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Everything you need to know about cryptocurrency robot trading

Everything about cryptocurrency robot trading

  • 3 September 2022
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Cryptocurrency trading is becoming more popular day by day. However, trading is a very complex process that requires a lot of attention and time. Unlike traditional stock markets, the crypto market never stops, making it almost impossible for traders to track market fluctuations, reduce risk, eliminate errors, and profit from trades. This is where cryptocurrency robot trading comes in and makes trading easier and more efficient for traders. Join us in this article to get to know these robots, how they work, and some very successful examples of them.

 What is cryptocurrency robot trading?

A robot is an automatic program that works on the Internet and performs better in performing repetitive tasks compared to humans. It is interesting to know that more than half of the Internet traffic is made up of robots that interact with web pages and users and perform tasks such as checking content and…

Cryptocurrency robot trading also works on the same principle. These robots are programs that perform functions such as buying and selling using artificial intelligence based on predetermined parameters. By using the Trader Robot, there are no more missed deals and opportunities, and you can trade cryptocurrency on time, efficiently, and automatically, day or night, and from anywhere in the world.

The important point about fake cryptocurrency robot trading

The first thing you need to know about how cryptocurrency robot trading works is that not all robots are created equal. Most of the cryptocurrency bots available on trading platforms are made by unknown creators who are looking to sell their bots as much as possible. Many trading bots are nothing more than scams and try to lure you in with promises of high profits without providing any real data to back up the claim. So, when entering this field, be sure to pay attention to using the most well-known robots, such as the KuCoin exchange trader robot, Pionex, etc. In another part of the article, we will introduce famous trading robots.

How does cryptocurrency robot trading work?

Cryptocurrency robot trading works under specific algorithms and trading strategies, which in turn are based on technical analysis. To perform independent analysis, traders need data about the price changes of an asset over time.

After performing the technical analysis, the trading strategy is tested on the same data and the possible profit and loss are calculated. At this stage, if the results are satisfactory, the trading strategy rules of the robot are created based on those results. Although some robots can analyze the current situation of the market; most of them work when predetermined conditions occur in the market.

Everything you need to know about cryptocurrency robot trading

In general, trading robots operate in four basic steps. These steps are:

Data analysis

Data is the king of the trading arena and therefore, its analysis is very important for the success of cryptocurrency robot trading. Unlike humans, software equipped with machine learning (making computers intelligent without directly teaching them how to behave), can identify, collect and analyze mountains of data much faster, smarter and better.

Signal generation

At the signal generation stage, cryptocurrency robot trading does your job as a trader. It predicts the market and identifies possible trades based on technical analysis data and indicators.

Risk allocation

Risk allocation is the step in which the robot distributes risk based on a specific set of parameters and rules that you set. Which usually includes how and how much capital is allocated when trading.

Finalize the deal

At this stage, the cryptocurrency robot trading registers buy and sell orders in the exchange based on the signals generated by the preset trading system.

 Different strategies for trading robots

Crypto trading robots rely on trading strategies to execute and process complex mathematical formulas, automating and speeding up the trading process. The link between the bot and the strategy used in it is such that bots are categorized based on the strategy employed. In this section, we review some well-known strategies.

Trend Trading

The simplest trading strategy is where the robot responds to direct market changes. Trading in the direction of the trend does not require complex algorithms that are used to process things such as predictive analysis, etc. And therefore, it is a very simple strategy.

Arbitrage

The arbitrage model involves trading robots that make the most of the price differences between multiple cryptocurrency exchanges around the world.

Since there is no centralized entity to determine the price of a digital currency, the prices are different in different exchanges. For example, South Korean exchanges tend to have higher prices than US exchanges. Therefore, a good profit awaits those who trade between the exchanges of these two countries.

Market Making

The market maker strategy allows you to buy and sell a large amount of digital currency and profit from the spread. In this strategy, the digital currency trading robot enters the market. It happens from two directions and registers buy and sell orders at the same time. By doing this, it not only creates a market but also sells the purchased asset on the spot, at a small profit. For example, the trader robot registers an order to buy cryptocurrency A for $0.99 and sells it for $1.01. And when both orders are confirmed, the transaction is finalized; So, in this process, you make a profit of $0.02.

Index Fund Rebalancing

Index funds (funds that track one of the market capitalization indices) have defined rebalancing periods to align their holdings with the respective benchmark indices. This process creates profitable opportunities for traders who use trading bots to capitalize on anticipated trades just before rebalancing.

