Trading cryptocurrencies has witnessed unprecedented growth in recent years, with more platforms available than ever before to facilitate this type of service. The volatile nature of crypto, combined with the uncertainty on the global economic landscape, only magnifies the risk factor involved in crypto trading, making it crucial for traders to have reliable trading strategies in place. An excellent and highly reliable solution to this is automated crypto trading, through which traders use bots for trading cryptocurrencies.
How are Trading Bots Helpful
Unlike FOREX trading or buying and selling stocks on traditional exchanges, crypto trading is an intense and ongoing process that does not allow strategists to predict how long the current trend will last and when to expect the correction or even reverse.
Crypto trading bots are artificial intelligence-based software programs that perform trades based on predefined parameters. This mitigates the possibility of missing out on trades or opportunities by using a set of algorithms, to purchase, sell, or hold assets in a fast, secure, and automated manner, regardless of the trader’s time zone or geographical location.
Crypto bots connect to popular exchanges through APIs to execute trades on the user’s behalf based on a customizable set of predefined rules and criteria, allowing traders to strengthen their portfolios in a low-risk manner. These bots can be extremely effective, yet today, in order to get the highest possible returns out of a bot, investors need to have at least a basic understanding of how the crypto market works and when it is the best time to start a bot.
The Components Involved
In terms of software and hardware, each bot has its own set of requirements and traders must understand how to optimize its performance based on their portfolio. While automated bots vary greatly from one another, they generally have a few key components, like modules for risk prediction and critical data analysis, as well as those buying and selling cryptocurrencies.
- The risk analysis module helps traders make informed trading decisions by analyzing the risk involved in each trade. Crypto traders are a lot more prone to the loss of revenue when they have not adequately analyzed the risks involved. Therefore, the performance of this module within crypto trading bots is extremely important when determining how much to invest in each trade.
- The critical data analysis module collects vital market data from several sources, analyzes the data collected, and provides recommendations on whether or not investing in a particular asset is advisable. To make the generated data as relevant to the user’s experience as possible, this module has the ability to customize the parameters based on which the data is collected and displayed. Basic trading principles apply to securities, commodities, and stocks.
- The execution module of the crypto trading bot is built to make strategic trades of cryptocurrency assets using Application Programming Interfaces [APIs.] It simultaneously engages with all available cryptocurrencies, by keeping a thorough record of their exact prices and sells exactly when they reach the goal profit set by the trader.
Applications of Crypto
Using trading bots is a viable way to mitigate the risks involved in crypto trading. They maintain consistent trading discipline under different conditions and even when the market has no clear trend. Bots optimize long-term performance without the short-term expenses of emotional human participation, by using a set of pre-established trading rules.
- In Rising Markets – Since asset prices increase and fall almost continually throughout trading, the phrase “rising market” is usually reserved for extended periods during which a significant share of security prices is going upwards.
Rising markets can endure months, if not years, at a time, so traders use a range of techniques, including enhanced buy and hold and retracement to profit off these periods as much as possible. In this case, Bitsgap’s Classic Bot, which always buys and sells a predetermined quantity of the base currency every order can help traders drastically increase the return from each deal.
- In Sideways Markets – When the prices of investments remain in a range for an extended length of time without creating any discernible trends. They don’t undergo any significant rises or falls over the period under consideration. Traders usually use the levels of support and resistance to identify a sideways market.
It can be beneficial for traders who prefer to buy and hold cryptocurrencies. In a sideways market, diversification is the ideal method to generate money because a break in the market will not result in a significant loss or gain. In this scenario, Bitsgap’s SBot, which always sells and buys a predetermined volume of the quote currency per order, can be helpful.
Due to its investment distribution logic, which uses the DCA method (dollar-cost-averaging), the SBot has statistically proven to be the most effective solution to generate returns in sideways markets.
- In Leverage trading – A majority of traders use their reserve funds to trade cryptocurrencies. If they want to buy an asset, they must have sufficient funds in their account to cover the cost of the purchase. Leveraging is a trading strategy that allows investors to expand their market exposure by paying only a portion of the whole investment amount.
As a result, in a crypto trading transaction, using leverage allows a trader to purchase a currency without having to pay the full purchase price. The trader makes use of credit granted by a broker and pays only a percentage of the transaction’s value. In this instance, the combo bot from Bitsgap, which uses a combination of grid and DCA algorithms, can be used to operate on future trades.
The bot makes full use of grid technology to perform trades in response to market movements. DCA, on the other hand, is the best way to optimize the entry price. Because the bot’s built-in trailing function places both grid and DCA levels, the Combo bot may track the trend in both directions, depending on initial settings determined by the user