As the mainstream popularity of cryptocurrency trading grows, more and more people are looking for a way to casually get into it. Many realize the difficulties, as well as the risks of trading, thus trying to ease into the process without putting too much on the line right away.
At this point, people tend to come across the term “trading bots”. This isn’t a particularly new concept, as automated trading has been used in various markets for a while now. But what does the term “bot” mean in the cryptocurrency context?
Trading bots are programs that use certain trading algorithms and scripts to analyze and recognize trends in the market which in turn allows them to execute timely profitable trades on your behalf.
This basically lets you trade Bitcoin or any other cryptocurrency just like you would on, for example, Forex, using an automated trading system. It is advised to do some research before diving into this trading with bots, as not knowing what you’re doing can only hurt your future profits.
Crypto trading bots are also capable of accomplishing menial tasks, such as portfolio management and index construction, which makes your trading experience smoother, requiring your attention only when it is truly needed.
Now that we’ve quickly clarified what trading bots are, we have to cover the available options for trading platforms. You shouldn’t rush when picking the platform that you think fits you the most, however, as there are many factors that you should be aware of, for example, the approval or disapproval of bots on various exchanges.
It should be noted that recently quite a few exchanges have added futures trading on their platform which is a huge step towards sustainable bot trading as it allows to profit from both, growing and falling markets by taking long and short positions.
Common features of Crypto trading bots
- Backtesting
- Strategy Implementation
- Execution
- Job scheduler
#1 Backtesting
Backtesting means the testing of a strategy or algorithm utilized by a bot on historic market data. The results are dependent on how realistic the backtesting is. This realistic factor can be improved by paying attention to things like trading fees and slippage. It is recommended to make use of exchange APIs, as they can help you collect market data more easily.
#2 Strategy Implementation
Arguably the most crucial factor that you must take care of is implementing the right trading strategy. This consists of you telling the bot what calculations and algorithms to execute to decide what cryptocurrency to trade and at what point in time. It is, of course, highly advised to backtest your strategy until you’re content with the result.
#3 Execution
After you’ve backtested your strategy, it is time to move on to executing it. The bot will begin sending API requests, which are basically the calculations and logic that you taught it to execute, to the exchange.
#4 Job Scheduler
After executing your strategy all that’s really left to do is to set it and forget it. By setting up a job scheduler your bot will execute the trades it deems profitable automatically.
When should you use crypto trading bots?
As mentioned previously, trading bots are great at automating menial and repetitive tasks. They can practically do anything from the aforementioned portfolio management to market data collection and smart order routing. Of course, what it does depends on the user.
Automating everything, however, is not a good idea, as you’ll spend more time on managing all the bots than if you had done the tasks yourself. This means that you should only really focus on automating the tasks that you spend the most time on and that consists of the same set of actions. Infrequent and straightforward tasks should be left to your own attention.
So this begs the question – what exactly should you do with bots to improve your trading?
#1 Repetitive Tasks
Once again, trading bots can help you to greatly cut down the time you spend completing repetitive tasks. The main one people tend to face is portfolio management, especially portfolio rebalancing. Coding a bot to do so is not difficult and it will save you a lot of time and energy.
#2 Timing
Carefully observing the market and properly timing a trade can be extremely painful, especially when you have to do it multiple times a day. And in certain situations being accurate when trading can simply not be feasible. This is where trading bots come in. Coding the bot to analyze the market and trade at the most advantageous time will yield much more profitable results than doing it manually.
#3 Day trading can be a full-time job
Most people don’t have the time to constantly analyze the market and the price charts, so a pair of helping hands wouldn’t hurt. The automation of various processes can increase your productivity, as well as your profit when trading.
#4 Keeping up with the market
The market never stays still, nor does it wait for people to catch up. A great opportunity can pass you by simply because you aren’t around to make use of it. Unlike people, however, bots can operate around the clock. This allows you to make trades almost twice as frequently when compared to trading without a bot. This, coupled with the fact that the bot picks profitable trades, means that you should expect a sizable increase in your earnings.
#5 Simplifying complications
While bots can certainly help you with boring and tedious tasks, they can also make your life easier when dealing with tasks that are seemingly simple in theory but difficult in practice. Something that falls into that criteria is smart-order routing. It is essentially the process of finding the best price across various exchanges and routing trades through trading pairs, all of which are executed in a set amount of time. Keeping track of all the conditions and executing it at the right time can be very difficult but even this can be automated by a trading bot.
