These days, even trading cryptos are now automated. This means you don’t need to monitor your computer to buy or sell cryptos constantly. With automated trading, you’re using bots or software to trade. This is beneficial if you want to trade cryptos but lack the time.

Like other investments, using this strategy also has some risks. Learn more about the following to see if this is suitable according to your risk tolerance:

How Crypto Trading Bots Work

There are many crypto trading bots nowadays, and you can find a free crypto bot. You need to ensure that these bots offer emotionless trading, fewer errors, exceptional efficiency, and speed. Do so by letting the crypto exchange’s trading bots access your account via application program interface (API) keys. You should also communicate your present conditions when placing orders with them.

Moreover, you should understand that crypto trading bots work in the following stages: 

• Signal Generator: This is the first stage wherein the bots identify and predict trades using technical analysis indicators and market data.

• Risk Allocation: The second stage in which the trading bots distribute the risk depends on what rules and parameters you’ve set. This includes the extent of capital you’re willing to trade.
• Execution: Lastly, the bots will use the signals that the pre-configured system generated to buy and sell cryptos. Here, the crypto exchange will process the requests converted from signals to API keys that the exchange understands. 

Types Of Trading Algorithms

Trading algorithms mean using rules- and process-based algorithms when employing trading strategies. These are sets of instructions that accomplish a task or solve a problem in crypto trading. Here are the most common types:

• Mean-Reversion: Here, the concept is to sell when the bots think there’ll be a pull-back when prices are up. Most mean-reversion strategies have a smaller gain-to-loss ratio, but they have more chances of winning. Profitable algorithms are more likely to have 55% gain-loss rates with 70% win-loss. 
• Momentum: Instead of selling, the concept here is to buy since the bots think prices will continue to go up. Although this strategy has fewer chances of winning, they get larger gains when they win. Using such a strategy is more likely to have a 70% gain-loss with a 55% win-lose rate.

Types Of Cryptocurrency Trading Bots

While many crypto trading bots are available in the market, there are generally two types of crypto trading bots. Here’s the difference: 

• Decentralized Platforms: These types of trading bots use blockchain technology. Your smart contract covers your cryptos being kept on the blockchain instead of a regular account. The advantage of decentralized platforms is that your coins are less likely to be hacked because blockchain-based trading is the most secure type.
• Crypto Trading Bot APIs: These trading bots work with Coinbase while only some bots can be used on Bitmex and other existing crypto exchanges. This means you don’t need technical expertise to complete automatic trades as long as these API-based bots are compatible with your crypto exchange.

Benefits Of Crypto Trading Bots

Aside from being able to trade even without monitoring your computer 24/7, here are other advantages that crypto trading bots offer: 

• Make Rational Decisions: When trading, you need to set aside your emotions to avoid being greedy or losing profits. Trading bots are emotionless, so they can focus on the goals and not based on emotions. The decisions will be dependent on the set parameters without the need to consider feelings.

• Create Fewer Errors: Because crypto bots are more efficient, human errors and delays are minimized. Bots can trade better and have higher chances of profiting as long as they’re working on suitable algorithms and receiving the correct data. Most importantly, they work non-stop, unlike humans who need to sleep and rest.
• Handle Bulk Data: Humans can only process limited data at a time, but crypto bots can still handle much data even when working 24/7. They can even make plausible conclusions even when they’ve handled bulks of data, unlike human traders who can make mistakes when exhausted.

Conclusion

While crypto trading bots aren’t perfect, they can be a better trader than some humans. If you don’t have enough time to understand and learn trading cryptos, automated trading could help. You can use it to invest in cryptos while focusing on your daily responsibilities. This alone can be a good reason since you won’t have to sacrifice much time and effort to learn crypto trading. At the same time, you’re diversifying your assets for possible greater profits. Consider the ideas mentioned here as you plan and prepare.

CryptoMode produces high quality content for cryptocurrency companies. We have provided brand exposure for dozens of companies to date, and you can be one of them. All of our clients appreciate our value/pricing ratio. Contact us if you have any questions: [email protected] None of the information on this website is investment or financial advice. CryptoMode is not responsible for any financial losses sustained by acting on information provided on this website by its authors or clients.