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
Price: one time or subscription fees
No fees or fees on every trading
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:
Trailing stop loss
Marketplace for Templates, strategies, and signals
Mobile app to monitor your trade and portfolio
Drag and drop strategy designer
Strategy backtesting with historical data
120+ indicators and candle patterns
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.
Crypto signals bots to buy/sell (Marketplace feature)
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
Flash crash bot
Customizable Command Center Dashboards
Fine Trading Bot Control
Execution of Manual Strategies
Market View for Technical Analysis
Custom Scripted Bots
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.