Proper Way To Use Trading Bot
If you are one of the many individuals that is considering the use of a cryptocurrency trading bot, there are some best practices that you should be aware of. Using trading bots can be an effective way to increase your trading profits, but using them unwisely can lead to loss. Below are some of the top safety tips that you should consider when using a cryptocurrency trading bot.
Never Give Bots Withdrawal Access
This seems like a no-brainer, but some bots that allow arbitrage trades between different cryptocurrency exchanges require you to grant withdrawal access. This is only recommended for the very experienced trader and should not be a general practice.
Don’t Share API Information
Trading bots work with what are called APIs. These APIs are what allow your bot to interact with a cryptocurrency exchange. Just like crypto wallets, APIs use private keys. You should never share these keys with anyone else, and you should keep them safeguarded at all times to prevent anyone else from gaining access to your account.
Enable Two-Factor Authentication
Two-factor authentication is the standard today for secure applications. It provides an extra layer of protection for you. You should also make sure that two-factor authentication is in place on your crypto exchange account. Indeed, most exchanges today will require you to have this in place before you are able to make trades.
Learn Technical Analysis
There is simply no substitute for developing your own technical analysis skills. Yes, a trading bot is designed to do all of the hard work for you, but you still need to know about cryptocurrency technical indicators in order to customize your trading strategies for the bot. You should educate yourself on things like Bollinger Bands, Moving Averages, and candlestick patterns if you want to become a successful trader.
Always Set Limits and Stop Losses
Stop losses are measures that you can use to prevent a trade from losing large amounts of money. Many crypto trading bots are compatible with these stop losses and allow you to build them into your trading strategies. A stop loss will minimize the losses that you have on a bad trade.
Use Backtesting for Your Strategies
Backtesting is another feature that is supported by most crypto trading bots. A backtest is when you use historical trading data to evaluate the success of the trading strategies that your have chosen. When you go back in time and see how the strategy worked before you will have a better idea of whether or not it will be profitable in the future.
Always Keep Good Records
Success with a crypto trading bot requires you to keep accurate records. You will need these records for several reasons. They will allow you to continually monitor the overall success of the trading bot, and they will also come in very handy at tax time when you need to file your capital gains from trading.
Using trading bot best practices is vital for anyone that wants to have success using a cryptocurrency trading bot. Get in the habit of following these tips and your chances to make a profit will increase.