The prices of cryptocurrencies are extremely volatile, and volatility is ideal for traders to make money. However, in a volatile market, a trader has to be on the right side to ensure consistent profitability. That is, one needs to buy towards the low point and sell towards the high point and vice versa. This is not easy to do for even experienced traders because most of the trades are taken by intuition rather than proper trade setups and strategies. That is where crypto trading bots come into the scene.
Crypto trading bots are computer programs having proper trading algorithms and strategies to execute trades as and when the prices satisfy the buying or selling criteria. But the million-dollar question is can you make money with Crypto trading bots consistently? Let us find out in the following sections of this detailed article.
What Is A Crypto Trading Bot?
A crypto trading bot consists of computer programs having a trading algorithm with a proper trading strategy. Based on this trading strategy, the crypto trading bot automatically buys and sells cryptocurrencies whenever the price action matches its trading criteria. Therefore, a crypto trading bot basically takes trades on behalf of a trader with the goal of making a consistent profit.
A crypto trading bot has three parts – signal generator, risk allocation, and execution.
- Signal Generator – The crypto trading bot takes in the prices of cryptocurrencies as inputs along with other data like volume. It uses the data in this trading algorithm to generate a buy or sell signal based on the criteria mentioned in the algorithm. It also decides the strength of the signal based on how many criteria the price action has fulfilled.
- Risk Allocation – After generating the buy or sell signal, the bot decides how much quantity to buy based on the risk setting of the trader and the signal strength. For example, if it generates a strong buy signal and the risk appetite of the trader is set to high, the bot may allocate the entire available capital in taking the trade.
- Execution – Depending on the nature of the crypto trading bot, the execution could be at one go or in parts. For example, if it is a bot based on momentum, it is likely to take the trade in one order. If it is a mean-reversion based bot, it is likely to take the trade in parts waiting for pull backs.
Why Is A Crypto Trading Bot Better Than A Manual Trader?
There are various reasons why even professional traders prefer crypto trading bots over manual trading.
- Emotionless – Managing emotion is extremely important in a volatile market to make consistent money. Bots have no emotion, and they are not driver by fear as well as greed. Hence, they have more chances of making greater profits consistently.
- Faster Processing – A bot can process gigabytes of data to find the perfect trade that a trader can never do. Therefore, the chances of success increase multi-fold.
- Faster Execution – It is needless to mention that a bot can execute a trade faster than a trader and get a lower price point, especially on momentum trades.
- Availability – A bot can operate all the time in the day or night while a human being needs rest. Therefore, it can find favorable trades at any point in time which naturally increases the chance of profit-making.
Can You Make Money With Crypto Trading Bots?
Yes, you can make money with crypto trading bots. But it depends on the crypto trading bot you are using for trading in cryptocurrencies. Not all crypto trading bots can make you money. Making money using a crypto trading bot depends on the trading algorithm it is implementing to identify trades, assess the risk, and execute trades accordingly. That is why you have to choose a crypto trading bot wisely after proper research. Here are certain points to pick a profitable crypto trading bot.
- Past Perform – The first thing you should check in a crypto trading bot is its past performance. Instead of looking at its overall performance, you should check how consistently it has been making profits. A consistent profit-making crypto trading bot possesses less risk as opposed to the bot that makes huge profit as well as huge loss depending on the market conditions.
- Experience Level – You should always seek a crypto trading bot that has been in the cryptocurrency market for many years. The new crypto trading bots can show great performance in the recent past but fail miserably in the long run.
- Trading Algorithm – A crypto trading bot whose algorithm is readily available in the market is not a suitable bot to opt for. That is because operators will be aware of the algorithms, and they can move the prices to drive away the money from the retailers. In the long run, such open-source crypto trading bots will not be profitable. Always opt for a bot that has proprietary algorithms.
- Fund Size – Before choosing a crypto trading bot, you should ensure that the crypto trading bot is managing a large fund. This increases the chance of making a consistent profit because a large fund is invested in delivering regular performance. The developer of the crypto trading bot will not want the fund to get withdrawn due to bad performance.
There is no doubt that you can make money with crypto trading bots. Trading with crypto trading bots is algorithmic trading. All the biggest financial institutes trading and investing in cryptocurrencies are now using algo-trading along with manual trading for profit-making. This is the biggest evidence you need to start believing in crypto trading bots which are the future of the global trading market.