. This lets you see how you would have fared over different periods of time.
You can use this to test out multiple strategies until you find one you like. You can also compare the effectiveness of different strategies in real time.
What to Look For in a Bot
Once you’ve decided to pursue bot trading, you need to select a crypto bot to use. There are hundreds of different bots on the market. You need to do your research to make sure you select the best one for your needs.
High-quality trading bots cost money. There are open source versions available but they don’t have anywhere near the same level of utility. Many free crypto bots have poor security, lack crucial features, and some are even designed as malware. If you’re really technically savvy you can even build your own trading bot.
For high-end bots, you can either purchase a program or use a subscription-based service. Which one you choose to go with depends on what kind of person you are and what features you need. The purchased bots can be very well made but the subscription services generally offer more support and features.
Security and Functionality
Crypto trading bots are connected directly to your wallet accounts on a cryptocurrency exchange. They have the full authority to buy and sell crypto in your name with few restrictions. It’s incredibly important that you check out the security history of your chosen bot.
Find out if they’ve been hacked before and whether it was user error or a flaw in the bot itself. Any bot you choose should have an excellent security record. Always find out how active your chosen bot’s support network is. You’ll probably have to communicate with them at least once during the setup process.
Make sure it works exactly as advertised. You don’t want to discover your bot made a major trade that didn’t fit your strategy after it already happened.
Not every crypto bot will trade all currencies. Decide whether you want the best bitcoin trading bot or a bot designed to trade numerous altcoins before you purchase one. This really just comes down to programmed support and the trading features available.
Getting Started with Crypto Trading Strategies
To get started trading with a crypto bot you’ll need to do a few things. The first is to get a bot. Then you’ll need to choose an exchange and set it up to trade.
Most major exchanges are happy to have bots on their platforms. Bot traders add extra liquidity to the market and generally help orders get filled quickly. You’ll need to access the API on your account and generate an API key.
This is what allows your bot to interface securely with the exchange and execute trades. You should never give out your API key to anyone you don’t absolutely trust. It will allow them full access to everything you have in your account.
Always Know Your Risk Tolerance
Before you ever make your first trade you need to know how much risk you can handle. Bot trading is extremely fast-paced and you can see significant losses rapidly. Double check your crypto trading strategies and that they are correctly entered into your trading bot.
If you are intrigued by the idea of bot-assisted passive trading, register for a free trial of our industry-leading crypto trading tool.