The Good and the Bad of Automated Crypto Trading Bots
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The Good and the Bad of Automated Crypto Trading Bots

May 10, 2021      Anubha Jain

Crypto trading is a 24/7 job where one can’t stop and relax as the market is highly risky. The cycle of trading, analysis, record keeping, and analysis once more seems endless. The market is so volatile that investors cannot react quickly enough to achieve the best trade in many cases. Crypto bot is one handy solution that can conduct trades and execute transactions on the behalf of human investors doing away with their limitations.

What Can Automated Crypto Trading Bots Do?

Automated crypto trading bots are software that helps users buy and sell cryptocurrencies at the correct time to generate a profit and high risk-adjusted returns. Using these bots, investors can manage all their crypto exchange accounts in one place. This eases the hassle of trading in many cryptocurrencies.

A crypto bot can easily perform functions like portfolio management, rebalancing, smart order routing, and data collection. It is also good at handling repetitive trading tasks. Bots tirelessly monitor the market 24/7, never missing an opportunity and executing trades at the correct time. Using them, investors can automate complicated and impossible strategies of carefully monitoring every single exchange pair. Users can create a bot that is based on their trading style and convenience. This helps them place the order quickly and efficiently. Timely trading requires a lot of patience to wait and observe the market conditions and price charts. Instead, the bots can be easily programmed to do it.

Using a crypto bot eliminates the risk of emotional trading or impulsive decision-making, as it always executes orders based on technical indicators and statistical analysis. They can effortlessly perform large cryptocurrency orders. 

Automated crypto traders support hundreds of cryptocurrencies and can simultaneously trade cryptocurrency pairs on multiple exchanges. They automatically handle crypto fees.

How Do Automated Crypto Trading Bots Work?

Automated crypto bots mostly work as APIs. Users can connect to and use the bots on an exchange. Bots APIs connect to the cryptocurrency exchange to manage users’ investments. This proves to be a great option if a user already has a crypto brokerage account on a well-known exchange like Coinbase Pro, Kraken, or Binance.

Decentralized crypto trading platforms are a type of automated trading bots. They use blockchain technology to trade cryptocurrency. Funds are held in a smart contract on the blockchain, of which the user owns a portion, redeemable through cryptocurrency tokens issued by the trading platform.

Tasks of Automated Crypto Trading Bots

Backtesting

To quickly test trading strategies against historical data to analyze how a strategy performs under market conditions. 

Portfolio Rebalancing

Each investor has the desired level of systematic risk exposure. To match this constraint and preferences, users’ investment holdings are periodically adjusted. It safeguards them from being overly exposed to undesirable risks. The process involves reviewing and restoring the asset allocation of one’s portfolio to its target allocation. It also means getting rid of the underperforming assets and investing in new ones with better growth potential while maintaining the right asset mix. Also, it helps dispose of investments that are no longer in line with the investment goals. Bots rebalance the portfolio as per the frequency set by the user.

Smart Order Routing

It is the process of automatically finding the best available price across multiple exchanges to optimize the outcome of trading any pairs. Every trading pair needs to be carefully determined as per its timing, asset quantity, and trading price. All this analysis has to be finished within a specific time limit before the market conditions change. Automated crypto bots can easily handle all these complicated and seemingly impossible strategies.

Risks Associated with Automated Crypto Trading Bots

Automated crypto bots are commonly designed for traders and not investors. They may not be appropriate for people who are new to crypto trading. Users are required to have proper knowledge in using these bots as any wrong configuration can lead to massive losses.

They are not particularly useful during high volatility periods. Generally, cryptocurrencies are very volatile, and the trading strategy may not align with the market conditions. 

Users are advised to deal with only reputed exchanges with the best security features to avoid any loss in the event of hacking. Users are advised to take steps such as keeping their API key secret and switching off automated withdrawals. 

Even though the bots are automatic, the users still need to keep an eye on the performance of the bot and make adjustments as needed. Bots may not take into account external factors like world events or breaking news, so may make poor trades. Thus human intervention is required in such cases.

Types of Automated Crypto Trading Bots Algorithms

Arbitrage

Simultaneous buying coins on one exchange and selling them on another. This makes a fast and safe profits strategy.

Market Making

Helps to prevent large swings in price. It can involve making both buy and sell limit orders near the current market price.

Momentum Trading

It is ideal for riding a positive momentum wave with assets and selling them when market momentum reverses. The basic idea is the belief that the cost of an asset will increase above its average and then run out of momentum and fall down. In such a situation, buying and selling become crucial.

Mean Reversion

It is a type of crypto trading bot in which strategy is built on the assumption that if a price of a coin differs from its average, the user can revert back to its average.

