The Benefits of Using A Crypto Trading Bot for Beginners
- October 3, 2023
- 305 views
- 14 minutes
“Time is money.” – we all have grown up hearing this statement. Right?
Well in today’s time, this statement is more relevant than ever with the transition of financial and stock markets from offline to online.
The cryptocurrency market is quite volatile. To top it all, experienced traders and crypto enthusiasts make things harder by engaging in relentless trading around the clock.
Hence, navigating the kingdom of cryptocurrencies is like a roller-coaster ride – extremely unpredictable and exhilarating!
Especially for beginners, it can be nerve-wracking to engage in the trading of digital currencies, considering the sudden fluctuations in rates, and occasional slowdown of markets.
Monitoring and overseeing the market continuously is impossible. Unless, of course, you have someone to assist you with this!
This is where the role of crypto trading bots kicks in. Let’s proceed to more details on crypto trading bots and their advantages for beginners.
Table of Contents
Definition Of A Crypto Trading Bot
Crypto trading bots are software tools trained to trade cryptocurrencies automatically on the trader’s behalf. The bots are programmed to analyze the crypto market and execute trades based on pre-determined market parameters such as price, volume, and timeframes.
Crypto trading bots are similar to chatbots, which are automated chat assistants helping businesses enhance their customer services.
The purpose of using crypto bots is to execute trading activities seamlessly with minimum human intervention. Crypto bot developers leverage the power of Artificial Intelligence to train the model according to pre-established market indicators.
Overview of the benefits of using a crypto trading bot for beginners
The bots implement trading strategies by following the indicators constantly. When the market condition seems favorable, the bot executes trades on the investor’s behalf automatically.
The best and most common indicators that crypto trading bots mostly rely on are Moving averages, Relative Strength Index (RSI), Bollinger Bands, On-Balance-Volume (OBV), and Moving Average Convergence Divergence ( MACD).
Apart from these parameters, cryptocurrency prices, trading volumes, and timeframes are also essential to keep an eye on to get desired returns from investment. Hence, the bots are designed to take into account these indicators as well.
Once the market parameters are determined, the bots start monitoring them relentlessly to make trading decisions.
Are you a beginner willing to jumpstart your crypto trading game? Then this blog post is for you!
Look into the advantages of automated crypto trading bots in-depth and understand why they are so useful for you.
2. Time-Saving Benefits
Let’s not deny it – for any newbie, the crypto market is a bit overwhelming. In such a scenario, automated tools like trading bots can simplify their initial journey and give them some time to get familiar with the currencies, market conditions, exchanges, and so on. An Autobot can help a novice trader save time in the following ways –
Trading bots automatically execute trade while ensuring success to a certain degree. But how is that possible? As mentioned earlier, crypto trading bot developers design, develop and train bots to analyze market situations and make trades automatically.
These well-configured bots eliminate the need for human traders to monitor ups and downs in the market continuously and execute trade manually. All you need to do is set your trading goals first and let the bot do all the tricks.
The automated trading mechanism by the bots saves your time and lets you focus and engage in other trading strategies that need human intervention.
Crypto markets are live and functional 24/7, and it is practically impossible for a human trader to have a close watch on the market and price fluctuations all day and night.
However, the best part is trading bots can monitor the market 24/7. Unlike humans, these are AI-powered bots that do not need rest or experience fatigue working at a stretch around the clock.
Hence, crypto trading bots are the most effective tools to use, if you want to stay up-to-date with market trends and never miss any potentially profitable trading opportunities.
The consistent vigilance by the bots will help you, as a trader, predict market movements, capitalize on price changes, and stay ahead of the game.
Multiple exchange trading
It becomes difficult for human traders to shuffle among multiple cryptocurrency exchanges at the same time. However, to diversify your trading activities, you cannot trust a single crypto exchange.
This is where you can bring a crypto bot into play by integrating it with several crypto exchanges simultaneously. A bot streamlines your trading activities by offering you a single interface to manage across various exchanges.
You no longer need to manually log into each exchange platform, track prices there, and execute trade separately. A crypto trading bot does it all, allowing you to make the most of price disparities and arbitrage trading opportunities.
