Cryptocurrency Trading Bots

You may have heard about cryptocurrency trading bots if you are a serious Bitcoin investor. These complex automatic software applications for trading cryptocurrency are gaining popularity. What are crypto trading bots based on? How do you use them for profitable Bitcoin trading? We’re going to try and answer these questions and others in this overview of trading bots for cryptocurrency.



What Are Cryptocurrency Trading Bots?

A trading bot is a computer program or software application that is able to automatically execute cryptocurrency trades on behalf of a trader. The effectiveness of these trading bots depends upon the knowledge and skill of the programmer who developed the bot. While it may seem like a foolproof way to make profits trading Bitcoin, there are still some risks involved.

A trading bot is set up by an investor to log into the investor’s cryptocurrency exchange account. Once logged in, the bot does all the work that the trader would normally do. It makes trades autonomously, without the need for constant observation.

There are trading bots that cover just about every cryptocurrency trading strategy that you can imagine. There are bots for traders with long-term goals. More common, however, are bots that are designed to scalp the market. Scalping is making short term trades that are opened and closed within hours, sometimes even minutes. The goal of this strategy is to take advantage of significant swings in the volatile crypto market.

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What Are Trading Bots Based On?

The principle behind cryptocurrency trading bots are trading signals. A trading signal is a piece of data that signals the investor, or bot, that it is time to execute a Bitcoin trade. A signal is usually seen on trading charts.

There are many pieces of data that can be added to a standard candlestick chart for Bitcoin and other digital assets. One can add data for moving averages, Bollinger Bands, and many other technical analysis tools that will then be used to help the bot recognize a trading signal.

A signal is like an alarm. It is based upon historical data. Investors have learned that certain candlestick patterns, for example, can signal a reversal in price. Likewise, a moving average can signal that it is time to buy or to sell. The bot developer programs the trading bot to recognize the signals. When one of these signals is triggered, a trade is entered by the bot.

Building Your Own Trading Bot

If you have the necessary skills to program your own trading bot, building your own can allow you to customize your own signals and trading strategy. You may even be lucky enough to obtain some great results and then sell your bot for a lot of money. Of course, keeping it to yourself might be wiser if it does a great job.

There are actually platforms available which will help you build and customize your own cryptocurrency trading bot. All you really need is knowledge of the crypto market. You don’t really need any technical programming knowledge to use one of these platforms. All you do is input the data that you want to use for signals and the bot will do the rest.

A good rule of thumb is to subject your bot to backtesting and paper trading before you use it in a real-time trading environment. You want to be sure that you have all the kinks worked out before you dive headfirst into using it on a daily basis.

Purchasing a Trading Bot

It is also possible for you to purchase a cryptocurrency trading bot. Many developers sell the bots they have created. You may be able to get one for a flat fee, but it is more likely that you will be required to pay a subscription fee for the use of the bot. That makes sense when you think about it. If the programmer sold you a bot outright they would only be getting paid once while you continued to make money. Under those conditions it would be better for them to keep the bot for themselves.

You will find that most cryptocurrency trading bots are not ready to work as soon as you get them. You will still need to input data based on your particular trading strategy. A good bot to consider is one that will offer you lots of room for customization.

Things a Trading Bot Must Have

No matter if you are building your own cryptocurrency trading bot or buying one from a developer, all effective trading bots have a few things in common:

  • Can be customized for many trading strategies
  • Will be easy to use for both the beginning and experienced trader
  • Allows for trading strategies to be changed
  • Low fees for subscriptions
  • Newer trading bots may be less reliable than older bots – look for a strong trading history
  • Compatible with many cryptocurrency exchanges
  • Good reviews

Most of the requirements listed above are common sense. You always want to check the reviews of a product before you buy it. Also, pricing is very important. If you are paying more in subscription fees for your bot than you are making back in trades, it isn’t worth using the bot.

Pros and cons of Trading Bots

Pros of Cryptocurrency Trading Bots

  • Allow you 24/7 access to the cryptocurrency market for trades
  • React faster than humans can to market moves
  • Less prone to human error and trade without emotion
  • Can be tested to determine their effectiveness

Cons of Cryptocurrency Trading Bots

  • Many scams have been seen in the bot marketplace
  • Some bots are poorly designed
  • Some bots use poor strategies

Like any other tool that is useful for trading Bitcoin and other digital tokens, trading bots should not be seen as an effortless path to quick riches. They must be used properly and constantly refined to continue making profits in crypto trading. With that being said, they can be a powerful tool in the trader’s arsenal.  

More topics: The Proper Way To Use A Cryptocurrency Trading Bot