Crypto trading bots have become a hot topic for millions of cryptocurrency users around the world. As a result of the volatility of the market, trading bots have become increasingly popular among traders by allowing them to remain in control of their trading at all times, with the bot not sleeping even while the trader is.
The explosion of popularity in cryptocurrency has also resulted in a big increase in the number of crypto trading bots available, either for free from open-source platforms or licensed to users in exchange for flat fees.
However, it is difficult to ascertain which of them work as intended and which of them an absolute waste of time is. In this article, we are going to discuss what exactly trading bots are, advantages, disadvantages, and many more!
What are Trading Bots?
A trading bot is a software program that interacts directly with financial exchanges (often using APIs to obtain and interpret relevant information) and places buy or sell orders on your behalf depending on the interpretation of the market data.
The bots make these decisions by monitoring the market’s price movement and reacting according to a set of predefined and pre-programmed rules. Typically, a trading bot will analyze market actions, such as volume, orders, price, and time, although they can generally be programmed to suit your own tastes and preferences.
Trading bots have been popular for many years in various conventional financial markets. However, trading bots have not been traditionally available to the average investor as they cost a significant amount of money.
With many people trading Bitcoin passively and unable to dedicate large amounts of time to analyze the market, the intention is that Bitcoin bots will allow users to establish more efficient trading without having to keep on top of the market at all times.
Are Trading Bots Profitable?
Trading bots help you in automating most of the boring manual part, however, at the same time, they also contain inherent risk associated with any kind of trading. The key to making crypto trading bots profitable depends upon your approach.
If you are coming from fiat/forex or commodity trading, you need to understand the crypto market is way more volatile than the usual market. If this is the first time you are planning to trade on crypto using a bot, it would be better to do paper bot trading or test strategy using the backtesting tool before making a live trade.
Make sure that you take time to understand the software before you increase your trading amount and start trading like a pro.
Features to look for in a crypto bot:
- Crypto signals: Buy/sell signals
- Paper trading to test your trading strategy
- Copy-trading strategy of others – Social trading
- Trailing stop loss
- Mobile app
- Portfolio rebalancing
- Price: one time or subscription fees
- No fees or fees on every trading
- Supported exchanges
- Interface: Beginner friendly or complex
- Integration: Tradingview, Telegram Backtesting add-on
These are just some of the must-have features of a crypto-trading bot.
Do Trading Bots Work?
Trading bots work by reacting to the market. It gathers the data it needs in order to execute a trade based on the analysis of the trading platform. However, with cryptocurrency, the trading platform only tells half of the story, with many rises and falls is based on other sources (such as John McAfee’s Twitter or other online rumors) that cannot be programmed into the bot for analysis.
Many trading bots use what is known as an exponential moving average (EMA) as a starting point for analyzing the market. EMA’s track market prices over a set time period and bots can be programmed to react to what that price does – such as moving beyond certain thresholds.
By programming the bots, traders can set their thresholds to correspond with their risk appetites. However, one of the downsides of EMA is that it is based on past history, which, as all traders will know, is not indicative of future performance, especially in the cryptocurrency industry where volatility is rife. Therefore, the question of whether trading bots work is a multi-faceted one in which the problem answer is that they work, but not necessarily for everyone.
Trading bots offer a variety of advantages, including having constant interaction with the market, as well as the not-insubstantial factor of removing the emotion from trading. However, on the other hand, by using the wrong trading strategy or relying on the trading strategy of others, a trading bot could simply end up automating a set of poor market trading decisions.
How do Trading Bots Work?
Cryptocurrency trading bots work by accessing data on the exchange for a user. Each user is able to provide access to their account to the trading bot by giving the bot their API public key and API private (AKA secret) key. These two pieces of information are used as a way to tell the exchange that a bot has authorization by you to access your exchange account information.
- API Keys: APIs are a way for applications or services outside the exchange to access the data or features inside the exchange. Through these APIs, trading bots can request the latest market data, place a trade for a user, or collect information on the number of funds in a user’s account. Access to a user’s account is only granted when a user explicitly provides API keys to an application. At any time, access can be withdrawn by deleting the API keys on the exchange, providing a secure way to always maintain control over who or what can access your exchange account.