3. Reduced Emotional Involvement
Another significant advantage that crypto trading bots offer is reduced emotional stress and anxiety in investors. By taking the human element out of trading, bots execute trades based on pre-determined parameters.
Elimination of emotion-based trading decisions
By automating the process of trading, crypto bots prevent bad trading moves which are often the result of impulsive decisions of investors. When bots trade on your behalf, they trade according to your plan.
Most importantly, they are dispassionate and make decisions based on your pre-determined goals, regardless of how you’re feeling. So, there is no room for human emotions like fear, greed, or stress when a bot does all the trading.
Furthermore, a bot helps you avoid panic selling, which is selling all of your holdings when you see the market is failing, even if it means a huge loss for you.
Thus, to get rid of the stressful experience of making decisions impulsively, one should consider leveraging crypto trading bot services.
Improved discipline in following trading strategies
A crypto trading bot automates the trading process. This means that you don’t have to constantly monitor the market and execute trades when it seems most profitable.
It removes the need for constant vigilance as you can set your bot to trade 24/7, so you don’t have to stay up all night checking the markets. This can free up your time and energy, and help you to relax.
By providing discipline and consistency, a trading bot can help you stick to your trading plan and trade more effectively with less stress.
However, it is important to note that crypto trading bots are not 100% reliable in terms of trading decisions. They do not guarantee sure-shot profits or eliminate all risks.
But one cannot ignore the fact that they can be a valuable tool for traders who are looking to reduce emotional stress and improve their trading performance.
4. Improved Trading Efficiency Benefits
With bots, you can take advantage of trading opportunities 24/7 because unlike you, bots don’t sleep or work. They constantly monitor the market, analyze prices, and execute trades. Therefore, if you want to make efficient and faster trading decisions, start relying on crypto bots.
Execute trades quickly and accurately
First of all, bots act faster to market movements by executing trades quicker. This is instrumental in yielding higher returns because even a small delay can make a large difference in the extremely volatile crypto market.
Increased speed and accuracy are two prime reasons why bots are becoming so popular these days. They trade much faster than humans and that too more accurately. In fact, they trade instantly as your pre-set criteria are met.
This speed of trading operation is essential to maintain because, in the fast-paced world of cryptocurrencies, price change is a matter of seconds.
Besides, bots do multi-tasking by effectively monitoring multiple crypto markets and trading pairs simultaneously, which sounds quite impossible for human traders. They accurately analyze market data to identify profitable trading opportunities that might be missed by a human investor.
Reduces Human Errors
Trading by bots is a completely automated process and so, eliminates the chances of errors which are quite common for humans. These computer programs are designed to follow predefined strategies.
Trading operations are carried out systematically as per your rules without deviation. The bots operate on specific algorithms that are refined and tested to maintain accuracy in making trades.
Further, these automated software programs allow traders to backtest their trading strategies with the help of historical data to determine their effectiveness. This way every strategy is optimized and potential errors are minimized before implementation in live trading.
Shown below is an example of the backtesting strategies of Haehncehn, an open-source crypto trading bot.
[Point to note: Trading bots can only reduce human errors, they are not infallible or error-free. Traders need to carefully design and monitor their strategies, optimize bots, and regularly update them to attain the best results.]
Bots reduce your overall risk exposure as they diversify your portfolios by trading in multiple markets and trading pairs. They assist in sizing your trades appropriately, based on your risk tolerance and account balance. This can help to prevent you from over-risking on any one trade.
Other vital risk management strategies that bots incorporate to aid in risk management are automated stop-loss and take-profit orders. But before that, let’s first understand the two terms in brief.
- Stop-loss orders – A stop-loss order is an order to sell a cryptocurrency at a specific price, which is typically below the current market price. This is done to limit losses if the market price falls below a certain level.
- Take-profit orders – A take-profit order is an order to sell a cryptocurrency at a specific price, which is typically above the current market price. This is done to lock in profits if the market price rises above a certain level.
Crypto trading bots are trained to undertake stop-loss and take-profit orders automatically. You, being the trader, will set pre-determined levels at which your trades will be closed, regardless of your emotions and your bot will act accordingly. This way you can protect your profits and limit your losses.
