Are crypto trading bots worth using?
Trading bots are software that automate transactions. Instead of a trader sitting at his computer all day, waiting for the optimal time to make a trade, he can use a bot to do the hard work for him. Is it advantageous? Let’s find out.
Crypto markets are extremely volatile
The rise, fall, rise…and fall of Bitcoin is a prime example of the volatility of the crypto markets. Bitcoin has seen peaks and crashes several times over the years, with the 2018 crash previously being the most notable. It also crashed in early 2020, before thriving again.
Since then, there have been many wild price swings, but the FTX collapse sparked another big implosion in the crypto market. Bitcoin prices fell, Terra-Luna crashed, and Tether lost its USD peg. A closer examination of the ethereum price index will show similar volatility.
How do trading bots work?
Crypto trading bots use artificial intelligence to perform trades within predefined rules implemented by the user. The bot gathers and analyzes data before identifying trades and making predictions, just like a trader would. The difference is that the trading robot can do the hard work faster and more efficiently.
Algorithmic trading bots have been around for a while and are increasingly being used by traders because they are effective.
There are many popular trading robots, some free, but most others charge monthly or annual fees. Free bots usually have some limitations, but most paid bots offer free trials, so you can try them out without incurring any fees.
To get started, you must first create a trading account. Next, decide which trading bot you want to use – popular robots for beginners include Shrimpy, CryptoHopper and Pionex. Once you have chosen your bot, connect it to your trading account or crypto wallet using API keys.
Decide on your trading settings and rules, then allow the trading robot to begin its work.
How can trading robots help?
Today, about 80% of trading on Wall Street is done using automated robots. The good news is that trading robots are now available to ordinary investors, which levels the playing field somewhat. In the crypto markets, that’s a definite plus.
Due to the volatility of the crypto markets, prices can change massively in a short time. This makes it difficult for merchants to identify potential transactions quickly enough. Bots are much faster than a human and can react instantly, making transactions before a human has even had time to digest a news article.
Using bots removes emotion from trading, which eliminates the risk of making irrational trading decisions, such as panicking and making misguided trades in hopes of recovering from a loss.
Bots can also harness the power of data to make smarter trading decisions.
The disadvantages of using trading bots
Not all crypto trading bots are effective. Some are poorly designed and others yield only marginal returns. It is also important to note that successful traders need in-depth knowledge of their chosen crypto and using a bot does not mean you can avoid doing the hard work.
If you are comfortable with crypto trading but haven’t tried using a trading bot yet, why not give it a try? Check, however, that your trading platform supports the use of bots.
Main image by Pierre Borthiry – Peiobty on Unsplash
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