- API Key Settings: API keys for trading bots usually have a variety of different settings. The two core settings required for trading bots is the ability to collect “Balance” data from your exchange account as well as the ability to “Trade”. Each exchange offers varying levels of control over these two parameters, but generally, all of the settings under these two categories should be enabled for the trading bot.
The Purpose of Trading Bots
The core purpose of trading bots is to automate actions that are either too complex, time-consuming, or difficult for humans to execute manually. The sophistication of these tasks ranges from automating a single trading strategy on a single trading pair to intelligently routing trades between any asset for a diverse portfolio. Without continuous effort, some bots can let users implement a complete portfolio management strategy, saving immense amounts of time. Instead of requiring you to be online constantly to manually place trades and adjust your portfolio, bots can take control to execute on your strategy day or night.
Quality trading bots can save you money by offering improvements over a manually implemented strategy. Bots are faster at collecting data, more precise when placing orders, and can crunch numbers faster than any human being.
Best Crypto Trading Bots
Here, we will take a look at some of the popular and publicly-available bots you can use.
Cryptohopper is the most popular cryptocurrency trading bots on the market. The company is registered in Amsterdam and has been continuously adding new trends and features since late 2017. The interface is beginner-friendly, and you can follow some of the popular indicators like moving average, Bollinger bands to automate the trading on all popular exchanges. The Cryptohopper lets you trade unlimited cryptocurrency pairs in autonomous mode. It also offers a marketplace where many pro traders sell their strategy, and you can copy them to make money. Another highlight of the Cryptohopper is the Arbitrage bot, which lets you make a profit from the price difference of the same pair between two exchanges.
The Cryptohopper mobile app lets you monitor your trade and portfolio. If you are connecting your existing exchange account with Cryptohopper, you can set the start amount to calculate the profit accurately. This removes the point of setting up a new exchange account for your bot trading.
However, Cryptohopper supports the following exchanges:
- Coinbase Pro
- Paper trading
- Trailing stop loss
- Arbitrage trading
- Marketplace for Templates, strategies, and signals
- Cloud-based app
- Mobile app to monitor your trade and portfolio
- Drag and drop strategy designer
- Strategy backtesting with historical data
- 120+ indicators and candle patterns
- Wallet scrubber
3Commas is the idle crypto trading bot for hobbyists, enthusiasts, and professional traders. It supports all notable popular cryptocurrency exchanges, and you can trade in altcoin pair. Another feature which makes 3commas widely popular among beginner is its paper trading feature. With paper trading, you could test your strategy before you put the real money for trading.
3commas offers a smart trading terminal to trade on multiple exchanges (including your clients, family, or friends accounts) and enjoy the trailing take profit (TTP) feature. Many pre-configured bots are available on 3commas. You can also create your bot. If you have never used a trading bot before, you could use 3Commas to get the hang of bot trading.
- Paper trading
- Portfolio rebalancing
- Margin trading
- Portfolio management
- Trader diary
- Crypto signals bots to buy/sell (Marketplace feature)
- Mobile app
- Sell all your portfolio in USDT or BTC with a single click
HaasOnline is one popular crypto trading bot that works with almost 22 exchanges. However, its superpower is a variety of bots like Flash crash bots, Arbitrage bots, which helps you make money in every situation. This is a desktop-based bot that gets easier to use once you are done watching their free bots training videos. The downloadable software is available for Windows, Linux, and Mac as well. Every bot serves a unique purpose, and for example, rather than selling your bags on loss, you could use Flash crash bot to profit from the high movement.
