Automated Crypto Trading Bots: Are They Valid?
A lot is said about automated crypto trading bots and how convenient they are for traders, especially when it comes to being uncertain about one’s level of expertise or too emotional to take risks while trading.
Research shows that over 60-75% of all digital assets globally are traded via bots. Basically, automated trading has been in existence since the early 1950s, using Richard Donchian rules for buying and selling assets.
Although automated trading bots have their benefits in terms of profitability, are they valid? You’ll get all the answers about automated crypto trading bots in this article as well as some thoughts on their validity.
Let’s dive in, shall we?
Automated Crypto Trading Bot in a Nutshell
The automated crypto trading bot helps you trade cryptocurrency without your effort. All you need to do is connect the bot to your trading account, set up the relevant input, and activate the trading. It is the most convenient way of trading without any emotional crisis.
An automated trading bot buys and sells crypto using algorithms at specific times. It has proven to be an excellent choice for people who don’t want to buy and hold cryptocurrency and for those who do not have enough time to trade.
By design, the bot is most likely to make higher profits for you than you would have made from buying and keeping (hodling) your coins. The risk-to-reward ratio a trading bot uses is minimal as it ensures your profits are more than the losses.
How Does a Trading Bot Work
Automated trading bots work as an application programming interface (API). It observes the market and executes trades according to its setup.
Generally, bots are grouped into three categories based on their programs:
- Human Supervisor: Here, the bot follows the execution of trades by a professional trader.
- Rule-based signals: This is where algorithmic trading (algo-trading) comes up. Market orders (buy and sell) are triggered based on predefined rules. However, there’s no guarantee that a particular strategy will work forever. So to be consistently profitable, the trading strategy will have to be updated constantly. Lack of maintenance of the bot can reduce the effectiveness of its profitability.
- Machine learning(ML) signals: When using machine learning, the Ml model triggers buy or sell signals, and the bots place orders accordingly. However, the Ml trading is still in the experimentation stages, and there’s still a lot of work to be done.
Importance of Trading Bot
The importance of crypto trading bots cannot be over-emphasized. Trading bots help execute trades as well as diversify your crypto assets.
There aren’t many errors in trading with automated trading bots, unlike a human trader, whose trades are influenced by emotions and fear of losing it all.
Bots execute trades faster than human traders. They are set up to pick signals at the slightest opportunity. Also, when trading with bots, you feel less emotional because the bot does the market analysis and enters and exits the trade automatically. So you have nothing to worry about.
The longevity capacity of crypto trading bots makes them more enjoyable to use. Bots can last for as long as you want provided they are constantly maintained.
Are Trading Bots Valid?
The short answer is yes. However, if bots aren’t valid, then the question you may need to answer is why do people still use trading bots?
Several companies have been using bots for decades to buy and sell commodities on the stock market. Not only does the use of trading bots automate trading, but it also relieves one from the pressure associated with trading.
The efficiency of trading bots depends on many factors such as the trading platform, the bot’s strategy, and the level of your trading expertise.
No doubt that bots can generate profits, but the availability of several kinds of trading bots in the market makes it challenging to know the right one to get. There is no denying that many users have fallen victim to the wrong hands while getting a good trading bot.
However, the problem here is not the validity of trading bots in general; instead, some hackers build bots and make them available to the public.
You might be thinking about how to identify a good trading bot, right?
How to Get a Good Trading Bot
Before you consider using any bot, ask yourself these questions:
- What is the professional experience level of the leaders in the company? If the company or the owner of the robot has a good track record of managing up to $100m, you might want to consider getting the bot.
- Are their algorithms open to the public? If users have access to the robot’s trade level data, hackers can replicate the robot. The best bots are the ones you never hear about. Most trading bots do not disclose their algorithms to prevent hackers from duplicating them.
- Who bears more of the risk? It’s not a good sign if you are just given a robot to figure out things yourself. It will be good to find out if they will cut their fees if you lose money or if they’ll gain if you succeed.
Unfortunately, answering these three questions is not all there is to getting a good robot. There are lots of trading platforms that offer trading bot options. However, getting a good robot comes down to people.
Here are other factors to consider before signing up for a crypto trading bot service:
- Evaluate the team by looking at their records before allowing them to automate your trades.
- Examine the strategies of the bot and ensure it can support the trading strategy you want to implement.
- Consider the team’s support level and observe if there’s any prompt response to questions asked on their social media groups like Telegram or Facebook.
- Work within your budget when choosing a trading bot and ensure you can make use of it easily.
- Backtesting should be one of the significant features of the bot you choose.
Do I Need a Crypto Trading Bot?
It can be highly profitable to use crypto bots but, it’s worth noting that it’s not like waving a magic wand. Even with the sophisticated algorithm in automated trading, it is possible to see losing trades by a bot.
The advantages of using an automated bot to execute your trades outweigh the disadvantages. Whether you need a trading bot or not depends on how comfortable you are with trading strategies.
There are many ready-made bots on the market nowadays. But instead of buying black-box bots from unknown sources, it makes sense to appeal to platforms, which allow bots to be manually customized. Once you are through with customizing your bot, you can backtest your strategy and deploy them on crypto exchanges. Fortunately, there are many platforms with such functionality on the market as well.
With automated trading bots becoming an exciting topic for millions of traders around the globe, the market for automated robots has only grown higher. As a result, their use has increased by over 300% since the first quarter of last year.
If you need help on how to automate your trading strategy for a more profitable trade, then you should consider getting an automated crypto trading bot today.