Automated crypto bots are growing in popularity, but do they work? Here’s a beginner’s guide to everything you need to know about cryptocurrency trading tools.
Are you waking up only to find that your crypto investment has lost value overnight?
Stop losing money while you sleep and start using cryptocurrency trading tools. If you want to make money on the crypto market, use a crypto bot.
Unlike the stock market, the crypto market is open 24/7, which requires constant attention to the management of your crypto stocks. No matter the level of your crypto investments, cryptocurrency trading tools are vital to managing your crypto coins.
If you have any experience in crypto trading, you know how coin values can shoot up or sink overnight. You have to sleep sometime, so you can’t be monitoring your investments 24/7. By using a crypto bot, you never have to worry that you will miss the chance to capitalize on your investment.
In fact, the serious traders on the crypto market implement bots to manage their trades. Crypto bot trading tools allow you to specify circumstances in which you want to buy, sell, and trade your currencies. And, bots work faster than you do, so you won’t miss a trading opportunity because you are too slow to act.
Read on to learn more about the benefits of crypto bots.
What Is a Crypto Bot Trading Tool?
The stock market often sees the use of trading bots by hedge funds and investment groups.
These tools recognize rising trends in the market and react based on the user’s specifications. It is no surprise that trading bots are a popular form of cryptocurrency trading tools.
A crypto trading bot uses sophisticated algorithms to predict and react to the market. It bases trading decisions on the state of the market and your preferences. When the proper circumstance arises, the trading bot places a buy or sell order on the trading platform.
Bots monitor the markets movements and respond based on your trading preferences. It does all the analytic work for you, including volume, prices, orders, and timing. But, like any piece of software, a bot is only as useful as the trader behind it.
Blockchain Levels the Trading-field
Automated trading tools, like crypto bots, are a new resource for private traders. Historically, these tools were available to large organizations and groups alone. The reason for this exclusivity being that only large investment groups have the resources to create a software algorithm to manage to trade on a platform.
Also, stock market trading tools are prohibitively expensive. Thanks to blockchain technology, the price to create trading bots have exponentially decreased. And, unlike the stock market, automated cryptocurrency trading tools are available for any private trader, not just brokers and financial institutions.
A Beginners Guide to Cryptocurrency Trading Tools
If you are not an experienced trader, take your time to get used to the crypto market. To begin with, you need a crypto wallet for each of your cryptocurrencies. Without a wallet to keep your currencies in, you will be unable to move your currencies between trading platforms, which is a useful trading strategy.
1. Crypto Trading Strategies – Arbitrage and Market Making
Just like the stock market, traders all have a strategy, and so should you. The trading strategy you implement determines the parameters that you give your trading bot. On the most popular crypto exchanges, like Binance trading bot strategies include arbitrage and market making.
Arbitrage is a method of making a profit on your cryptocurrency by selling for a higher price on a different trading platform than a coin was bought. The crypto market trading platforms all vary on the price of crypto coins. Though the differentiation is slight, traders find that it is profitable to buy low on one exchange and sell for a higher price on a different exchange.
This strategy is perfect for crypto bots, as they can monitor the price of your currencies on multiple exchanges at once. Though crypto exchanges are more standardized than they were a few years ago, opportunities still arise. A bot is the best way to leverage the advantages to be made through crypto arbitrage.
3. Market Making
The market making strategy necessitates the use of bot cryptocurrency trading tools. There is a difference between the buy and sell price of any coin on the market. This difference is in a constant state of flux, which opens a door for profit.
Market making involves your crypto bot placing limit orders that revolve around the current buy and sell price of a coin. The spread of differentiation between the buy and sell price offers room for gain. But, this strategy loses strength in low liquidity environments.
How Well Do Cryptocurrency Trading Bots Work?
The better you program a trading bot, the better they perform. Commercial trading bots are limited to analysis of trading platforms. So you still need to stay on top of the crypto news to make sure your bot is ready for market occurrences.
Once trading platforms see the result of a market occurrence, your bot sees it too. But you might be able to predict a market occurrence from research that your bot cannot perform.
For example, if New York City establishes new crypto trading rules and regulations, you can re-program your crypto bot to respond to them. Crypto trading bots do not analyze current events against trading trends. So you must be responsible for staying one step ahead of the market and programming your crypto bot accordingly.
Crypto trading bots measure the markets exponential moving average (EMA). This is a system which measures the change in market prices over a set period of time. Then, with that information, the bot makes an informed decision on what orders to place.
What Bots Are and Are Not
The thresholds set for your bot are based on the risk factors you are comfortable with. But, like any trading bot, it does not read the news or keep up with current events. The parameters given to a bot and the analysis it performs is based on past market history.
What the market has done in the past is in no way an indication of how it will perform in the future. These predictions of future market occurrences are unable to be analyzed by cryptocurrency trading tools.
Crypto bots enable your constant interaction with the market. A common pitfall of beginner investors is to mess around with their investments too much. Bots can keep you on the straight and narrow and your hands off your investments.
Emotional trading is the biggest cause of market loss. A bot will not keep you from making emotional trading decisions, but it will perpetuate good ones. If you have a good trading strategy, then your bot will trade well.
What Are the Risks to Trading with Crypto Bots?
The biggest thing to look out for when browsing trading bots is an unreputable developer. Keep in mind that you are investing real money into cryptocurrency, so make sure you use a reputable bot developer. If the bot’s software is faulty, it can amount to a substantial loss.
If you fail to set stop-loss limits, your bot might dump your coins in the event of a flash crash. In a flash crash, your bot can become confused as to how it should respond unless you set a stop-loss limit.
Whether you trade on the stock market or the crypto market, you have to watch out for scam bots. Reputable cryptocurrency trading tools will have positive user reviews that are easy to find and amply available. Make sure your bot service is reputable.
A crypto bot is a tool for trading. The common misconception is that all you have to do is set up your bot and the money comes rolling in. This is not the case.
Bots are not passive-income generation machines. You cannot just sit back and relax. Crypto bots enable you to trade more effectively, but you must remain engaged in order to turn a profit.
So, do not trust a cryptocurrency trading tool that promises to make you easy money. Most likely, that service is a scam. There is no “easy money,” but there are tools to increase your profit margins on trades.
Do you need bots to make your crypto trading profitable?
No, but you do need bots and other cryptocurrency trading tools to maximize your profit potential. The better the bot, the more ways in which it allows you to specify your trading strategy and plan for market events.
If you like this beginners guide to using crypto bots, then share it with your friends on social media. And check out the blog for more articles on cryptocurrency trading tools and tips.
Author: Cathy Carter