A few of the many bots offered by HaasOnline:
- Trend line bots
- Advanced index bots
- Trade bots
- Flash crash bot
- Customizable Command Center Dashboards
- Fine Trading Bot Control
- Execution of Manual Strategies
- Market View for Technical Analysis
- Custom Scripted Bots
- Advanced Reporting
The CryptoTrader bot is a cloud-based trading bot that provides users with fully automated trading solutions while not requiring them to install the bot on their own system. It features a strategies ‘marketplace’ that allows users to buy their favorite trading strategy, or alternatively to sell strategies developed by themselves. It also supports most of the major exchanges for both backtesting and live trading, with the backtesting tool allowing users to review how their strategies would work under different market conditions.
CryptoTrader offers five different subscription plans, with fees ranging from 0.006 BTC to 0.087 BTC per month, as Bitcoin is the only payment method accepted here. The separate packages include a number of differences, including the number of bots operating on the user’s behalf as well as the maximum equity limit.
Though some knowledge of coding is beneficial when setting up strategies in the CryptoTrader bot, there are a number of free and paid strategies available for users that are not experienced or interested in coding. The CryptoTrader bot also has a wide level of interoperability, with the service offering E-mail and text notifications to alert users on important market events or changes in trends.
Zignaly is a trading terminal with cryptocurrency trading bots that lets you trade automatically with help from external crypto signal providers. For the moment, the platform costs just $12 per month. The platform is incredibly easy to use and can be utilized as a passive income machine. Zignaly lets you easily connect with a TradingView account, so you can use it with your favorite indicators. Alternatively, you can use the Zignaly trading terminal to create your full strategy at once. Because Zignaly is still pre-launch, the number of exchanges that it operates with is limited.
One of the nice things about Zignaly, besides the price, is the developers’ commitment to transparency. The full development teams’ info is available online, and anyone who wants to learn more about the founders can find their personal information on their social media profiles.
Unlike many of the other trading bots on this list, Exchange Valet is more of a trading toolset and crypto portfolio management platform. Most crypto exchanges don’t give traders a ton of tools to use. Exchange Valet is filling in the gaps with commonly used trading tools like simultaneous stop loss and take profit orders. If you are used to using a trading platform like MT4 or MT5, the ability to set simultaneous stop loss and take profit orders is taken for granted. Many exchanges don’t support either order type or allow traders to use both at the same time.
Exchange Valet also allows you to keep an eye on all your positions, and rebalance them almost automatically. The platform will display all of your crypto holdings on a pie chart, and allow you to buy a specific percentage of your portfolio’s total value in single crypto. It also has solid communication tools. All of your orders can be delivered via Telegram (they call it Speedtrade), and other information will be sent to you through E-mails if you like. Portfolio info can also be delivered with Telegram, or by using the platform’s proprietary chatbot.
GunBot is a well-known cryptocurrency trading bot that uses individual strategies that are completely customizable to fit your trading style. It can operate on the following exchanges: Bittrex, Binance, Poloniex, Bitfinex, Cex.io, GDAX, Kraken, and Cryptopia. You can run the bot on your own computer or use a VPS and can manually add different coin pairs, pick a strategy, and set it to work. It is estimated that there are more than 6,000 traders that use GunBot on a daily basis, and it has gotten numerous positive.
Gekko is an open-source trading bot and backtesting platform that supports 18 different Bitcoin exchanges. Gekko is entirely free and can be found on the GitHub platform. It is a relatively straightforward trading app to use that includes an interface and basic strategies from the outset, which allows you to be more comfortable with the use of the bot. It also has a number of plugins available that will allow you to be updated regardless of what level of connectivity you have. Although Gekko is not a high-frequency trading bot (making only a couple of trades per week, depending on configuration), nor a bot which allows you to exploit arbitrage opportunities, its list of supported exchanges and basic strategies means that it is probably a good place to start for anybody interested in utilizing Bitcoin trading bots.
- Open Source
- Real-Time Market Data
- Paper Trading for Simulated Orders
- Profit Calculating
- Importing Historical Market Data
- Risk Metrics Calculation
Similar to Gekko, Zenbot is also an open-source trading bot for Bitcoin traders. As an open-source project, Zenbot is available for users to download and modify the code as necessary. However, it offers high-frequency trading as well as supporting multiple cryptocurrencies in addition to Bitcoin.