Range Trading

The range trading strategy is based on the concept that the high and low prices of an asset are a temporary phenomenon that periodically returns to their average (average value). By identifying and defining the price range and running the algorithm based on it, when the price of an asset goes out of its defined range, the transactions are done automatically.

Time Weighted Average (TWAP)

In the Time Weighted Average strategy (a well-known trading algorithm based on the weighted average price and defined by a time scale), the cryptocurrency robot trading divides a large order into smaller orders with a TWAP value in a certain period. The purpose of this strategy is to reduce the effect of the registered order on the value of the considered asset.

Advantages of cryptocurrency robot trading

If you haven’t realized the importance of the digital currency trading robot up to this point in the article and you are asking yourself why you should care about this issue, your answer is in two words: Wall Street. Reports show that about 80% of the transactions in the stock market are done through algorithmic trading robots. So, as a cryptocurrency trader, you need to get to know the benefits of these robots; Benefits such as:

  • High decision-making speed
  • The possibility of unlimited analysis (relative to humans)
  • No error in the algorithm
  • Not needing to rest
  • Creating more free time for the trader
  • Lack of emotion in decision making
  • Discipline in trading

Disadvantages of cryptocurrency robot trading

Although trader robots have been introduced to the capital market to reduce investment risk, they are always associated with disadvantages and problems, and it is better to familiarize yourself with them before using them; Disadvantages such as:

  • Inability to independently analyze the market pattern
  • Lack of emotion in decision making
  • The need for constant monitoring of the trader
  • Risk of software failure

Features of the right cryptocurrency robot trading

You have a fairly good understanding of the digital currency trading robot. If you want to choose the right robot, you should get acquainted with efficient tips for choosing the best digital currency trading robot. In this section, we examine these points.

Validity of the production group

If you are going to trust a robot to control your capital, make sure as much as possible that the team that created it is qualified and reputable. To gauge the authenticity of the group, check the following:

  • Check the work experience of the group members.
  • Make sure the robot’s performance is fully documented.
  • Be sure to check the source of income of the group you are considering.

The support of the robot manufacturer group for users

The next thing to check is the level of support that the bot’s developer team provides. You can do this by following the checklist below:

  • Make sure there is an active community of bot users on Reddit or Telegram.
  • The developer group of your chosen cryptocurrency trading robot should have active communication with users in these forums.
  • Make sure the developers provide solutions for any potential bugs promptly at the earliest opportunity.

The cost of the robot

Before using, you should check the pros and cons of each bot. This will help you save time and money. You can also use the free services of that platform and compare those services with the paid version of the robot before registering and paying money.

The possibility of adjusting the robot according to market conditions

Bots execute your strategies in their way; Therefore, sticking to a particular strategy requires that your bot executes it satisfactorily. This way, you won’t lose your capital due to poor execution of the strategy by the robot.

Ease of working with the robot

If you are new to cryptocurrency trading, you should consider the following when choosing a trading robot:

  • Functionality: Be sure to consider the user interface of the robot and the ease of working with it.
  • Tools provided: The tools a bot provides are very important. These tools make it easier for you to analyze and test your strategy.
  • Simulated profit and loss: You need to determine the price at which you will either take profit or sell to avoid further losses.
  • Mobile application: Make sure that the robot you choose has a mobile application. This way you can monitor it whenever you want.

Which programming language do they use to write a trading robot?

Python is a high-level language that is preferred for automated and high-frequency transactions. This programming language has free open-source libraries and tools that facilitate bot coding. It can be used to quickly evaluate mathematical models.

Unlike Python, C++ is not so simple and understandable; But most of developers believe that this language is the best programming language to build a cryptocurrency trading robot. C++ has become very important in the blockchain world due to its fast and reliable processing.

Final Word

If you are thinking of entering the field of cryptocurrency in a world dominated by automation or if you are already active in this field and have not yet reached its full capacity, we suggest you use cryptocurrency robot trading. Undoubtedly, these robots will help you to understand the rules of the digital currency world and make smarter decisions. However, despite the many options in the market, you should be very careful in your choice. And don’t be fooled by attractive slogans.

In this article, we examined the cryptocurrency trader robot, and its advantages, and disadvantages. We hope you will make the right choice with these things in mind. And finally, don’t forget this sentence: cryptocurrency robot trading is not a good way to get rich overnight!


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