A Beginner’s Guide to Crypto Trading Bots
Time waits for no one and financial markets are no different, especially when it comes to the unpredictable world of cryptocurrency trading, which is why a carefully calibrated, safe and reliable trading strategy is essential. Unlike traditional stock markets, cryptocurrency trading never stops, making it virtually impossible for private traders to track market fluctuations, diversify risk, reduce error and ensure trading discipline 24 hours a day, 7 days a week, 365 days a year.
How Do Crypto Trading Bots Work?
A bitcoin trading bot that executes trades automatically works by interacting directly with a cryptocurrency exchange and placing buy or sell orders when certain predetermined conditions are met.
In terms of the user interface, trading bots work in a variety of ways.
Some come with an internet browser plug-in that allows the trader to interact with the bot. Others have standard operating system clients that come as downloadable apps. And some come in the form of software designed for cryptocurrency exchanges.
Trading strategies also involve multiple methods:
• One common method relies primarily on exponential moving averages. A bot might be programmed to place particular trades when this indicator moves beyond a certain point.
• Some bots use variants of the EMA approach, such as double exponential moving average or triple exponential moving average. A moving average is derived from the average of price movements over a set period of time, e.g. a nine-day moving average or 50-day moving average.
A double exponential moving average combines data from two moving averages to make decisions, a triple exponential moving average uses three, and so on.
• Other automatic trading indicators sometimes used by crypto trading bots include the relative strength index and certain regression analysis techniques.
Basically, bots use technical indicators (which are based on mathematics relating to price action) to make decisions
What is a trading bot?
A bot is simply an automated program that operates on the Internet and performs repetitive tasks more efficiently than humans. In fact, some estimates suggest that around half of internet traffic is made up of bots that interact with web pages and users, scan for content, and perform other tasks.
Crypto trading bots operate under the same basic principle. They’re software programs that execute functions using artificial intelligence based on pre-established parameters. No more missed trades or missed opportunities — by running a set of algorithms, you can automatically buy, sell or hold assets in a timely, efficient and automated manner day or night from anywhere in the world.
How you can benefit from crypto trading bots
Why should you be concerned about trading bots that are automated? Wall Street in two words. According to several statistics, algorithmic-based computer systems account for roughly 80% of stock market trading. However, due to the perceived complexity and expense, algorithmic trading is used by a very small number of individual traders. Although not everyone is a seasoned Python programmer or a financial expert, trading bot platforms like Trality are helping to level the playing field and provide retail traders, both new and experienced, a leg up in the crypto markets.
What is algorithmic trading?
Algorithmic trading is a type of trading that involves programmatically executing trading strategies as opposed to manual orders. In other words, traders run algorithms (a set of instructions to solve a problem) on computers to automatically buy, sell, and hold assets.
There are several benefits to algorithmic trading which primarily includes cutting costs and saving time. Several lines of code can execute trades while making simultaneous market condition checks across multiple exchanges, all while operating 24/7 around the clock.
What are the technical requirements?
Implementing a profitable algorithmic trading strategy usually follows three steps: 1) data collection, 2) selecting and creating a strategy, and 3) backtesting. This generally requires:
- Unless you’re using pre-made trading software, some computer-programming knowledge to process data and create your strategy.
- Access to trading platforms to place orders.
- Access to live market data feeds for your algorithms to monitor.
It’s important to note that even though you might be lacking in coding experience, understanding the fundamentals behind automated trading is extremely valuable in itself. The reasoning and math behind prolific strategies can better inform your own trading and diversify the arsenal of trading tools at your disposal.
