All About Bitcoin Trading Bots
Bitcoin has seen massive growths this year, and more and more traders are trying to make a profit but the large number of crypto platforms and the volatility of the price of cryptocurrencies make it harder to stay on top.
What are they?
Bitcoin trading bots are softwares that use certain pre-programmed algorithms to analyze the crypto market, make financial exchanges, and place buy and sell orders on your behalf. Their decision making process and reactions are based on a set of predefined rules when they watch the market’s price movements.
Trading bots have become rather common as very few traders have little time to monitor the changes in price. Bots and trading programs are used not only just for Bitcoin trading, but also for many other global stock exchanges.
How do they work?
A trading bot has a set of indicators and parameters that when all will line up, it will make a buy or a sell signal, which will tell your chosen exchange to execute a trade. Most bots have been tuned by their creator how to react for a specific market and time period. These predefined rules set by the creator can make the bot exploit the market inefficiently due to the still evolving nature of cryptocurrencies.
Trading algorithms aren’t a novel concept in the financial world. Conventional financial companies have been using this method to predict the market for years. But the Bitcoin exchange community is one of the first that allow customers to have direct market access through their computers.
Picking the right bot
There are lots of bitcoin trading bots out there, but which one is the best? There is no straight answer for that question, you will have to find one through trial and error. Look for a bot that you think will fit your needs and then start backtesting it over a period of time to see if the results match your market predictions.
Not all trading bots will react the same; they have been designed and tuned to react differently to the market.
In the beginnings of cryptotrading, some traders with programming abilities have made their own bots, tailoring and tweaking them according to their needs and educated guess on future market conditions. But nowadays the trading bot market has evolved into an established one, with various bots available for traders that wish to buy or download them.
Some companies offer online trading bots accessible by plug-ins, some sell personal trading servers and others have a well- developed marketplace where users can develop bots with different trading strategies and rent them to others.
Backtesting is a very important step in choosing the right bot. It’s quite simple to do a backtest. You click on the “backtest” tab (most bot interfaces have it somewhere visibly positioned) and select from the “Actions” column the one action that will take you to the backtest page. The backtest page will show you a graph. For a new backtest, you choose an exchange, pair and a time frame and then you click on the backtest button.
Bot trading offers a lot of advantages for those that are looking for something to monitor their account and trade on their behalf 24/7. This way also removes a lot of unwanted stress from checking the market all day and emotional responses to bad trading decisions.
But the bot’s software may be difficult for inexperienced traders to understand. And if you also lack the financial smarts to come up with a trading strategy, the bots wind up making bad trading decisions. If you are one of those people, maybe bot trading is not for you. However, when used correctly, a good and functional trading bot may increase your profits.
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