Copy Trading

It is a trend that enables the user to automatically copy the trade of other traders.

Automated Crypto Trading Bots Available in the Market

HodlBot

It is a customizable crypto trading bot. Users can index the market, create custom portfolios, and do automatic portfolio rebalancing. It is currently available to users on Binance, Kraken, Bittrex, and KuCoin. 

The API keys used are securely encrypted and the bot does not have account withdrawal permissions. Users can create a custom portfolio based on the advanced metrics or implement an existing strategy. HodlBot creates indexes for users who want to diversify across the market instead of picking individual coins. The Hodl20 index makes up 80% of the cryptocurrency market. Hodl30 is a 30 coin index that captures ~92% of the total market cap. Hodl10 index is for the users that have a much smaller portfolio, say < $200.

It offers its users a feature to create their own portfolio where users can pick their own coins and decide how to weigh them. They can use fixed weights, or dynamic weights according to their market capitalization or its square root market capitalization. Users can run a backtest against historical data to see how their strategy would have performed in the past. They can customize the rebalancing period as with the price change, their allocations will shift out of place. The automatic rebalancing period is 28 days.

Gunbot

This works with Binance, Futures, KuCoin, OKEX, FTX, and Bybit. It does not run on the cloud but users’ systems. It provides tried and tested trading strategies for beginners. Furthermore, it also provides unlimited bot instances and rule-based, dynamic config changes. It supports custom trading strategies, users can code their own strategies in JavaScript and easily deploy them on many exchanges.

This supports spotGrid, futuresGrid and spotGridAdvanced strategies. To set it up, the user only needs to enter the amount to invest per trade and set a maximum number of allowed buy orders. It is a privacy-friendly trading bot as it does not collect any data about the trades users make. Gunbot is supported by a community of thousands of active traders. It uses industry-standard indicators like ADX, RSI, stochastic, StochRSI, MFI, EMA, and more to restrict trades to very specific market conditions.

Pionex

It is a 24/7 automated and free-of-cost trading bot. It has a wide user base of 100K+ monthly active users and handles $5B monthly trading volume. It supports grid trading bots, arbitrage bots, and DCA bots.

Trality

This has cloud-based trading servers. Users can code their own bots using Python. It provides a flexible drag and drops rule builder to build logic. Users can try them with backtesting and practice trading. Users can create and automate their own swing trading strategy. 

The trading strategies of users are end-to-end encrypted. Trality can be connected to exchanges like Binance, Bitpanda, Coinbase Pro, Kraken.

It is also building a marketplace to connect traders. Their users can publish their best bots and others pay rent if they want to copy them. Users can follow the best-rated creator bots and mirror their trades.

Cryptohopper

Fast automated trading, and portfolio management for Bitcoin, Ethereum, Litecoin, and 100+ other cryptocurrencies on the world’s top crypto exchanges. 

It offers a marketplace where users can subscribe to trading signals, discuss trading strategies on internal chat, buy strategies and bot templates from the marketplace.

It provides an arbitrage trading bot to benefit from the price difference of exchanges and/or between pairs. Popular indicators and candle patterns like RSI, EMA, Parabolic Sar, CCI, Hammer, hanged Man, etc. can be used. It is supported by a community of over 3,75,000 traders.

Quadency

it works with 35+ exchanges and wallets and provides 15+ bot strategies. Users can choose from pre-built popular strategies, customize, and go live in minutes. It has an integrated market screener and advanced charting from high-quality streaming data. Assets in popular offline, cold storage wallets and web wallets can also be monitored automatically to track users’ entire portfolio while they trade.

3Commas

Advanced, professional tools like grid bots, dollar cost averaging trading bots to reduce risks. More than 20 trading indicators to create a strategy. It offers a marketplace where users can trade via signals from other users. It can be used with 23 major cryptocurrency exchanges. Users can sell their coins by multiple targets. Provides manual trading with Smart trade features.

There are many other automated crypto bots in the market such as Bitsgap, Shrimpy, Kryll, Botsfolio, Zignaly, and Mudrex which can be tweaked as per users’ requirements to conduct crypto trades.

Conclusion

The automated crypto bots are known in the market for their efficiency, increased speed, and 24/7 running period. They remove the human limitations from the trading. The crypto market is global and is up and running all the time. These trading bots can be configured and used as per users’ requirements to earn profit with each and every variation in the market.

Users are advised to exercise caution and proper monitoring while using these bots to get the maximum from crypto trading.

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Anubha Jain
Anubha Jain

Anubha is a keen follower of the manifold applications of blockchain technology. She is a doctoral candidate researching privacy constraints of the blockchain and is working to enhance user privacy in cryptocurrencies. She is a strong supporter of the vision of user-owned internet and believes blockchain as the key to it.