[Point to Note: Bots are not a magic tool. They cannot guarantee 100% profits or eliminate all the risks. Additionally, you need to stay well-informed about the market trends, limitations, and potential risks associated with automated trading by bots.]
5. Access to Advanced Trading Strategies Benefits
Most bots are equipped with pre-programmed trading strategies that traders can utilize for their own advantages. Let’s get into the details of the various ways automated trading bots provide access to advanced trading strategies.
With the help of trading bots, human traders implement trading strategies that are too complicated, time-consuming, and difficult when implemented manually. These trading strategies are based on complex algorithms that can be either as simple as moving averages or as intricate as machine learning models.
Bots can be used to automate arbitrage trading strategies. Arbitrage trading is the process of buying an asset on one exchange and selling it on another exchange at a higher price.
Crypto trading bots are programmed to detect price discrepancies across different exchanges instantly. This allows traders to capitalize on arbitrage opportunities by buying low on one exchange and selling high on another. And the best part is all of these are executed automatically by the bot.
High-frequency trading (HFT) is a process of trading that uses powerful computers to execute trades in milliseconds. Most bots are configured to perform high-frequency trading and scalping by taking advantage of small price movements that occur within short time frames. This high-frequency trading strategy requires quick execution and precision, which only bots can provide efficiently.
Bots can implement trend-following strategies by analyzing price trends and trading in the direction of those trends. They can automatically execute buy or sell orders based on predefined criteria by utilizing these trend indicators.
Leveraging crypto trading bots doesn’t imply that you cannot have your own unique strategies. Traders can develop and implement their special trading strategies by customizing the parameters and rules within the trading bot. They can define entry and exit points, risk management rules, position sizing, and other variables based on their specific trading approach.
Bots play a critical role in automating market-making strategies, which is the process of providing liquidity to the market by buying and selling assets at different prices. They swiftly adjust bids and ask prices in response to market movements.
This automated market-making process ensures a tighter spread and liquidity for traders and optimizes their liquidity provisions in the cryptocurrency market.
6. Cost-Saving Benefits
Using crypto trading bots can significantly lower your trading costs by reducing transaction fees, improving trading performance, and efficiently managing your portfolios.
Presented below is a detailed explanation of the cost-saving benefits of bot-based trading that can help you save a significant amount of bucks over time.
Elimination of the need for a full-time trader
You have to incur costs on human traders when you use crypto-trading bots for executing trades. This increases labor costs significantly because employing human traders to perform these tasks can be expensive, especially considering the need for 24/7 vigilance in the crypto market.
Moreover, they do not operate around the clock unlike bots, and need salaries, benefits, and sometimes, breaks from work. So, using bots lowers your trading operation costs.
So, using bots has a two-way benefit –
- Timely execution of trades aided by quick decision-making
- Continuous 24/7 market monitoring (which is impossible for a human trader)
Reduced trading fees
Crypto exchange platforms charge fees for carrying out trades which mostly depend on the exchange platform and the type of trade selected. For instance, some exchanges charge a “maker fee” which adds liquidity to the market on placing trade orders. In the same way, some charge a “taker fee” which removes liquidity from the market on placing trade orders.
Bots reduce these trading fees by consolidating your trades into larger orders. Also, there are some advanced bots that can negotiate better prices with exchanges on behalf of their traders.
On top of all of these, as mentioned earlier, crypto bot automates arbitrage trading where the profits generated from one trade order can be used to offset trading fees. This further lowers transaction costs.
Efficient Portfolio Management
Another way bot-based trading saves costs is by effectively managing a diversified portfolio of assets and optimizing the allocation of funds. Besides, it rebalances the positions of your orders based on your strategy.
Automated portfolio management and diversification ensure that your capital is allocated efficiently. It also reduces the risk of overexposure to any single asset and the potential loss associated with it.
7. Risks of Using a Crypto Trading Bot
Regardless of all things said, there are some risks and limitations associated with crypto trading bots that one cannot ignore. Bots are not 100% accurate and they can also commit mistakes that impact your trading decisions.