- Open Source
- Technical Analysis Trading Approach
- Plugin Architecture
- Simulator for Historical Data Backtesting
- Simulation for Paper Trading
- Sell Stops, Buy Stops, and Profit Stops
- Adjustable Trade and Sampling Frequencies
How to Pick a Trading Bot?
Here, we will discuss the aspects you should consider before signing up for one of these services and entrusting your portfolio to be automated by a bot:
Team Reputation: Hacks have crippled unsuspecting users by leveraging clever vulnerabilities. One example is when hackers used trading APIs to pump the price of Syscoin on Binance. Hackers are clever, so the first line of defense is having a trusted founding team.
When evaluating the team, look for attributes that point to a reputable team. Things like:
- Where team members went to college
- What companies the members worked for
- How long the team has been working on the bot
- The reputation of members on their advisory board
- The funding source for the startup
- Country of incorporation
- The technical ability of the founding team
Automated Strategies: Selecting a trading bot which only supports strategies that involve moving average cross-over, for example, is not useful if we want to rebalance our portfolio. Glance over the website for the trading bot to make sure they support the strategies we want to implement for our portfolio. Check any configurations they offer or hints at the level of involvement it would require from an end-user. There’s also no point in using a bot if it supports our strategy but ends up being more work than just having us manually implement the strategy.
Support: Does the team provide channels for reaching their development team to ask support questions or get help with bugs? If not, you might be left out to dry for weeks without getting answers to questions that are critical to your strategy. Some ways we can identify if the team provides a great support experience is the following:
- There is an active Telegram or Discord community where the team is online and answers questions.
- Multiple channels offer diverse avenues to contact the team.
- The support team answers questions promptly and actually works to resolve the problems.
- Frequent updates are published to their discussion channels like Telegram and Discord.
Ease of Use: The reality of the cryptocurrency market is most tools are overly complex in their design. This without a doubt applies to trading bots as well. Most trading bots are incredibly complicated. They have countless levers, options, configurations, and settings. Diving right into the deep end of this cold pool can take your breath away and leave you with a sense of dread. Look for a bot that fits your comfort level. Instead of jumping right into open-source trading bots and trying to implement your own custom strategies by flexing your development skills, maybe take it slow at first. Experiment with a bot that only provides a few core features you want, but is easy to use. That way you can dip your toes into the pool, getting orientated before submerging yourself.
Backtesting: Backtesting is the way we simulate the performance of a strategy over historical data. It helps us understand the behavior of the strategy under certain conditions and can help us work towards understanding how the strategy might perform in the future. Of course, nothing is guaranteed, but this is the most robust way we have for evaluating strategies. The bot we choose should most definitely have backtesting. We never recommend implementing a strategy if it has not been backtested. Blindly venturing into the future can lead to disaster. Spend some time to evaluate the strategy, discover the best configurations, and implement the strategy in a way that aligns with your goals as well as the information you have been able to collect through the backtesting tool.
Implementation and Execution: Closely evaluate the implementation of the strategy to determine how the strategy will behave under varying conditions. Since every bot sports a unique implementation of a strategy, it’s important to understand the differences between each trading bot implementation. Not all implementations are treated equally. Look at aspects like the controls the bot has available, the configurations, and the robustness of the strategy under varying conditions.
When to Use Trading Bots?
The possibilities are endless when it comes to bots. There are bots for rebalancing, portfolio management, data collection, smart order routing, or anything in between. Whatever it is you want to do, there is likely a bot out there somewhere which does it.
Now, it doesn’t mean that we should be using a specialized bot to accomplish every little task we want to do. In fact, that would surely end up being more work than just doing it ourselves. The goal is to find big tasks that consume the most amount of your time or are the most complex to implement yourself. Those tasks are ripe for the pickings when it comes to automating with trading bots. You can still manually perform the tasks that are infrequent or easy.
Before we start looking for a bot, think about the most cumbersome aspects of cryptocurrency trading for you. Consider each of the tasks you do throughout the day. Come up with a small list of the largest tasks which you wish could be automated, so that you can spend less time with your cryptocurrency portfolio.
