Cryptocurrency trading happens round-the-clock, making it challenging to seize all market opportunities, even for the most experienced traders. Therefore, experienced crypto traders often turn to crypto trading bots to compensate for these limitations, using algorithmic trading programs to auto-execute thier trading strategies on their behalf.
This is partner content sourced from Laura Shin’s Unchained and published by CoinDesk.
In this article, we explore crypto trading bots, how they work, their pros and cons, and some examples of popular crypto trading bots.
What Are Crypto Trading Bots
Crypto trading bots are automated algorithmic programs designed to use specific trading strategies based on predefined parameters to execute trading strategies in the global crypto asset markets.
Crypto trading bots can work 24/7 in the crypto market to compensate for the trader’s human limitation and achieve optimal trades.
The types of trading strategies algorithmic trading bots can execute vary from bot to bot, with some professional traders developing their own programs to capitalize on inefficiencies in the market.
How Do Crypto Trading Bots Work?
Cryptocurrency trading bots are automated trading software built by a third party. You can buy or subscribe to trading bot software or download a free bot trading program. However, you need to have at least some basic understanding of coding and technical analysis in most cases.
You use automated crypto trading bots by connecting them to exchanges using an Application Programming Interface (API). In crypto trading, an API is an interface that acts as a bridge between crypto trading bots and the exchange platform to allow bots to execute trades and manage the trader’s portfolio.
Crypto trading bots make trades based on simple or complex predefined market indicators and parameters. Some common parameters bots use include price, time frame, and order volume, while common market indicators include moving averages (MAs), relative strength index (RSI), and more.
However, you still need to choose the trading parameters and indicators carefully since they determine how the crypto trading bots monitor the market and make trade decisions. The bot executes trades once the market conditions align with your predetermined parameters.
Since automated crypto trading bots have direct access to your crypto assets and can make trades on your behalf, you must restrict your API on what actions bots can take and only use bots you trust. Moreover, you need to backtest your trading strategy under different market scenarios to increase the chances of it generating a profit in the live markets.
Advantages & Disadvantages of Using Crypto Trading Bots
There are a lot of benefits to using automated crypto trading bots, but this software also comes with a set of challenges. Let’s look at some advantages and disadvantages of using crypto trading bots.
Advantages of Using Crypto Trading Bots
Crypto trading bots offer efficient trading by automating the trading process. It helps traders keep track of all their digital assets and observe different markets simultaneously, removing the manual labor otherwise involved.
See Also12 Most Advanced AI AssistantsCrypto trading bots offer round-the-clock trading of the volatile crypto market. Traders are limited in monitoring the market 24/7 and might lose out on opportunities, which is where trading bots come in.
When set on the right parameters, crypto trading bots have better trading accuracy and market timing. The highly volatile market is all about finding the right time and digital currency to trade and gain profits.
Crypto trading bots eliminate human emotions in the trading process and make fewer mistakes if coded well. Traders are bound to be affected by some emotions when making exchanges which can drastically affect their outcomes.
Disadvantages of Using Crypto Trading Bots
The trading bot needs to be running for it to trade, which means your computer should also be constantly running. There is always a risk of the computer going off or the bot failing to execute, so you still have to keep an eye on them.
Setting up a trading bot may require technical knowledge; you need to understand trading strategies and the crypto market. Cryptocurrencies’ volatile nature will require you to change strategies depending on what works at the time. Moreover, a trading bot is only as good as its programming.
Automated crypto trading bots have direct access to your assets, which poses a risk of getting scammed. Crypto trading bots can have hidden malicious codes that could withdraw all your funds. You must do your research and find a trustworthy source for your bots!
Examples of Popular Crypto Trading Bots
Several automated crypto trading bots are available with varying software requirements. Let’s look at some of the most popular crypto trading bots available today.
Cryptohopper
Cryptohopper is a cloud-based automated trading platform that operates on a subscription model with a free 7-day trial. It allows you to set up your trading strategies and use external signals to trade. Cryptohopper offers a variety of strategies, trading indicators, and candle patterns and trades multiple cryptocurrencies.
Coinrule
Coinrule is an automated trading bot provider with over 200 trading strategy templates. It has a risk-free demo feature to test any strategy before applying. Coinrule offers free and paid subscription plans with varying amounts of strategy templates. Its coin scanner feature also scans price trends across 2,000+ cryptocurrencies
3Commas
3Commas is a trading platform that offers automated crypto trading bots that can be configured to meet any market conditions. You can customize your bots to meet your trading needs by developing your strategies or copying from established traders. 3Commas has a three-tier subscription model with a free plan.
Unibot
Unibot is a Telegram trading bot that allows you to buy and sell cryptocurrency directly from the Telegram messaging app. Unibot is a decentralized finance (DeFi) protocol that enables fast trading on Uniswap v3. The platform has a token, UNIBOT, which offers various benefits like governance rights, yield farming, and reduced gas fees for holders. Unibot allows you to have multiple wallets, copy trades from other wallets, and access new tokens as soon as they launch.
Crypto trading bots can be an excellent tool for experienced traders looking to execute automated trading strategies. However, they are not plug-and-play money-making machines. To successfully trade using a bot, you will have to have it execute a trading strategy that you have thoroughly backtested. and are regularly monitoring, and even then, it may not make you a trading profit.
This article was originally published on
Oct 2, 2023 at 2:48 p.m. UTC
