6.3 min read
Crypto Trading Bots ➤ Automating Your Trading Strategy
A comprehensive guide on trading bots for crypto by Btcman 💲 Showing automated crypto trading bots and how to set and run trading bots in the crypto market
September 7, 2023
Being a trader is hard. Constantly keeping up with your trading strategy is not a walk in the park. Have you wondered if you can use a crypto trading bot to simplify your life while maintaining your income? Crypto trading bots might be an answer for you. But first, let’s understand what a trading bot is:
- A crypto trading bot is a software program that automates the process of buying and selling cryptocurrencies based on predefined criteria and trading strategies. These bots can execute trades on your behalf, allowing you to save time and potentially improve your trading results.
- One of the key advantages of using crypto trading bots is their ability to consistently execute your trading strategy without emotions getting in the way. They can react to market changes and opportunities much faster than a human trader, potentially leading to more profitable outcomes.
- Crypto trading bots can be configured to operate on various timeframes, from short-term day trading to long-term investment strategies. You can choose the timeframe that aligns with your trading goals and risk tolerance.
Some advanced crypto trading bots incorporate artificial intelligence (AI) and machine learning algorithms. These bots can analyze vast amounts of data, identify patterns, and adapt to changing market conditions. AI-driven bots have the potential to refine and optimize your trading strategy over time. Hopefully, we will see some changes in this field very soon. AI has lots of undiscovered aspects, and we don't understand its full potential.
Before deploying a trading bot in a live trading environment, it's essential to perform backtesting. Backtesting involves running the bot's strategy against historical market data to evaluate its performance and fine-tune its parameters. This process helps you to ensure that your bot is well-suited for the current market conditions. I’ve done backtesting on every bot which I used. As you can see, by the two images provided, I’ve applied a new filter to my algorithm, which helped me make my buys way more effective. I got rid of the ones that were redundant while keeping the buys that showed the best performance. This minor change, of applying a few code lines, saved me tens of thousands of dollars.
Backtesting is a must when we are speaking about trading bots
Dollar Cost Averaging
In my opinion, the best crypto trading bots are dollar cost averaging focused. Meaning that their job is to regularly buy assets while doing so at the best price possible. The green arrows in the image above, illustrate when the bot buys an asset, in this case, Bitcoin. As we can see, the bot usually does a good job at finding local bottoms. This bot operates by using funding rates. Funding is data, that shows what premium buyers or sellers receive/pay depending on the difference in price between the spot chart and perpetual chart. Very keen metric, if used correctly. The photo above is not just an image from one of the backtests, but a live performance of the bot. I made purchases on every buy signal, currently, I’m very happy with the results. After I started using this bot, I stopped looking at the chart constantly, while still being aware of good buy opportunities. As a believer in crypto and a HODL/er this strategy has shown significant results.
Another useful and popular strategy for automated crypto trading bots is Grid trading. Such a bot, set’s limit orders (read about limit orders), in a pre-set price range. Thus allowing you to automate your trading, such a strategy is mostly used with spot trading. Usually, in every grid trading strategy, the bot has the following 4 variables set by the trader: Upper price of the grid, Lower price of the grid, number of grids, and amount planning to invest. Then, the trading bot, set’s buy and sell limit order. Many crypto exchanges, such as Binance or By-Bit offer such trading bots for their users, usually for free. In the image above, green lines represent buys, and red lines represent sells.
Crypto trading bots offer traders the opportunity to automate their trading strategies, potentially improving efficiency and results. However, it's crucial to choose the right bot for your specific needs, thoroughly backtest it, and continuously monitor its performance. While trading bots can be a valuable tool, they are not a guaranteed path to success and should be used with caution and in conjunction with your own market analysis. Remember that the cryptocurrency market is highly volatile and carries inherent risks, so always trade responsibly and within your means.
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