Reasons to Consider Using a Bot
Cryptos are a great new asset class, but it is hard to create a return from them in the same way that cash or a stock creates value. Most people associate stocks with gains from price appreciation, but many of the best stocks pay out dividends. There is not really an analog for this in the crypto market, unless crypto owners lease out their cryptos to derive an income from their holdings.
From an investment standpoint, passive income is extremely important. For example, one argument for holding stocks through a bear market is that they will continue to pay dividends, which can then be reinvested in the company when the stock prices are depressed.
Cryptos are more like a commodity than a company from an investment standpoint, which leaves investors with something of a problem. There is absolutely no reason to hold on to a commodity in a bear market, as it doesn’t deliver any kind of return aside from price appreciation.
Advantages of Using Trading Bots
- Efficiency: Trading bots, when given the permission will analyze the market conditions of several cryptocurrencies at the same time and place an order as soon as there is an opening for a profitable trade. This is not the case with human beings. We can only analyze one cryptocurrency market condition at a time. Thus, by the time we switch to view another cryptocurrency, we would have lost a golden opportunity to place a good trade. These things make these automated bots highly efficient.
- Emotionless: Cryptocurrencies are extremely volatile assets. They are also highly manipulated by the big whales of the market. These price fluctuations often lead to us making errors. This will result in you placing a bad order. This is not the case with the trading bots. Without any human emotions, these bots are in no way attached to your money. Thus, any signs of market manipulation have minimal or no effect on the functioning of the bot.
- Increased Speed: We all take a long time to place an order. This is because we cannot work at the same speed as the machines. Because of the volatile nature of cryptocurrencies, a good trade may no longer be good if you take a lot of time in executing the order. With trading bots, trading orders are placed instantaneously. Thus, this increased speed is a huge advantage for us.
- Running Period: As human beings, we cannot always sit in front of the computer and monitor our investments. We all need an ample amount of sleep as well. While we sleep at night, the cryptocurrency market does not. Thus, you are missing valuable opportunities to make extra money because of this. On the other hand, a trading bot can run 24×7. Any trading opportunity is never missed and you end up profiting because of this.
Disadvantages of Using Trading Bots
- Not Suited for New Traders: Cryptocurrency trading bots are a great way to earn passive income all year round. However, this requires you to have a certain degree of knowledge as to what is actually happening in the background. While the preset trading configuration is good, it often does not yield the best results. Meddling with the configuration without knowing much about the technical aspects of cryptocurrency trading might be very dangerous as it can lead to loss of all your funds. Hence, cryptocurrency trading bots are not very useful to new traders.
- Requires Constant Monitoring: Trading bots don’t do well during high volatility. Thus, human intervention is always needed. As the bot is emotionless, it is in no way attached to your money and might end up trading successive losses and eventually lead to a large loss.
- Security can be a Concern: Trading bots use API keys in order to gain access to your funds on an exchange. This is not very reliable. If anyone gains hands-on your API keys, you will end up losing all your funds. Additionally, most of these bots don’t have a lot of security protection.
Should you Use Multiple Crypto Trading Bots?
It is highly recommended that you use one bot at a time. It is best to master one bot rather than using multiple bots. However, if you want to use two different crypto trading bots, you should connect them with different exchange accounts. This way, you will be able to calculate profit, and your trade reserve amount will not overlap.
Do you Need to Keep your Computer 24×7 On?
Since most of these bots are on Cloud, you don’t need to keep your computer on or stay connected to the Internet all the time.
Trading bots can assist traders in ensuring that they are always interacting with the market, even when they are physically unable to do so. 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 everyone. Casual investors are not the prime target of trading bots, and if your intention is to buy and hold Bitcoin, then a trading bot is probably not the correct investment for you.
In addition, if you are not a competent programmer or familiar with the creation of financial strategies, trading bots may also not be for you. However, if you have the requisite knowledge and ability to overcome these obstacles, then a trading bot can be a worthwhile tool in monitoring and making gains from the crypto market.
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