Time waits for no one and financial markets are no exception. Especially in the uncharted territory of cryptocurrency trading, keeping up with the fast-paced changes in prices is key to success. A plethora of cryptocurrencies, a few viable trading strategies and numerous tools accessible to new traders may all cause confusion.
Fortunately, technology has made it possible to automate several trading processes, including market analysis, predicting trends and order execution. This frees up more time for strategic planning and establishing a solid foundation for long-term cryptocurrency trading success.
What is automated crypto trading?
Automated crypto trading, sometimes called automated cryptocurrency trading, is the practice of using computer programs (crypto trading bots) to buy and sell digital currencies on one’s behalf. These software applications are intended to react to market changes to trade at the optimum moment. Furthermore, automatic crypto trading removes the element of uncertainty and emotion from manually buying and selling cryptocurrencies.
Although some newer crypto bots utilize smart contracts and operate directly on the blockchain, most automated crypto trading platforms are still APIs. The term API refers to an application programming interface that allows your account to communicate with a cryptocurrency exchange so it can open and close positions on the user’s behalf according to certain predetermined conditions.
Automated cryptocurrency trading has many advantages over manual trading, including the fact that bots can work continuously without rest. They are also unbiased by emotion, so they will always adhere to their game plan and follow any new market trend or event immediately after it happens.
Several types of crypto trading bots are available, each differing in terms of features, functionalities and price. The most popular ones tend to be arbitrage or grid trading bots. Arbitrage bots take advantage of the price differences on different exchanges, while grid trading is focused on the “buy low, sell high” strategy.
Some automated crypto platforms have different characteristics, such as the hodl function on 3Commas. This doesn’t just trade; it also allows users to buy and hold crypto automatically by buying at low prices. It is up to the user to choose the cryptocurrencies they want and a bot to assist them in doing exactly that.
In general, automated crypto trading goes through four steps: data analysis, signal generation, risk allocation and execution:
- Data analysis: In a technology-oriented world, data is an essential ingredient for success, and that’s why a crypto trading bot needs data analysis. Machine learning-enabled software can perform data mining tasks at a faster pace than a human. Signal generation: Once the data analysis is done, a bot performs the trader’s work by predicting market trends and identifying possible trades based on market data and technical analysis indicators.
- Risk allocation: The risk allocation function is where the bot determines how to distribute risk among different investments based on predetermined parameters set forth by the trader. These rules usually define how and what percentage of capital will be invested when trading.
- Execution: The process in which cryptocurrencies are purchased and sold in response to the signals generated by the pre-activated trading system is known as an execution. At this period, the signals will generate buy or sell orders that are passed on to the exchange via its API.
Is crypto bot trading profitable?
Though one might think otherwise, manual trading is less popular. In fact, algorithmic trading bots have taken over the financial industry to such an extent that algorithms now drive most of the activity on Wall Street. It is not just crypto that is being traded by bots, almost everything including equities, bonds and foreign exchange is now being bought and sold through algorithms.
The main reason for this shift is simple: Bots can make decisions faster than humans. They are also not biased by emotions, so they can stick to their trading strategy even when the markets are volatile.
Keep in mind that crypto trading bots aren’t perfect and they can’t eliminate all risks. However, they can automate trading procedures to help both new and experienced traders make a profit. To properly configure a bot, it’s crucial to have a basic understanding of the market as well as the regulations and tools associated with trading.
How much does a crypto trading bot cost? It all depends on what features and functionalities a user is looking for. Some crypto trading bots are free, while others can cost a few hundred dollars per month.
Is crypto automation legal?
There is nothing illegal about utilizing a trading bot in any jurisdiction where cryptocurrency trading is permitted. In the traditional financial market, the use of bots is quite common and well-regulated. Machines now execute a large number of stock trades, and the…
cointelegraph.com