What Are Crypto Trading Bots and How to Use Them? Crypto Trading Bots Guide

A comprehensive guide on crypto trading bots provided by Changelly

Crypto trading bots were a sensation several years ago. They managed to bring considerable profit to those who knew how to use them properly. Essentially, they still can augment your capital. Changelly’s collected basics about crypto trading bots to provide you with all the necessary information on how to build a trading bot, how to set it up and how to make it work for you. 

What Is a Crypto Trading Bot?

As soon as it was clear that the crypto industry would keep on developing and expanding, some of the industry’s masterminds introduced bitcoin and other crypto trading bots to the community. 

A crypto trading bot is a software program that automatically buys and/or sells assets when its price reaches a certain limit. Crypto trading bots use exchanges’s APIs in order to merge and obtain all the necessary information and place an order on your behalf. Crypto bots usually analyze market data like volume, price, orders, time, and other vital factors that should be considered when trading. However, you want your trading bot to pay closer attention to other things you can easily set up your own preferences. 

Trading bots are not the prerogative of the crypto world. They also use in the stock market trading for the same purposes: to help traders at increasing their initial investment. The Internet is full of tutorials on how to build a perfect trading bot and use it on NYSE, NASDAQ, and other stock exchanges. 

How Does a Trading Bot Work? 

As mentioned above, trading bots need to interact with crypto exchanges in order to obtain essential data and follow a certain algorithm of actions. Pretty much every cryptocurrency exchange provides its API for algo trading. Sometimes, the exchange platform also has tutorials on how to set up a trading bot. 

Most trading bots work on a rather simple principle that can be described as “signal generator — risk allocation — execution.”

The algorithm behind a trading’s bot performance

That’s the pattern behind every decision made by such bots.

The signal generator is the part where a bot makes its predictions. Data (be it one collected from indicators or other sources) enters in the generator, and it decides whether to put out a buy or sell signal. Afterward, this signal proceeds for the risk allocation. 

Once the buy or sell signal is there, a crypto trading bot has to decide how much it should buy or sell. It decides whether to allocate a whole capital to the trade, or just a part of it, and so on. 

The final part of the trade is executed, the part where the deal actually happens. With all of the processes ascertained and decided, concluding the said deal is a simple task. While it may seem like this is the least important part, it is not so. If other traders use the same algorithms to conduct their trading, you may get an unfavorable deal at a lower price. 

This part of the algo decides how best to conduct the deal itself, whether buying/selling in one piece will bring greater profits or not. So, to make sure that your trading bot is working in your best interests, you will need one to excel in all three parts of the trading.

Please pay close attention to the fact that a crypto trading bot requires access to your public and private API key. This necessity makes crypto exchanges believe that you authorize a trading bot to take action on your behalf. 

Why to Use Trading Bots

You may ask: why would I even need to use a trading bot if I can do it myself? Let’s face the fact, that time is the most valuable resource of our time right now. Time is money and a trading bot proves it perfectly. It has several important advantages over humans.

  • We have limitations that bots simply don’t. We can’t monitor the market 24/7, and even if the trader sets up an intricate web of alerts, he wouldn’t be able to react to them immediately. Bots don’t need to sleep, eat, and do not get distracted; 
  • Trading bots also can react faster than any human, and every moment can cost trader money;
  • Crypto trading bot can easily process more data than any human. It can analyze and predict how the market would turn earlier than a trade, granting it an edge, and you, a profit; 
  • Crypto trading bots will not only give you free time, but also provide you with an opportunity for more efficient arbitrage trading;
  • We tend to lose ourselves in the thrill, wishing for more money, or wanting to return the losses. This can lead to even more losses. A trading bot does not have that weakness, as it operates on cold logic and does whatever is more profitable according to statistics. This means that bots will lose less often and bring more profits overall.

There are different reasons why humans may outperform trading bots on similar deals, as taking risks may result in a bigger payout, or a hunch can allow guessing the trend. Bots are more effective at bringing in money than humans, and that alone should be a reason enough to employ them.

How to Make a Trading Bot

Buying a trading bot is not the only option. If nothing on the market strikes your fancy, you can always try to create your own trading bot that will meet all your preferences and desires. It would require some technical expertise, as well as knowledge of trading and market trends, to create a truly efficient one. 

