In this review, we will cover everything you need to know about crypto trading bots, their benefits, and factors that can help you pick the right one.
What Are Crypto Trading Bots?
Simply put, a cryptocurrency robot or crypto trading bot is an algorithm programmed to follow predefined trading strategies to the latter and execute trades based on these commands. In other words, a crypto trading bot is a software that automates the execution of inputted trading strategies on exchanges to earn profits on behalf of users.
Traders experienced in programming can build their trading bots from scratch and enter commands detailing the strategies they prefer the bot to execute. On the other hand, it is possible to adopt ready-made crypto bots that only require users to customize their functions to suit their preferred trading style. Note that this model still entails a bit of knowledge in coding. However, this condition is not as prevalent in this case as it is in the previously mentioned crypto bots created from the ground up.
Also, there are premium-priced bots that come with inbuilt trading strategies, which users can adopt as they deem fit. Here, users do not need to have vast experience in coding as these bots are specially designed for less technical-inclined crypto traders. In light of the availability of various types of crypto bots, it is safe to conclude that they are ideal tools for all the demographics of the crypto trading community, regardless of their level of experience in programming.
What Necessitated the Proliferation of These Tools, And Do Crypto Trading Bots Work?
As mentioned earlier, it is not easy to keep track of the many opportunities available in the crypto market as a result of the inherent volatility of crypto assets. More often than not, professional traders have to manually seek out favorable price fluctuations by constantly monitoring price trends. You will agree that the human body is not built to withstand such a demanding task, particularly because the crypto market runs 24/7. And so, trying to keep pace with the market will most likely cause traders to burnout. In turn, every trade executed or decision reached when suffering from mental exhaustion might cause unimaginable losses.
Hence, the proliferation of crypto bots is borne out of the need to introduce a means of automating the tracking of prices, the scanning of potentially profitable trades, the execution of such trades, and the implementation of risk management measures.
Another reason why crypto traders are capitalizing on crypto bots centers around emotions. It is established that Homo Sapiens allow their emotional state to influence the way they respond to their surroundings. While this is the very nature of humanity, it is, however, advisable to curtail one’s emotions when interacting with the crypto market. Emotions cause traders to make flimsy mistakes that could jeopardize their crypto trading endeavors. Therefore, it is good news that adopting crypto bots presents a viable means to reduce the influence of human elements in one’s crypto trading activities. You can escape the adverse impacts of emotions by utilizing a bot, entering a viable trading strategy, and allowing it to rake in profits without running the risk of letting greed or fear expose you to losses.
Depending on the needs of the trader, it is imperative to understand that crypto bots have special features that determine their suitability to the prevailing trading strategies in the crypto space. Some bots are ideal for trading styles entailing traders to fixate more on long-term price swings. On the other hand, some are more suited for trading strategies relying on short-term price spikes. Furthermore, there are those with the capacity to execute high volume trades, which is ideal for arbitrage-based trades. In this case, the crypto trading bot needs to come with deep learning mechanisms that will allow it to scan the entirety of the crypto exchange market and identify price discrepancies.
What Are the Risk Management Measures You Need To Consider While Using A Crypto Trading Bot?
Even if using a crypto bot strips your trading activities of emotionally-induced decisions, it doesn’t, however, make you immune to the risks prevalent in the crypto market. Hence, try as much as possible to monitor the activities of your bot, especially if it is not designed to adapt to changing market conditions. Likewise, ensure that you do not permit your bot to make withdrawals. By doing so, you are certain that a hijacked bot does not expose your portfolio to theft.
Besides, it is preferable to keep account balance low and enable stops and trail stops when executing trades with a trading bot. Also, you should ensure that you keep the API keys created on your exchanges from untrusted entities and incorporate two-factor authentication as a backup identity verification system to the commonly-used username and password format. You should take advantage of backtesting or live testing features made available by the bot provider. Note that trading bots behave differently in different market conditions. You can’t expect a strategy implemented in a bull market to generate favorable results during a bearish run. As such, the onus falls on you to ensure that you promptly switch your trading strategy whenever you perceive that market conditions are altering.
Having discussed the fundamentals of crypto trading bots, their essence, and some risk management measures peculiar to automated trading activities, what then are the factors to consider when choosing a crypto trading bot?
What Are the Factors That Could Determine the Viability of Crypto Trading Bots?
The Reputation of The Crypto Trading Bots
Currently, there is an influx of crypto trading bots. And like every other crypto service sector, it is imperative to identify top-performing bot providers. These entities have built their reputations on track records that connote reliability. Hence, we advise that you research the capacity of the bot provider to deliver premium services at all times. To do this, we suggest that you read unbiased reviews, examine the bot’s reputation in the crypto community, and assess the experience of the provider in the artificial intelligence and crypto space.
