Due to the increase in the number of trading operations, many traders are beginning to realize the inefficiency of making transactions manually and are seriously thinking about automating trading.
Such automation is possible using trading bots. These are programs that allow traders to automatically carry out transactions for the purchase and sale of crypto assets using pre-built algorithms, as well as considering some conditions and trading parameters that are configured following the chosen trading strategy.
Trading using bots is called algorithmic or algorithmic trading
Trading bots interact with crypto exchanges using the Open API. Robots in real-time monitor changes in the value and volumes of crypto assets of interest on the exchange. They track the number of orders in the order books (ask/bid), their volume, consider key technical indicators (curves, moving ones), as well as the price trend and liquidity. Trading robots quickly respond to any fluctuations in the value of assets and can conduct tens or even hundreds of transactions within a second.
A person, even a very experienced trader, physically cannot compete with a robot. Therefore, today algorithmic trading in terms of speed-efficiency is unmatched in the market.
What operations does a trading bot allow?
When buying a trading bot, you need to consider that in the boxed version they can differ significantly from each other. All bots are customizable and can be reprogrammed for a specific trading strategy and investor goals. This must be considered before purchasing.
The main operations that the robot can carry out:
- The bot can open and close deals on exchanges. Such robots are guided by technical analysis indicators, candlestick analysis, order books, and liquidity indicators. They can consider patterns and use popular trading strategies: trend trading, deviation from EMA (Exponential Moving Average) indicators, and averaging. The bots also consider stop-loss and take-profit orders, allowing you to gradually fix profits and minimize losses.
- When scalping in a short period, at any price movement with a minimum profit, a huge number of transactions are closed. And in this trading mode, the bot is simply irreplaceable.
- The bot analyzes the price of the same asset on different exchanges and, if there is a significant difference in the price, which makes it possible to make a profit, even considering commissions for input-output, it instantly conducts arbitrage operations.
- Signal bots inform traders about the onset of favorable conditions for the sale or purchase of an asset.
A special class of robots – Telegram bots can independently carry out the bounty and air-drop distribution of tokens, conduct surveys among traders and carry out transfers from wallet to wallet, as well as many other operations.
Benefits of trading bots
- Working hours 24/7. While a person needs sleep and rest, the robot can work around the clock, taking away routine and often repetitive operations from the trader.
- A bot makes a much larger number of transactions than a human in the same period. This allows you to significantly increase your profit than with manual trading. A person is not able to simultaneously analyze the market situation, a large number of charts, conduct technical analysis and carry out transactions across the entire portfolio of assets. But this is not a burden for a trading bot.
- Robots do not make human mistakes, such as putting the decimal separator in the wrong place, or, for example, adding an extra zero. A bot, unlike a human, will not be able to confuse the type of order (buy instead of sell and vice versa). The robot will trade according to the algorithm laid down in it and considering all the conditions prescribed by the trader for making transactions.
- Trade without emotions. Any trader is a person and therefore, to one degree or another, is dependent on emotions, which sometimes very much interfere with achieving a positive result. Fear or greed, uncertainty, or, conversely, excessive self-confidence – all these emotions constantly accompany any trader. A trading bot, on the other hand, is completely devoid of any emotions and trades exclusively according to the rules of a trading strategy incorporated into it.
- Multitasking and scaling. Robots allow you to simultaneously operate several strategies that can simultaneously generate thousands of signals for conducting trade transactions on different exchanges.
Disadvantages of trading bots
- High price. You can find free solutions on the market, but if you use them thoughtlessly, you can lose your entire deposit in one day. Paid trading bots most often provide technical support, assistance in setting up and choosing trading algorithms. The price can be either fixed or in the form of monthly payments (more often in the case of a lease, not a purchase). And sometimes the price for a profitable trading bot from well-known developers with a high-quality SLA (service level agreement) can be overwhelming for a trader, especially a beginner.
- Difficulty with the selection of a trading strategy. It is difficult for inexperienced traders to find a successful trading strategy. To do this, you need to test various hypotheses in the face of constantly changing trends. And without experience of several years in trading, it will be difficult to do. Sometimes the time for concept development, analysis, creation of a forecasting system, and tuning can take up to 6-7 months. But novice traders, after buying a bot, dream of profit from the very first days. Unfortunately, this will not work with trading bots. To be successful over a long period, you will have to devote proper time to the selection of a trading strategy.
- Difficulty in setting up and using the bot. Different solutions can use specific interfaces, which means that at times, setting up and using a bot can cause certain difficulties for a novice trader.
- Inability to deviate from the algorithm. Sometimes the exact adherence to the algorithm and the inability to improvise can do the bot a disservice. During periods of high volatility, a sharp change in trend, or force majeure situations in the market, the robot may start trading negatively. The trading strategy should be periodically reviewed and modified in time.
As you can see, the efficiency of a trading bot depends on the chosen trading strategy, algorithm settings, and owner’s experience. The use of trading robots is not recommended for novice traders or investors. No bot in the wrong hands is guaranteed to make a profit.
In general, trading bots free you from routine and greatly expand your trading opportunities. They are a really powerful and effective tool for making profits in algorithmic trading of virtual assets, but only if they are in hands of experienced professionals. Therefore, if you are not confident in your strengths, experience, and knowledge, we recommend using the services of algorithmic trading professionals – FOBS Asset Management.