7 Things to know about a Crypto Bot
In the world of Cryptocurrency trading, you can potentially gain an edge by deploying a Crypto Bot. It is one of the most exciting takes of automation on Cryptocurrency trading. Have you used one? Are you aware of it? Let’s dive in to understand it better.
What is a Crypto Bot?
A Crypto Bot is a software program designed to execute a predefined set of instructions. Think about the use case here. The cryptocurrency market works 365 days a year, 24 hours a day. There is always a significant move happening in some time zone or another. You can potentially make money by deploying the Bot while you are sound asleep!
How does a Crypto Trading Bot work?
As a first step, you pick a Crypto Bot program you want to allow to trade on your behalf. The Bot connects to the exchange of your choice via APIs. For example, if you frequently trade on Binance, you can select which Bots are supported on the Binance platform and configure the Bot to trade based on set instructions given by you. Let’s say you have a specific trading style, and you look at particular parameters before deciding to jump in the trade. You can model your trading Bot’s behavior to reflect your trading system. You set it up to take action when the right conditions are met. Also, depending on the Bot, you can pick predefined or user-defined strategies and change your Bots trading style accordingly.
What are the advantages of a Crypto Trading Bot?
As with any programmed bots, the most critical advantage is availability. The crypto trading bot is available and ready to take action 24X7. When you trade all the open hours, your chances of making the right set of moves increase Open hours in the Crypto world is 24X7.
The second advantage of using a trading bot is it doesn’t let emotion be a factor in your trades, which is a significant plus. If you have been trading even for a little while, you would know emotions often get better of you. You wish you had the cold discipline of a robot to exit a trade when the target is met, or a stop loss is hit. There is no scope of revenge trade when you use a bot.
So you know you will not go down the path of chasing the next trade to kind of compensate your previous losses when you use a trading bot. A crypto trading bot can simultaneously execute multiple pairs of cryptocurrencies across many exchanges through automation, which is just not humanly possible.
What can the downsides of using a Crypto Trading Bot?
To authorize the trading bot to trade on your behalf, you have to assign your credentials to the Bot. This may look scary, given the number of times crypto traders have been scammed out of their private keys or even exchanges getting hacked.
There are, however, some precautions you can take by instructing the exchange on what kind of actions would the exchange allow your Bot to take. For example, you can tell the exchange to enable only to buy and sell by the Bot and not withdraw funds.
So you can safely and manually take action to withdraw your funds. You can also ensure the Bot is allowed on the exchange only from a specific IP, which you are aware of to disallow other connections.
As is the case of advertisements which are about making money, the crypto market is not averse to scams. You might end up with a bot, which is a scam, or even if it is legitimate, it might be so poorly coded that you may not make money.
What are the general recommendations before one starts using a Crypto Trading Bot?
Each individual has to come up with his/her plan of action on engaging a bot, but some general suggestions are :
- Split the funds marked for your Bot Trading portfolio across multiple exchanges. This way, you spread your risk.
- Use a portion of your entire portfolio to trade using a bot. I.e., don’t put your entire portfolio on the Bot to trade on your behalf.
- Don’t try to perfect a backtesting strategy, you will have losses going forward, and the history of a market is never a good indicator of what’s going to happen in the future.
How many types of Crypto Bots are there?
Out of hundreds of Bots out there, there are mainly four types of Bots, which are Arbitrage Bots, Market making Bots, Portfolio Bots, and Technical trading Bots.
Arbitrage Bots work by finding out price mismatches in different cryptocurrency trading pairs, either on the same exchange or on multiple exchanges.
Market Making Bots, as the name suggests, are designed to maintain liquidity in the market by making money off the bid-ask spread and simultaneously buying and selling.
Portfolio bots are not intended to target a specific profit percentage or execute winning strategies. They are designed to automate portfolio rebalancing, for example.
Which Crypto Bots are the most popular?
Few Bots have been around for some time and have had mostly positive reviews. One can look at any of the following three to start.
3Commas is one of the more established Bots out there. It offers all the essential strategies like short sells, stop loss and take profit orders, trailing orders, and composite bots, to name a few. Thirteen leading cryptocurrency exchanges support it. The Bot comes with a free trial account and has tiered pricing. Check its website for the latest pricing.
HaasBot has an innovative suite of software that appeals to both novice and experienced traders. It was founded in 2014 and offered some of the most comprehensive services and includes essential features such as TA, backtesting, safeties, and insurances.
GunBot is one of the best crypto trading bots, was founded in 2016, and supports eight popular exchanges. For beginners, GunBot offers precoded strategies that can be quickly implemented. It has an active community with over 2000 traders and even provides a lifetime license by paying once.
While there are so many options out there for you to put your money on, it always helps to read up on what’s the general opinion of new technology.
You do your due diligence by visiting and researching at Crypto focussed forums such as bitcoin talk, SteemIT, and Reddit.
Read up on other people’s opinions on the products and then make a decision. Automation can go both ways if you are not a very seasoned trader. It will be advisable first to develop trading psychology and then move towards a crypto bot.