One of the biggest advancements in the field of finance was the arrival of affordable automation to multiple financial markets at once. Many modern experts advise their clients to auto trade cryptocurrency to some degree and employ bots during periods of volatility or to grow their portfolios slowly and safely.
How can you optimize your investment efforts by utilizing the power of automation and ensuring you use bots correctly? We will try to answer this question and explain why robots are so good, particularly in crypto.
What is automated crypto trading?
The first attempts to introduce computation in financial markets were made four decades ago with economists developing algorithms that were processed by computers to generate advice for financiers. Multiple advancements helped institutionalized traders to make millions, but the technology was available only to large trust funds and bankers.
The advent of the internet brought many interesting instruments to the masses including social trading and cheap automation. For example, contemporary companies like WunderTrading offer their clients free plans so that they can test products before implementing them into their trading systems.
A typical bot is a script executed in the cloud and works following a very simple algorithm:
- Receive a trading signal from an analytical platform like TradingView.
- Create a set of commands for an exchange based on its instructions.
- Send commands to the exchange and prepare to repeat the process.
This three-step algorithm is a gross oversimplification, but it is how, essentially, any bot works. Even the best crypto trading bot utilizes this approach. It means two things:
Ultimately, the burden of making correct investment decisions and choosing the right technical analysis strategy is still on the retail trader.
The main purpose of any bot is to make your strategy faster, more consistent, and reduce the idle time which is crucial in markets that operate around the clock.
Can you automate crypto trading?
Crypto enthusiasts believe that one of the biggest advantages of cryptocurrencies is that they are digital and, in theory, can be faster than any other financial system. The latter still demands to be proven since many cryptocurrencies are way slower than modern payment systems. However, the potential is there.
While transactions themselves are relatively slow and need multiple confirmations, the market does not operate at the same level of speed. Centralized crypto exchanges take your money in custody and conduct trades “on paper” with all final exchanges completed at a later date. It means that the market is as fast as exchanges can process commands from users.
As the speed of internet connections and computational power increase, the market reaches a point where most operations are executed instantly. It means that humans are inefficient with even a second of hesitation ruining a potentially profitable market position.
Crypto exchanges had to adapt. Coinbase Pro, Binance, Kraken, and many other CEX platforms released APIs allowing users to access their accounts and functionality directly bypassing the user interface. Contemporary automation vendors take advantage of these APIs and provide unique services that allow retail traders to use bots on any CEX platform with an API.
Are automated crypto trading bots profitable?
Bots are not traders or investment advisers. An automation platform is a tool that should be used appropriately. It will not make money on its own without your input. Profitability depends heavily on how you use automation and which technical analysis strategy you decide to follow.
However, several aspects of automation make bots better than human traders:
· Bots never sleep. Since the crypto market operates around the clock, opportunities for promising market positions arise regularly, but humans may not be able to spot them because their perception is not perfect and they need to sleep.
· Bots do not hesitate. The key to making algorithmic strategy work is consistency. Human traders may feel doubt or fear when opening a new market decision. They miss out on opportunities and do not react to price action with the necessary level of speed and determination.
· Robots are quite cheap. Contemporary retail traders may try some automation-powered systems at no cost. For example, WunderTrading offers you a free crypto trading bot (up to five simultaneously running scripts) if you register.
These benefits leave only two important factors under your control:
- Choosing the right strategy. You have to learn technical analysis and test multiple trading systems before automating them. A good idea is to register on TradingView and back-testing all automated strategies against the history of price action to choose approaches that generate the best results.
- Managing risks and portfolio. Dedicate only a certain portion of your portfolio to automation and never forget about stop loss and take profit orders to ensure that the risk level does not exceed a certain tolerable threshold.
If you find a superb strategy capable of generating profits when delays and indecisiveness are irrelevant, automating it will bring you consistent profits and dramatically increase your trading routines’ efficiency.
How to get the best cryptocurrency trading software?
Automation is a product that can be easily scaled and offered by SaaS companies (software as a service). There are three important traits of a good automation vendor:
- Reliability. Their bots must operate around the clock without any downtime. Choose vendors that use good cloud computing services and have positive reviews.
- Affordability. Cutting costs everywhere without compromising the result is the ultimate goal of any investor. Choose vendors with affordable plans and free trials.
- User experience. If you start using a platform with a messy dashboard that you struggle to understand, you can forget about making profits. Pick vendors with intuitive navigation and controls.
All these traits can be tested preemptively. Free trials or, even better, free plans like the one at WunderTrading allow users to check the quality of the service.
The main takeaway
You can optimize any investment plan by using the power of automation. If your fundamentals are strong (a good strategy combined with robust risk management), bots will increase the efficiency of your trading system and make it much better in the long run.
