Trading bots are software programs that automate trades. Instead of a trader sitting at their computer all day, waiting for the optimal moment to make a trade, they can use a bot to do the hard work for them. Is this advantageous? Let’s find out.
Crypto Markets are Extremely Volatile
The rise, fall, rise… and fall of Bitcoin is a great example of how volatile the crypto markets can be. Bitcoin has spiked and crashed several times over the years, with the 2018 crash previously the most notable. It also crashed in early 2020, before booming once again.
Since then, there have been many wild price fluctuations, but the collapse of FTX triggered another big implosion in the crypto market. Bitcoin prices plummeted, Terra-Luna collapsed, and Tether lost its peg to the USD. A closer look at the price index of Ethereum will show similar volatility.
How Do Trading Bots Work?
Crypto trading bots use artificial intelligence to make trades within pre-set rules implemented by the user. The bot gathers and analyses data before identifying trades and making predictions, just like a trader would. The difference is that the trading bot can do the hard work faster and more efficiently.
Algorithmic trading bots have been around for a while and are increasingly being used by traders because they are effective.
There are many popular trading bots, some free, but most others charge a monthly or annual fee. Free bots will typically have some limitations, but most paid bots offer free trials, so you can give them a go without incurring any expense.
To get started, you’ll need to set up a trading account first. Next, decide which trading bot you want to use – popular bots for beginners include Shrimpy, CryptoHopper, and Pionex. Once you have chosen your bot, connect it you your trading account or crypto wallet using API keys.
Decide your trading parameters and rules, then allow the trading bot to begin its work.
How Can Trading Bots Help?
These days, around 80 percent of trading on Wall Street is done using automated bots. The good news is that trading bots are now available to ordinary investors, which levels the playing field somewhat. In the crypto markets, this is a definite plus.
Because of the volatility in crypto markets, prices can change massively over a short time. This makes it hard for traders to identify potential trades quickly enough. Bots are far faster than a human and can react instantly, making trades before a human has even had time to digest a news article.
Using bots takes emotions out of trading, which removes the risk of making irrational trading decisions, such as panicking and making ill-advised trades in the hope of recovering from a loss.
Bots can also harness the power of data to make smarter trading decisions.
The Disadvantages of Using Trading Bots
Not all crypto trading bots are effective. Some are poorly designed, and others yield only marginal returns. It’s also important to note that successful traders need in-depth knowledge of their chosen crypto and using a bot doesn’t mean you can avoid doing the hard work.
If you are comfortable trading crypto but haven’t yet tried using a trading bot, why not give one a go? Do check, however, that your trading platform supports the use of bots.
Main image by Pierre Borthiry – Peiobty on Unsplash