Please go through the shortcomings of leveraging crypto trading bots below one by one so that you can be aware of them in advance.
Overview Of The Risks Associated With Using A Crypto Trading Bot
Crypto trading bots can be a powerful asset for traders, but their complexity can make them technically challenging for traders, especially for beginners. This is because they need to set up and configure the bot which requires technical understanding.
Also, using bots demands that traders have proper knowledge of trading strategies, various market indicators, and parameters to train the bot accordingly.
Needless to say, the crypto market is extremely volatile where prices of currencies can change instantaneously in minutes. Trading bots are designed and trained to act as per the pre-determined rules and so, they might not be able to respond swiftly to unexpected events.
Although they are programmed to react quickly to sudden shifts in prices, in most cases, they fail to predict sudden crashes or hasty spikes in the market. Any trading decision made by the bot in such a situation doesn’t align with the current conditions of the market and hence, results in trading losses.
Absence of Human Intuition
Unlike bots, human traders have experience and adequate understanding of the crypto market which they utilize to make informed and intuitive decisions.
Bots only act and execute trades according to pre-set trading goals as they can’t understand and interpret market trends. Trading decisions based on social sentiment is not feasible in bot trading.
Continuous need for monitoring
Automated trading bots need regular monitoring by tech professionals to see if they are functioning properly. Also, keeping an eye on the bot’s operations ensures that there are no connection problems, software bugs, technical issues, or misconfigured settings.
Using trading bots makes you prone to cyber threats and security risks because the bot gains access to your account in the crypto exchange. If the platform is compromised, then your account will be at stake because you lose control of your trading activities to a certain extent. Since you are giving power to the bot to execute trade on your behalf, it is important that you choose secure and trustworthy trading bots.
The use of bots also depends on the jurisdiction in which you are carrying out your trading activities because several jurisdictions do not permit that. Either their use is legally questionable or not allowed at all. So, before leveraging your bot services, you need to make sure that the bots comply with the local legal regulations and standards.
8. Importance Of Choosing A Reputable Bot
Are you in the dilemma of whether to go for crypto trading bots or not? Then, you must remind yourself that the benefits we discussed above outweigh the limitations for sure. Hence, as long as you pick the right trading bot, you’re safe. You can seek help from a professional crypto trading bot development company to build your own bot.
Also, here are a few hacks to help you select the right trading bot for your trading endeavors.
Reliability – There are myriad free and paid bots out there in the market. Your priority should be to check on their reliability. The bot you pick must be able to execute trades quickly and accurately. Look for discussion forums and ask existing users to get a sense of the bot’s performance and reliability.
Security – It’s elementary to check for robust security features implementation in your bots. Certain criteria to consider are end-to-end data encryption, 2-factor authentication, and whitelisting withdrawals. These ensure that the bot has security measures already in place.
Profitability – Although it is true that you cannot predict future returns based on a bot’s past performance, analyzing the track record of a trading bot can help you make a better choice. Go through the past performance of a bot, its risk tolerance level and investment goals achieved to get a better picture of its capabilities.
Customer Support – Responsive and 24/7 active customer support is a must criterion while selecting a trading bot. If you are a beginner, you need timely support and advice from the bot platform before you get familiar with its functionality completely. So, ensure that there is a 24/7 help desk and a very supportive community to assist you with your queries.
As technology advances and takes new turns every passing day, it becomes paramount for us to adapt and upgrade ourselves. Artificial Intelligence and machine learning are the two prominent path-breakers that have served us with wonderful innovations, crypto trading bots being one of them.
As the future of the crypto market unfolds, news bots are expected to arrive with more sophistication, and capable of handling complex analysis. Security and regulatory landscape might also evolve which might eliminate risks and uncertainties.
Overall, utilizing crypto trading bots streamlines trading operations, reduces human errors, eliminates human emotions, optimizes trading strategies, and enhances efficiency in trade execution. And this goes without saying that all of these contribute to a more profitable and cost-efficient trading experience.
Nevertheless, you still need to remember that crypto trading bots are simply automated tools and not humans. They are not your guaranteed route to your profits. Just like any other investment, you need to do in-depth research on the market conditions, understand all the risks, and make wise decisions.