Bots don’t go on tilt – A Quick Guide to Cryptocurrency Trading Bots

Trading bots are not new. They have been used for decades, buying and selling on the global stock & commodity exchanges. Anything from market-making bots, arbitrage bots, high frequency trading bots and everything between and beyond. Traditional markets have highly sophisticated participants, their trading bots exploit the best minds and technology that money can buy. The investment is obviously worth it.

Programmable internet monies (cryptocurrencies) deliver greater opportunities to the holder/trader. However, with those great opportunities comes great responsibilities. A higher level of financial literacy and coding knowledge will pay dividends for those who are willing to take on the extra responsibilities as our monies and markets evolve.

The heart of the cryptocurrency markets is always beating. The price action is continuous and volatile. Rest days in absentia. This is why many people have looked to automate their trading. A trading bot never rests.

Why Use a Cryptocurrency Trading Bot?

  • Instant and accurate order placement
  • Timing of trade can be set and exact
  • Reducing risk of errors over manually placing trades
  • Strategies can be easily backtested (run the bot over historical data)
  • Trades executed at best available price
  • Transaction cost savings
  • Better timed trades when cross-market conditions are met

The volatility that makes trading cryptocurrency markets so great to trade also make it more important to monitor a portfolio more closely. Cryptocurrency markets do not have limit-down market pauses like traditional markets, so it is possible, as recently seen, for price drops of 1/3 in one day. A cryptocurrency trading bot can act as a portfolio sentinel. Always at the ready to balance risk based on market movements when the trader is not at their desk. Bots relieve pressure from a trader, automating most if not all of the ‘live process’.

Tell me moreā€¦..

A cryptocurrency trading bot is a software program that accepts data inputs and then automatically buys and sells cryptocurrencies on any chosen exchange(s). Trading bots are always ready to react to the predetermined set-up(s) that they have been programmed with.

Cryptocurrency Trading Bots Accuracy

Trading is a game of probabilities and precision. Calculating the probabilities and acting with precision. With experience, traders begin to realize the need for rigor in their trade execution. In following a trading plan and strategy precisely allows for a trade history that actually means something when reviewing for tweaks and perfecting.

Cryptocurrency Bots automate trading algorithms, implementing a vast array of strategies including using technical analysis, cross-referencing live data from correlated markets/Twitter sentiment, market making based on micro-market structure or strategies lead by machine learning and AI – possibilities ad infinitum.

Algorithmic Trading

An algorithm in general terms is a ‘list of instructions’ which when carried
out, solve a particular problem. An algorithm for escaping a maze might be ‘only turn left’ or ‘take two right turns for every left turn until you exit’ etc. Algorithms in trading is the process in which pre-programmed trading
instructions are executed automatically.

What Benefit From a Bot Trading For You?

With a cryptocurrency trading bot it is possible to automate your whole trading operation. A bot can trade for you while you sleep, and perform multi-threaded strategies that might be too complex or high-speed to perform manually. A trading bot adds to your tools and capabilities, therefore improving your chances of having ‘an edge’ in the market.

Long-term holders of Altcoins may want to continually rebalance a portfolio in a ‘buy and hold/index’ type strategy. With a bot, rebalancing is simple and automated. Requesting and analysing data for trade decision making. Any repetitive task that is time-consuming (scalping/rebalancing portfolio).

How To Get Started with a Cryptocurrency Trading Bot?

The simplest Bot will trade using the data available on your chosen exchange.
Any decent exchange will provide access to your trading account via an API
(Application Programming Interface). Through the API, a bot can request data
from the exchange, place trades and other housekeeping/admin tasks such as
request account balance.

As a simple example, say a trader sets up a trading bot to buy 0.1 BTC when the 10 minute moving average goes above the 50 minute moving average and then sells the 0.1 BTC when the 10 minute moving average goes back below the 50 minutes average, hopefully catching the trend. The trader is now free to research other opportunities, no longer needing to monitor the live price to manually enter trades for this strategy.

API keys

For a bot to have access all these API functions for your chosen exchange. The
presence of the correct API keys in your software are the bot’s ‘proof of permission’ to access your account at the exchange.

Software

There are many open-source options written in languages such as Python, Java, C++ etc. Coding knowledge is required at this step. There are also ‘off the shelf’ bots available, usually for a monthly fee.

Sit Back

Once a bot has instructions, API access and funds available to trade with, there isn’t much to do except sit back and enjoy the free lunch.

[[[ Get in touch: contact @ bullfin.ch ]]]