How To Use Trading Bots

How to Use Trading Bots

Trading is a popular way to make cryptocurrency, so it shouldn’t be a surprise that there would be tools to make it easier and more efficient. Crypto trading bot is one of such tools. With it, traders can automate their work, allowing for faster reactions and more consistent profits. In this article, we’ll explain the basics of working with trading bots: what is a trading bot, why should you use it, and how to set it up.  

What is a Crypto Trading Bot?

Crypto Trading Bots

A crypto trading bot is a computer program that automatically buys and/or sells assets when its price reaches a certain goal. That’s basically it. Now, let’s take a closer look at how exactly that works.

Most trading bots work on a rather simple principle that can be described as “signal generator — risk allocation — execution”. That’s the pattern behind every decision made by such bots.

The signal generator is the part where 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 execution, the part where the deal actually happens. With all of the processes ascertained and decided, it is a simple task of concluding the said deal. 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 actually working in your best interests, you will need one to excel in all three parts of the trading.

Benefits of Using Trading Bots

Why would I even need to use a trading bot if I can do it myself? Well, there are a few reasons for that:

  • 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.
  • 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 your only option. If nothing on the market strikes your fancy, you can always try and create your own. 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 you profit. Just check up on it and apply upgrades and fixes if necessary, and it will serve you well.

Summary

We conclude our guide on what trading bots are, why would traders use them, and how to create and set up one for yourself. Crypto market is one that benefits the most from trading bots since most cryptocurrencies are really volatile assets, so traders would need to make snap decisions, and 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.


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