Cryptocurrency trading has boomed in the past few years. The digital asset market is gaining attraction from many traders and investors alike. But there are some investors who just want to invest and earn profits but do not do the legwork required for the same. This consequently results in losses and may discourage people from further investments. To remove these worries and make trading easier, crypto trading bots came into existence. These trading bots not only help traders by saving their time but also saves them from volatility and risks involved in this market when they are away from their computer screens. In this blog, we will know what are crypto trading bots and how to use them efficiently.
Understanding Crypto Trading Bots
Crypto trading bots are software programs that work on behalf of users. These bots connect to a crypto trading exchange and make trades. Trading bots perform all the activities using different strategies and indicators. Crypto trading bots work all the time and ensure that trader is regularly in control of their holdings. Since trading involves all kinds of mathematical calculations that are fast and complex, it is assumed that bots can perform better trading than humans. Also, they are able to do trades more quickly and efficiently as compared to a trader.
Increasing popularity in the crypto world has boosted the increase of crypto trading bots in the market. Bots don’t exactly work on their own, they follow changing market prices and working according to a set of pre-determined and programmed rules. They notice and analyze technical indicators like price, volume, orders, etc. Traders can even customize bots so that they work according to the investor’s own trading strategy. Some bots are available for free and are open-sourced, while some can only be purchased from firms in exchange for a fee.
Advantages of Using Crypto Trading Bot:
- Always Trading- Digital asset market is trading around the clock, it never takes a break. This means that anytime the profit may arise and you cannot afford to miss that. Here, crypto bots help you by working on their own all the time.
- Increased Speed- For a human, it is difficult and time-consuming to make necessary calculations, analyze the market situation, etc. But a bot can perform these calculations much faster than a human can ever do.
- Rational Decision Making- Investors often make decisions based on their emotions. Sudden changes in the market and chances of uncertainty make investors move away from their trading plans. But if we talk about bots, they are not influenced by these rapid changes or uncertainties. They work according to the trading strategy and set rules.
- Human Error Prevention- Human works involve some errors and this is an acceptable thing. But bots remove the necessity of performing something manually which increases accuracy.
- Diverse Portfolio- Crypto trading bots make it easier for traders to diversify their portfolio and trade across various accounts. Bots can efficiently manage multiple assets in various markets.
Disadvantages of Using Crypto Trading Bot:
- Security Concerns- For operating a bot you require access to API keys. But the bot provider that you are relying on may also sometimes lack security protection leading to security concerns.
- Market Complexity- New trading bots coming in the market are quite advanced. But in this fast-moving and changing crypto market, even the best bots may have a hard time operating.
- Not Beginner Friendly- If the configurations of your software are flawed and defective, you will face loss even if you are using trading bots. Changing the strategies requires good knowledge and understanding of the trading process and are more suited to seasoned players.
- Using an Outdated Bot- Trading bots work on the rules of a set program and settings. But if the settings are insufficient or not as per the current trend, losses are bound to happen. So, bots need to be updated regularly.
- Requires Human Intervention- Bots mostly work by themselves, but during high volatility, they are not completely reliable. They can have a consecutive loss and still not stop performing trades, so it needs traders to monitor them at this time.
Factors to remember when using a Crypto Trading Bot
Crypto investors make many mistakes while trading. The thirst of earning more profits often leads to making errors. Even a single mistake can lead to losing all the investment. So, to help yourself in avoiding mistakes while using a crypto trading bot, make sure to have the following checklist:
- Terms and Conditions- All crypto platforms have their own terms and conditions. It is your responsibility to read the terms and conditions to experience smooth trading. Also, you should follow the instructions and suggestions provided by the platform to have a hurdle free trading experience.
- Protecting Your Password- The password that you use in your crypto wallet and trading platform should be kept a secret. Create passwords for your trading account and crypto-wallets that are easily remembered by you, but are difficult for hackers to guess. Crypto trading platforms do not save a copy of your password, so in case you forget, there are no options to recover it. Though, you can keep an external backup for safety purpose.
- Securing Your Device- You should always update the device that you use for accessing your crypto trading or crypto wallet. It is essential to have an antivirus installed to protect your device from any malware. If you will ignore these things, then you are putting your software and stored data at risk of being exposed. The best way is to use only a single device for trading activities, crypto wallets, etc.
- Removing Asset when not Trading Actively- Crypto exchanges are always at a risk of getting attacked. So, whenever you are not trading actively, it is better to remove your digital asset from that exchange. It is advisable to put coins in your digital wallet rather than leaving your coin on an exchange for a long time when not trading.
- Studying Market Trends- Depending on a cryptocurrency trading bot is just not enough. With bots, you also need to make use of your experience. Study the market, analyze it and know the trends of cryptosphere. Finding a trend and trading in that direction leads to more benefits.
- Diversifying Investment- When you invest in cryptocurrencies, always diversify your investments. Splitting your investments will lessen the risk involved in a single asset and will also make you earn profits from multiple investments.
- Keeping a Journal- While Trading in crypto, it is advisable to keep a track of your trading and the opportunities offered by an asset. In your journal, you can mention the viability of an asset, your conclusions regarding it and so on. You can gain information about an asset from its whitepapers.
Hence, we now know what exactly is a crypto trading bot and how it aids investors in trading. By using these bots traders can now sleep peacefully without worrying about the rapid changes going in the market. If you keep the above-mentioned points in mind while using a bot, you can be more effective with your trading strategies.