The Ultimate Guide to Cryptocurrency Trading Bots

The 24/7 crypto market is fast-paced and highly volatile. The trajectory of your digital assets can change in a second and trying to manage your trading manually can be incredibly challenging. For this reason, many traders, who have limited free time to sit in front of a screen and monitor their open positions, choose to use a cryptocurrency auto trading bot.

What are crypto trading bots?

Bitcoin and Ethereum trading bots are automated systems that execute crypto trades on your behalf. The software is connected to an exchange’s API and is pre-programmed to implement custom strategies, with pre-set triggers for when to open and close positions.

How do crypto trading bots work?

how do crypto trading bots work

The first step you need to take once you have chosen your bot is to check it works with your chosen exchange. As with the private key for a wallet, you’ll have an API key and will need to keep it safe to protect your account. It’s also a good idea to use two-factor authentication and strong passwords wherever possible on any automated trading platform you use.

Many bots will offer you the option of back testing- running a strategy on historic data. This is a really valuable tool that will let you see what would have happened if you had used a specific strategy under past market conditions. Some bots also offer live testing, where you can simulate a strategy in real time, which is even better for understand how your approach is likely to work in the current market.

Types of trading algorithms

There are different types of cryptocurrency trading bots to suit every price bracket, type of trader, strategic approach, and level of automation.

Any comprehensive cryptocurrency trading bot review needs to include a discussion of hosted vs. non-hosted bots as well as an examination of ready-made systems. These involve minimal effort as they already have strategies pre-programmed, so there is no coding required.

Prices will of course differ depending on the bot’s breadth of functionality, and the sophistication of the programming. Beginner traders may be willing to pay a little extra to have a pre-coded bitcoin trading bot strategy that uses various technical analysis tools to trigger specific actions.

How to make crypto trading profitable with bots

crypto trading profitable with bots

If you want to trade profitably using a bot, it is important to recognize that a bull market will require a different strategy to a bear market and digital assets all behave differently to one another. Whether being used to trade a new altcoin, Bitcoin or Ethereum trading bots need to be versatile, with the capacity to provide the best strategic approach for each type of cryptocurrency, in all kinds of market conditions.

While it may seem counter-intuitive, one of the best ways to make your crypto trading profitable is to start small and not throw too much money at a single trade all at once. If your bot is making a great trade, you can always then mirror it manually.

Volatility is a central characteristic of crypto investing, and it means that in a matter of minutes your chosen cryptocurrencies can rise or fall by as much as 10%, so your best option is to stick with high volume pairs so you can buy or sell the minute you need to.

It is worth keeping in mind that losses are as much a part of automated trading as they are of manual trading. Just because a machine is involved this does not mean that is makes accurate market predictions every time. After all, the strategies it implements were programmed by a human being. The best you can ever expect is to consistently make more gains than losses and a good bot, coded with effective strategies, should do that.

Tips for bot trading at minimal risk

tips for bot trading

An important tip for successful bot trading is to be careful about manually stepping in and interfering with your bot trading strategy when panic about falling prices or fear of missing out kick in.

Your smartest option is always to implement Stop Loss and Take Profit orders, which enable you to set a trigger to exit a trade automatically when the coin hits a certain price above or below its current value.

When it comes to choosing the best trading bot cryptocurrency traders are going to be looking for a user-friendly interface, highly responsive software, and a stable platform that if it is pre-programmed, will be implementing low risk but high return strategies.

The best trading bot cryptocurrency traders can use if they want to minimize risk is a crypto arbitrage algorithmic trading system. Crypto arbitrage involves exploiting of temporary price differences across exchanges. The bot will buy the coin on the exchange where the coin is offered at the lowest available price and then sell it on the exchange with the highest available price to make a profit on the spread.

arbismart trading bot

The advantage of this strategy is that it does not rely on a cryptocurrency maintaining or changing its trajectory, and so you are not vulnerable to losses from sudden crypto market fluctuations. Temporary price disparities arise for various reasons such as differences in trading volume and liquidity between smaller and larger exchanges. They will continue to occur, and create revenue opportunities, with the same regularity as ever whether it a bear or bull trend, making crypto arbitrage a great hedge against a falling market.

When choosing the best cryptocurrency arbitrage bot, you want a licensed and regulated platform, as this guarantees that you are meeting a high standard of security and transparency.

Here at ArbiSmart, our EU regulated, fully automated, crypto arbitrage platform is connected to 35 exchanges, which it scans, 24/7, tracking hundreds of coins at once, looking for price differences to exploit. The ArbiSmart platform is able to execute a huge volume of trades simultaneously, responding instantly to seize emerging opportunities, generating profits that start at 10.8% and reach as high as 45% a year, depending on the size of your investment. In addition to passive crypto arbitrage profits, you will also be receiving compound interest on your earnings as well as capital gains from the growing value of our native token, RBIS, which has already more than quadrupled in value since it was introduced, just two years ago.

As we have seen, trading bots offer some clear advantages, such as saving time in front of a screen tracking price movements, identifying trends and executing transactions at just the right moment. However, you need to find the right bot for you, that will suit your specific requirements, with regard to coding, pricing, strategy and functionality.

To learn more about all types of crypto trading as well as a variety of other topics relating to blockchain, exchanges, DeFi, wallets and more, check out the ArbiSmart blog.