Cryptocurrency trading is becoming prevalent all around the world. It is quickly becoming the most popular form of investing and passive income method. However, the trading game is not that easy. The market is volatile, so you need to be constantly on the watch for shifts in pricing for your assets on Poloniex.
Imagine you go on a short trip for 2 days and you come back to find you’ve lost over 30% of your investment. With crypto trading, this is a very real possibility. But, the fact remains that the market being volatile is great for profitability. Making multiple, small trades a day is one popular way that traders make money using crypto.
Between learning new information and constantly analyzing markets, crypto trading seems like a lot of work. But, the good news is that we now have automated crypto trading strategies. These are done through crypto trading bots that analyze and execute trades completely on their own. Using a platform like zignaly.com, you can now get started on investing in passive income streams.
What exactly is a crypto trading bot?
An automated crypto trading bot is software that can automatically buy and sell cryptocurrencies. It uses certain criteria to determine when a trade should be executed to generate a profit. This is powered using Artificial Intelligence to keep trades running consistently and accurately.
You should note, however, that not all automated crypto bots will be profitable. Chances are that they most likely are not. How profitable it ends up being will depend on the consistency and risk adjustment the bot is able to make. This is why it is important that you do your research before investing your money in automated cryptocurrency trading.
How do crypto trading bots work?
A bot runs on a pre-established algorithm. There are rules that can be set within this algorithm that prompts the bot to make a transaction. As a simple example, the bot can be set as follows:
- Buy the selected cryptocurrency when the price falls below (x)
- Sell the selected cryptocurrency when the price rises above (x)
For successful crypto automation, the bot will additionally need to analyze more information. It needs to look into historical data, price indicators, and predictions for potential trades. This is done through the use of AI and machine learning. A good automated bot should be able to evaluate the market and implement complex trading strategies to make a profit.
Common features of trading bots
When you are looking for a trading bot, there are some common features that you should look for. These include:
- Support for multiple exchanges: A good bot will support multiple exchanges, so that you can trade on different platforms and take advantage of different opportunities.
- Automatic updates: The best bots will keep themselves up-to-date with the latest changes in the market, so that you don’t have to worry about manually updating them.
- Backtesting: A good bot will come with backtesting functionality, so that you can test your strategies before using them live. This is essential to ensure that your strategies are effective.
- Customizable indicators: A good bot will allow you to customize the indicators that it uses, so that you can better adapt it to your own trading style.
What are the Different Crypto Trading Bots
You will find two different types of cryptocurrency trading bots available today: those that use API connections and those that are decentralized.
- These APIs allow users to connect their accounts on well-known exchanges.
- You will find blockchain technology in use by decentralized cryptocurrency platforms. A smart contract records all the funds – including yours. Redeem your money to your bank through crypto tokens.
What to consider when choosing an auto-trading bot
Currently, crypto trading bots have become more intelligent. This is due to improvements in Machine Learning and AI technologies. However, for it to be effective, you still need to watch out for the following factors.
1. How precise is the bot
To make a good profit, most of your trades will need to be accurate and precisely timed. A small miscalculation could lead to large losses. You have to ensure that the bot is able to monitor performance accurately and execute trades immediately.
2. How reliable is the bot
You wouldn’t want a bot that just stops trading without prompting it to. Imagine you leave it running overnight and you wake up to find it hasn’t traded more than once? A good trading bot will have undergone multiple performance tests to make sure it doesn’t shut down.
3. How trustworthy is the bot
Since you’re going to be investing your hard-earned money into the crypto trading bot, there shouldn’t be any security concerns. You should always check online reviews
Why Go For Automated bot trading?
- Speed of transactions. They can analyze the market and make decisions quicker than a human is able to.
- Works 24/7. There is no requirement to give these bots a break.
- Removes all human errors. We are prone to being distracted or allowing our emotions and impulses to dictate our decisions. This is all negated with a bot.
- Will stick to the algorithm. As humans, we tend to make changes on a whim. Consistency is important in trading, and a bot will only stick to the script.
Disadvantages of automated bot trading
- The bot still needs to be monitored. There could be errors that pop up or something could happen to the system.
- The bot could fail midway. Not all bots work perfectly, and chances are your bot could fail due to a mistake in its algorithm.
Should You Buy Crypto? Or Hold For Now?
There is no guarantee that you will make a profit by using a cryptocurrency trading bot. Cryptocurrency prices are volatile and can be unpredictable, so using technical indicators to trade may not always be successful. However, some crypto trading bots have been known to outperform the market by a significant margin. If you already trade based on technical indicators, you may find it useful to use a bot to save time and place more accurate buy and sell orders.