The Transparency of The Crypto Bot
Some crypto bots that are open source projects enabling users to test the viability of the codes and identify potential flaws that could cause the bot to malfunction. While this is a given, some are, however, proprietary products of their creators. It is difficult to identify flaws in this class of trading bots until it is a little too late. For crypto traders who are particular about the transparency of trading bots and demystifying the coding ingenuity that makes up the system they might put in charge of their trading accounts, open source crypto trading bots are ideal choices. Nonetheless, this does not downplay the viability of sites, which do not provide open source trading bots. In most cases, these bot providers have track records to back their efficacy. Transparency as regards the pricing system, the workings of the bots, their specifications, and specialty will go a long way to help you determine their suitability to your trading endeavor. More importantly, it helps if these sites provide backtesting and live testing features to help you gauge the quality of their trading bots.
It is common practice in the crypto space to fixate on security mechanisms of crypto systems, especially if these platforms directly or indirectly link to your wallets or exchanges. This notion also applies to crypto bots. A vulnerable bot can expose you to all sorts of headaches. For one, a hijacked bot automatically opens your portfolio to unimaginable threats. The hacker may steal your funds if you had permitted the bot to withdraw funds. If not, the attacker could execute bad trades, which will lead to fatal losses. Hence, we suggest that you only go for trading bots with sophisticated security systems against potential threats.
Ease of Use
Recall that we mentioned that trading bots come in different levels of complexity. Thus, it is important to gauge your technical prowess and choose the trading bot that best compliments your trading and programming expertise. If you are a beginner, you should know that you might pay extra to access simplified bots with preconfigured trading strategies. Moderately experienced traders and programmers might find open source bots with customizable features attractive. On the contrary, a highly experienced trader, with extensive knowledge in different programming languages, can decide to build his or her bot from scratch. Simply put, go for the option that suits your crypto trading and IT expertise.
The Pricing of The Crypto Bot Provider
We are aware that some trading bots are free-to-use. For traders who would prefer these open source algorithms, pricing would not pop up as a factor that they need to consider. On the other hand, crypto traders opting for paid trading bots must take the time to analyze the pricing structure of the bot provider they are considering. Here, you have to identify the key features accessible on each tier of the pricing structure and the timeframe of the subscription. Once you have all of the information regarding the pricing policy of the crypto trading bot provider of your choice, you can go further to compare the fee structure against top competitors. Doing this will allow you to get a better grasp of the standard pricing policy in the crypto trading bot market and the conformity of the fees of your chosen service provider to such standards.
The Compatibility of The Trading Bot
As a trader, you must have created a portfolio and identified the cryptocurrencies you want to trade. Therefore, it is imperative to ascertain that the trading bot you are considering is compatible with your existing trading scheme. In other words, it must support the cryptocurrencies in your portfolio as well as the style of trade you are planning on executing. For instance, a trader concentrating all of his trading capital on bitcoin should focus more on adopting bitcoin trading bots. If he/she plans on implementing a short-term trading strategy, then a bitcoin day trading bot is the ideal choice. Another aspect of compatibility that you should research is the volume of trades the bots can manage simultaneously. This bit of research is important for traders looking to capitalize on variations in the prices of crypto pairs on different exchanges. Likewise, ensure that the bot is compatible with your chosen crypto exchanges.
The Support System of The Trading Bot Site
Regardless of how good you are in deciphering codes, it is advisable to opt for trading bot sites with customer support culture that you can take advantage of whenever you hit a roadblock. As such, it is a plus if the trading bot site provides a detailed manual on the workings of the bot, a means to log or submit your complaints, and a 24/7 customer support system that aid swift response to queries.
How Did Cryptolinks Compile Its List of The Best Crypto Trading Bots?
Considering the growing importance of trading bots in the budding crypto landscape, we at Cryptolinks have decided to review the sector and handpick the best trading bots available in the market. To do this, we had to rely on an organic research methodology, which entailed the assessment of trading bots up close and the use of recommendations highlighted earlier in this guide as yardsticks to determine their viability.
In other words, we assessed the track record and reputation of each trading bot. Also, we reviewed the transparency of the trading bot sites as it gave us insight on the commitment of the provider towards ensuring that users are aware of the strengths and weaknesses of the product. Once we had reviewed transparency, we went further to research the security mechanisms of each trading bot. Here, we ascertained that the bot provider has integrated all of the standard security measures applicable to trading bots.
Next, we examined the ease of use, which portrayed the simplicity of the reviewed trading bots. Thereafter, we put the spotlight on the compatibility of the trading bots to popular exchanges, effective trading strategies, and multiple coins. Once we had checked for compatibility, we verified that the trading bot sites offered competitive fees. Lastly, we assessed the support system of each and ascertained that they provided 24/7 customer support systems.
In the end, we found 4 trading bot sites that had performed well across all boards and were worth mentioning on our list of best trading bots for 2020. We suggest that you explore the materials provided for each trading bot site mentioned before choosing one.