To code a trading bot by yourself, you will need: 

  • Conduct research: what do you want from your bot? What is his main goal? What platform would you use? Answer those questions, create your own risk profile based on your capital and time constraints. Once you’ve created that, you can start coding.
  • Base coding: a trading bot is only as good as its code. It can’t really get outside of what it was programmed to do, so you need to carefully consider what you need it to do and what tools you should include. The most common are setting up entry and exit rules and the number of units to sell/buy. 
  • Cleaning data: to get accurate readings during your testing, you need to get sure that you’ve got accurate data. Cleaning and compiling it so that gathered information is as close to the real trading as possible is vital there. 
  • Testing: unless you’ve thoroughly tested your bot, you can’t say that it really works. You need to make sure to find out little bugs and issues that may cost you money before you use it for trading. Of course, you can’t catch them all, but the more you get before setting it up, the fewer problems you’ll get later on. 
  • Design: with the code done and tested, you need to make sure that your bot’s design takes into account the market’s risks and flaws. 

With all of that resolved, you should ensure that your bot uses viable trading strategies. You can do that by programming it to create sound statistical models, from which said strategies would be built. This will allow your bot to follow the guidelines and to execute commands at the right time. 

How to Set Up a Crypto Trading Bot

With all of that handled, it is time to actually set up your bot. Whether you’ve bought one or you created it yourself, there are a few steps you’ll need to follow before you can actually use it. 

  1. Find and install Python and Python Library: you will need to have at least a basic understanding of how it works and how to run a simple script in this language.
  2. Get API keys from brokers: depending on the broker you’ve chosen, you will need to know different languages to integrate them with your bot. A good idea would be to brush up not only on Python but also on MQL4/5 and C#.
  3. Make sure to not allow withdrawals from your account: if you allow the bot to do so, it will be at risk of spending more money than you intended to, or even to be attacked by a hacker. A crypto trading bot with withdrawal permission is a security and financial hazard.
  4. Set up evaluation procedures: this will allow you to track your bot’s performance so that you can easily fix any problems that may occur or just improve its efficiency based on the data.
  5. Keep a hard copy of the generated key pairs on hand and keep it safe.

Your trading bot is ready to get out and start making your profit. Just check up on it and apply upgrades and fixes if necessary, and it will serve you well.

Best Crypto Trading Bots to Use in 2020

If you don’t want to spend your time and effort building trading bots, you can always use the already existed solutions. The crypto industry is ready to offer a wide range of trading bot platforms. 

#1. TradeSanta Trading Bot

TradeSanta is a cloud cryptocurrency trading software that helps you to benefit from crypto market volatility. This is a ready-made trading bot solution which saves you lots of nerves. With a native UX/UI, TradeSanta provides quick access to algo trading on such crypto giants as HitBTC, Binance, Bitfinex, Huobi, and many others. According to TradeSanta, your crypto trading bot can be set up in just two minutes and this is what literally saves you time. 

There are four trading packages provided: minimum (free trial), basic, advanced, and maximum. The latter costs $30 per month and gives access to enhanced opportunities. Available for iOS and Android mobile devices.

#2. CryptoHopper Trading Bot

CryptoHopper is a platform that allows choosing perfect crypto trading bot

Being probably one of the most well-known trading bots platforms, CryptoHopper provides traders with a high-level algo trading. It is also a perfect place for your bitcoin, ethereum, and other crypto assets management. 

CryptoHopper does not require you to have advanced coding skills. There are multiple tools that help you create a suitable strategy for a better trading experience. Market-making, arbitrage trading and many more are ready to provide you with multiple benefits. 

#3. 3Commas Trading Bot

Another popular trading bot platform 3Commas has been on the market since 2017. Being born in the time of Initial Coin Offering (ICO) rush, 3Commas managed to survive those crazy days and become a better version of itself. The platform is constantly being upgraded. 3Commas offers a range of features and tools for crypto trading to be smooth and efficient.

The platform is easy navigated and allows users to select a trading bot that will suit all their needs. The platform supports major and minor crypto exchanges (23 in total) and enables you to manage the crypto portfolio within one single account. 3Commas mobile application can be downloaded from App Store and Google Play. 

There are obviously many other decent trading bots platforms. Read our comprehensive guide of top 16 crypto trading bots to use this year. 

Summary

We’ve tried to answer the most vivid questions like what trading bots are, why would traders use them, and how to create and set up one for yourself. The crypto market is one that benefits the most from trading bots since most cryptocurrencies are really volatile assets. In this way, traders would need to make snap decisions. Even one or two seconds of delay can spell disaster for their investment. 

Trading bots are not as limited in their perception, so they can make your trading more profitable overall, for the price of making slightly less money per trade. As many experienced traders would say, a consistent lower profit is much better than the inconsistent one. Stay tuned for more trading and crypto insights.

Disclaimer: This article should not be considered as offering trading recommendations. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. While price analysis is a useful tool, it should not be considered predictive for the future performance of any investment instrument.