What is Automated Trading?
Automated trading in crypto involves letting bots and algorithms make trades for you.
These programs will automatically buy and sell different cryptocurrencies without you physically being on your computer or phone.
It’s easy, right?
Well, you need to know how to set them up.
You could set them to make trades based on technical market indicators such as moving averages, the price action of assets, and/or to rebalance your portfolio’s value. It depends on your preferences and what you believe works best.
Simply put, an automated trading system is just an integration between your specific trading rules/ strategies and a computerized trading platform. Finding a platform that complements your rules and strategies is key to ensuring your crypto automated trading success.
How does automated trading work?
The first step is choosing the right automatic trading bot. You need to pick a bot that complements your trading style and efficiently executes your trading strategies as a trader.
API Trading Bots
These are the most common types of bots used today. They are independent software that can access your trading account on whatever trading platform/exchange you decide to use. You connect them by sharing both your API public and private keys.
The cryptocurrency exchange/platform understands that you have allowed these bots from your API keys. The bots can then know your balance and make trades on your behalf. To revoke or withdraw their access to your account on the trading exchange, you need to delete the API keys from your trading exchange.
Bots only require authorization to read your balance and to place trades. Please beware of bots that ask for approval to withdraw funds.
- Decentralized Trading Bots
These are custom-built bots that exist and run on a specific blockchain. These are not as common and are used mainly by experienced crypto traders. They are more technical and expensive to set up and use smart contracts to execute trades.
How do crypto trading bots work?
Trading bots analyze the markets, speculate market direction, calculate the risk and finally execute the trade. Bots use asset prices and trading volume data to speculate on market direction. After deciding whether to buy or sell, bots decide on the amount to trade based on your trading rules and strategy. The bots then execute the trade.
Can you make money through automated trading?
The short answer is yes, you can.
Using bots to execute your trades increases your chances of being profitable.
But don’t think it’s easy.
If you don’t have a thorough understanding of technical analysis, charting, know-how oscillators work, can explain Bollinger Bands, Fibonacci lines, and know what MACD or RSI mean, to name a few, you may not be ready.
They aren’t magic.
They are tools.
Bots can also run 24/7 without fail, making more money as they do not suffer from exhaustion or boredom. However, because bots are semi-automated, they can also lose money. Therefore, if you intend to get involved with automated crypto trading, only invest an amount you are willing to lose.
Pros of automated trading
- It saves time as you do not have to be present always.
- Can execute trades in an instant, hence great entry points.
- Make logical trades as bots do not have emotions.
Cons of automated trading
- Bots can break down, causing significant losses.
- Some bots require constant monitoring.
If you are looking to get into cryptocurrency automated trading, it is advisable to have some trading experience and technical know-how.
Automated trading is much more convenient than traditional manual trading. But like any other form of technology, automated trading has its limitations. For this reason, automated trading cannot completely replace conventional manual trading.