Demystifying Trading Bots
To the outsider, Crypto trading may seem like a thrilling adventure characterized by tremendous profits. However, anyone that has participated in the trade will tell you that it is not a walk in the park. It takes time, research, patience, and consistency to succeed in the Crypto sphere.
It is like Cryptocurrency prices to be extremely volatile. The price swings are as extreme as they are sudden. That has to be the biggest hindrance towards mass adoption. Imagine ordering a cup of coffee in exchange for Bitcoin and while you are taking it, the Bitcoin market depreciates by 15%. You will be forced to pay more for the coffee and this could range anywhere between a hundred dollars to a few thousand dollars.
You would not be able to enjoy binge shopping in your favorite store either. Imagine the panic of walking across the aisles and seeing the value of your goods swinging by the second. Can you imagine how emotionally and mentally exhausting that can be?
Incorporating bots in trading
The above illustrations are a perfect explanation for Crypto price volatility; however, no one suffers the impact of price swings more than crypto traders.
It is every trader’s goal to make a profit, this is achieved by buying low and selling high. You, therefore, need to keep your eyes open and be able to accurately anticipate the market trends. Unless you are a whale who controls the market, you know just how hard that can be.
a) Limitations of human trading
Human trading is limited by several factors which include but are not limited to the following:
- Slow reaction to price changes
- Other life demands – it is impossible to monitor Cryptocurrencies round the clock
- Physical constraints like illnesses
This is where the trading bots come in.
b) What are Crypto trading bots
In layman’s terms, trading bots are automated tools that conduct trades and execute transactions on behalf of human investors.
However, the more accurate definition describes Crypto trading bots as a set of programs designed to automate Cryptocurrency trading on your behalf.
All you are required to do is to determine your coins of interest and the bot will take over from there. They are better than human experts as they save both time and money thus allowing you to sit back and watch your profits grow.
c) How they operate
Some people fear that trading bots are scams that were created to steal their money. While this is a valid concern considering how risky the Crypto space can be, it is a bit misinformed.
A trading bot is simply a tool that optimizes your trading experience. You pay some money in exchange for this tool through a monthly subscription. Also unlike most Crypto projects, it does not come with the promise of taking you to the moon, your returns are determined by your investments and your input.
The first step with most bots is some sort of download or installation process. You also need to deposit some crypto onto your exchange wallet.
d) Components of most trading bots
Most crypto trading bots have the following key components:
- Market data analysis – collecting data from different sources, interpreting it, and using it to determine sales or purchases.
- Risk mitigation – the collected market data is used to calculate and mitigate the market risk
- Buying and selling – Bots use APIs to buy and sell Cryptocurrency assets strategically.
e) Merits and demerits
Highly calculated money moves
Complete lack of market psychology which is sometimes critical
Processing bulk data
Programming errors – they undermine their efficiency.
Increased efficiency (reduced human errors)
They are emotionless (No clouded judgments)