Top 5 automated trading platforms (add small description)
1. Wunderbit Trading
- Pro trading terminal
- Multiple account management
- TV alert automation (for both studies and strategies)
- Copy-trading
- Free forever
- Futures trading: FTX, Deribit, Bybit, Binance
2. TradeSanta
- Grid and DCA bots
- Free (up to 3k/month)
- Ready to use bots
3. 3commas
- From $29 per month
- Smart terminal
- Bots (DCA, Grip, simple)
- Futures available on $99 plan
4. Cryptohopper
- Automatic trading
- Exchange arbitrage
- Mirror trading
- Backtesting
- Manual trading from Free, automated from $19 per month
5. HaasOnline
- Advanced trading
- Complete privacy
- Famous HaasBots
- Backtesting & Paper trading
- Visual algo designer and Editor
- From 0.028 BTC per 3 month
Evaluation points
If, after looking over the trading bot use cases, you are interested in getting a bot, then you should know what to look for when picking out a bot.
Credibility of the bot
A bot’s credibility tends to come from its age, as in how long traders have been using it for. Older bots tend to be more trustable rather than newer ones, as it is possible to be scammed by malicious bots taking advantage of your tokens. Bots that have been around for a while would have been tested by multiple people, thus giving it its credibility.
This doesn’t mean that you shouldn’t try new bots at all, it is simply advised to pay attention to your tokens and only allow the bot to handle a small amount of them at first.
Community opinion
The crypto trading community is quite active online, so most bots have plenty of reviews from both average traders and more experienced and well-versed bot users.
People may have different experiences with varying complaints but we especially pay close attention to overlapping problems. However, a serious bot issue in one person’s eyes may not even be a concern in another’s.
It’s important to understand what the most valuable features of a bot are in your case and what features can be omitted so that you don’t end up chasing after bots that have close to no criticisms.
Exchanges
Bots tend not to support every known exchange, most only work with a set amount. Therefore, you should first figure out which bots are allowed on the exchanges you prefer to use before actually downloading one. If you, however, are really interested in a bot but it is not allowed on your preferred exchange, you might want to open up new accounts in order to try it.
Price
Price can be a major factor when picking out a crypto trading bot, especially if you’re new to trading as a whole. Some bots require a one-time payment, others offer a subscription plan, and a sizable amount is free. The free ones tend to offer less useful features but if you’re only starting out and don’t want to spend too much on something you’re not sure you’ll use, they are very much viable options.
Functionality
There are a plethora of bots to choose from but if you’re not too experienced with them it’s best to look for easy to use and are not too jam-packed with features. Once again, this depends on your needs but it is recommended to find out whether the bot supports multiple platforms, such as Android or iPhone, whether it can be used offline and how easy it is for the average trader.
The configurability and adaptability of a bot to certain market conditions are a few of its most crucial aspects. For some users, it might be best to choose a bot that is able to quickly adapt to different market states, while others may opt for a more manual approach of coding in strategies of operation.
Arguably, the most important part of a trading bot is its security. For trading bots to operate they must have access to your assets, and with your assets not being secure, using a bot may be more detrimental than helpful. It is crucial to pay attention to what information your bot wants access to, especially when it’s a new and unknown one. If the bot wants access to something it shouldn’t need, such as the ability to withdraw assets or funds, then it’s better to rethink your choice.
One sign of a good bot is how well its creators interact with and support customers. A bot with minimal or no customer service at all most likely does not care about their customers, so it might not care what happens to your funds either, or in some cases, it might just want to steal them outright. It’s best to trust a platform that makes every effort to support and assist its customers.
Profits
While bots will help you organize yourself better when trading and may increase your profits, however, nothing is truly guaranteed in the trading world. It is ultimately up to you, how you utilize these tools to increase your returns and come out on top.
Conclusions
Bot trading is a highly efficient way of trading, it has some limitations but can be highly profitable. One of the easiest ways to start profitable trading with bots is to use TradingView platform for strategy code and backtesting and to link it with Wunderbit Trading for strategy alert automation. Thus, giving you a free way to start trading with bots on a PRO level.
You can also find free TradingView bots that are profitable in this Youtube channel.