Ways You Can Automate Your Cryptocurrency Trading
There are a number of online forex brokers that provide automated trading accounts, which enable users to make trades by setting certain specific directions, like indicators and safeties based on which they enter or exit a trade. By automating the trading process, the user will no longer be required to interfere.
Automated trading reduces many issues and inconveniences which traders frequently encounter. One of the most useful features of automatic trading is backtesting, which can be applied to the trading rules of historical market data to see what result a strategy would have had in the past.
As of now, the cryptocurrency market is home to 1,185 (and counting) different digital assets, 5,901 markets and a market capitalization that reaches nearly $170 billion. Many have recognized these great features of cryptocurrencies, which could result in profitable trading opportunities.
For those of you that have some programming knowledge, you can code your strategy to trade cryptocurrencies directly into an exchange’s API, so you don’t miss out sudden price changes. This obviously implies that you should have an account on the platform and have some advanced programming in certain programming languages such as Python.
A trading bot is a software program which takes data supplied by financial exchanges (often using API’s to obtain and interpret relevant information) and makes buy or sell orders on the trader’s place depending on how it interprets market data.
The bots make these trades by tracking the market’s price movement and responding based on a set of predefined and pre-programmed instructions. Typically, a trading bot will analyze market actions, like volume, orders, price, and time, although they can be tailored to act according to a trader’s specific strategy.
Types of Trading Bot Strategies
One of the most popular strategies in trading are the following:
In the early days of cryptocurrency trading, one of the basic strategies that traders made use of was arbitrage. This strategy involves purchasing assets in one market and then selling them in another for a higher price, making profits from the difference. As most cryptocurrency exchanges back then were decentralized, there were often large discrepancies between the prices available on various exchanges, meaning that profit resulted through arbitrage.
Although the differences between exchanges have been reduced, they can still be found occasionally and trading bots can help users take advantage of these differentials. Also, arbitrage can be used by traders that want to incorporate futures contracts in their trading strategies by profiting from any difference that occurs between a futures contract and its underlying asset, by taking into account futures contracts that are traded on several different exchanges.
The market making strategy provides for “continuous buy and sell prices on a variety of spot digital currencies and digital currency derivatives contracts” in an effort to “capture the spread between the buy and sell price”.
In order to execute the market making strategies, both buy and sell limit orders have to be made near the existing marketplace. As prices oscillate, the trading bot will automatically and continuously place limit orders to generate profit from the price differences.
Although this may be profitable in specific periods, the intense competition which revolves around this strategy can render it unprofitable, especially in low liquidity situations.
Advantages of automated trading
1. Less stress and emotional involvement
Whether trades want to admit this or not, emotions play an important role in what decision they make in their trades. By taking emotions such as greed, panic, fear and stress out of the equation, trading bots stick to their programmed strategy and help you minimize losses. Not to mention that you end up keeping your sanity.
2. Trading Bots Run 24/7 Across Many Markets
One of the most evident benefits of using a crypto trading bot is that it can work 24/7/365. Since crypto exchanges are open at all times, this significantly increases your potential to generate profits. In addition to this, most trading bots allow you to configure and execute your strategies across multiple trading pairs.
3. Improved Trading Speed & Order Execution
By making use of crypto trading bot this will allow you to have more time and execute your entry/exit points with greater efficiency than you would have by trading manually. Without having to be constantly logged in across multiple accounts, you can make orders at a greater speed, resulting in more profit for each and every trade.
Automated cryptocurrency trading can help traders in ensuring that they are always interacting with the market, even when they are not physically there. They can assist in removing some of the stress and emotions that are often found in any financial trading markets, not least the cryptocurrency market. However, trading bots are not for everybody, nor does everybody need one.