Crypto market is prone to price fluctuations i.e. it is a highly volatile market. This means that it requires constant monitoring of the market conditions if you wish to make an investment. But this is not always possible and not for everyone. There is a solution to this problem – Automated crypto trading.
Automated crypto trading is based on the use of certain advanced algorithms to buy and sell cryptos at certain stipulated times. Different automated bots use different algorithms. You can go for different automated trading strategies based on asset price, market indicators or the proportion of value in the portfolio (rebalancing).
Automated Crypto Trading
Firstly choose the platform you want to trade on. Next make an online account with the trading bot and select your trading strategy. After setting up your account you can do a few small investments just to ensure that you’re ok with the platform.
A crypto trading bot is automated software that buys and sells cryptocurrency based on its own internal algorithm. Some bots send notifications when a trade is recommended. In this case you can override the bot’s decision but then you’ll have to remain involved in the trading process.
The major advantage of using automated crypto trading is that they respond instantaneously to the market conditions i.e. in real-time. There are sophisticated bots that not only track the price of a cryptocurrency but can tell about the trading volume, buying and selling pressure as well as the historical price trends. The same trading bot can be used to invest in multiple cryptocurrencies.
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How do I know that I need a crypto trading bot?
It entirely depends on your goals and whether you’re comfortable with the strategy of the trading bot. First go through different bots and understand their ways of making decisions. Choose the one that fulfills your goals of trading in the crypto marketplace. Always remember that even the best bot you choose can’t give you any guarantee. If you can’t afford to lose money don’t invest in cryptos.
Types of cryptocurrency trading bots
There are two types of trading bots available:
i. APIs and
ii. decentralized platforms
API trading bots act as an intermediary that trades on your behalf on another exchange you connect. For example- 3Commas is an API that can be used on exchanges like Binance, Coinbase Pro, Bitmex, and Kraken.
The decentralized platforms are the one using the blockchain technology for trading. The coins are stored on the blockchain as part of a smart contract. Smart contracts are used on the blockchain. Smart contracts are the codes performing financial functions on their own. These are the most secure because the trading is based on blockchain which is less vulnerable to hacking. The only thing is that you’ll have to put more effort, time and research into getting your bot set up.
Advantages of automated crypto trading
· Saves time.
· A bot doesn’t sleep or get bored and can trade 24/7 and 365 days a year.
· Bots are faster than humans and can trade in real time.
· Bots work on algorithms and don’t have emotions like humans so they are never scared or anxious.
Disadvantages of automated crypto trading
· It is important to follow up your investments otherwise you’ll never know when you’re actually losing money. You’ll have to make sure that the bot’s strategy is working.
· Bots actually rely on different market indicators to execute their trades. In order to use a trading bot, you must first understand how your bot is working.
· Wallets are more secure than exchanges. We know that a blockchain-based bot is the most secure option. Exchanges are not that safe and there’s always a threat of hacking and losing money. Whereas a hardware wallet is theoretically not possible to hack.
Best Automated Crypto Trading Platforms and Bots
There are different automated trading platforms available for the users. All of them operate quite differently from each other having their own benefits and drawbacks. The trading bot which will be the most suitable for you will depend on the type of coin you want to trade, what exchange you are already using and your risk tolerance.