What Is a Crypto Trading Bot?
What is a Crypto Trading Bot? Everyone in Cryptocurrency wants to be a trader. Why buy low and sell high when you can trade the ebbs and flows for more profit over the same time frame? The problem with trading is not only understanding the market trends and the endless sea of indicators people use to make trading decisions such as Ichimoku Cloud, Moving Averages, Support and Resistance, Elliot Waves, Fibonacci Retracement and so many more, but most traders get emotional about their trades and make mistakes ultimately costing them a lot of money in trade losses.
The time necessary to make effective and timely trades takes a lot of dedication and commitment and that is whilst fighting off your emotions. To remedy the stress of making trades manually, some of us use automated trading bots or algorithmic trading bots. High Frequency Trading has been around since as early as the 1930’s and has gotten not only more sophisticated but more cost effective for regular end users. The rest of this article will go over how these bots work and why they may be worth looking into if you’re someone that enjoys treasure hunting, trading and making a passive return on your initial investment over time. Bot Trading is fun, often exciting and potentially very rewarding! There are however risks and we will go over those as well.
How Trading Bots Work
Algorithmic Trading bots work by automating pre-determined tasks and can be expanded upon using indicators and trading strategies. The bots connect to a trading exchange such as Coinbase or Kucoin through an API key. These keys give the bot access to your account for the purpose of trading what you have in them. So, for example if I have $1,000 on a Kucoin account, I can setup my bot to access those funds and begin trading them on my behalf based on settings I configure in the bot. The trading bot doesn’t custody, or hold my assets in the bot. My assets stay on the exchange unless I manually withdrawal them using that exchange’s features and any security protocols I’ve put into place such as Two Factor Authentication. The API just enables the bot to trade one coin for another.
Each exchange will function at different speeds, charge different trading fees etc so you’ll want to make sure you know what at least the fees are. Some bots such as Crow Trader typically have the fees built into the system so that you don’t have to worry much about them.
Now lets look at an example of an algorithm that will help explain how a bot works.
Lets say we are noticing a steady up and down pattern in Cardano (ADA). We see its ranging between .45 and .50 cents. That is a 10.5% price change and we want to trade that up and down action for as long as it lasts. This would be considered a Ping Pong Strategy. So we may check a chart and see how often the price fluctuations change on different candles. The more of these fluctuations we can trade the higher our profit potential which means, we want the bot to trade on as low a time frame as possible. We then set our strategy in the bot to buy at .45 and sell at .50 and from there, the bot will just continue buying and selling over and over until the price reaches a new high or low and begin a new trend. Then we reset the bot and start over. This is the most simplistic strategy that can be effective. You can experiment with this kind of strategy using the Evaluation Version of the Crow Trader Crypto Trading Bot.
As you san see from the Technical Chart above, we are using the 10 minute chart to find as many touches to the top and bottom as possible. These touches would be Ping Pong Trade entry and exits. Can you find a better set of entry and exit points to get more trades? Now, consider using a Trailing setting meaning, you can set the Trading Bot to Trail the price action by, for example .1% so that if the bot is waiting to sell and it reaches an exit price, it will follow the price up until it drops, then it will exit. So if the price moves up .1, then .1, then .1% for a total of .3% but then drops .1% the bot should then exit the trade.
Overall, an automated trading bot uses strategies and settings to repeat cycles you define so that you dont have to and you can define these settings and strategies across multiple pairs at the same time to expand your profit potential.
Now, we will go into some finer elements of Bitcoin Bot Trading so that you better understand the tools at your disposal.
Dollar Cost Averaging
Paper Trading in Trading Bots
Trading Bot Backtesting
Crypto Asset Volatility in Bot Trading
Bollinger Bands Bot Trading Strategy
EMA Cross Over Bot Trading Strategy
Ichimoku Bot Trading Strategy
Ping Pong Bot Trading Strategy