How trading bots work in cryptocurrency trading

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With the advent of trading robots, traders have much more free time, because now there is no need to sit over all the deals, set timers or constantly monitor the situation. All this is done automatically thanks to the bot. There are a lot of strategies, just like the tools themselves. I suggest everyone to read about this in my short article.

What is a trading bot?

Let’s first understand the term “trading bot” itself. Basically, this is a special program that works according to the given settings, which connects to the terminal on the exchange and performs the actions set for it from the triggers. The author of the bot independently chooses the conditions under which he will enter into agreements, exit from them or simply give signals.

Independent analysis of the pair's charts before using the trading bot

A trading bot will be an excellent means of automation for those traders who see certain trends in the market, have prescribed an algorithm of actions for them and want to get maximum profit with minimum risks. If the bot itself enters and completes trades, it will only work in the specified range, which will avoid liquidation. But this does not apply to those cases when the coin depreciates sharply. In these circumstances, you will simply hold it until you decide to sell yourself, or until its price is back in the bot range.

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What are the types of work with a trading bot

Robot settings depend solely on the purposes for which it is created. Here you need to take into account the current mood of the market, certain trends or technical analysis of the coin, which is carried out directly during the bot setup. I would highlight several types of automation:

  • Scalping. Probably the most popular type of bot trading used on many exchanges and platforms. With this type of trading, deals are opened many times in a few hours, all of them need to be monitored, take profit and stop loss must be set. Instead, you can set the automation through the bot, specifying the number of grids and the range in which it will work. All trades will be opened and closed without the participation of the trader.

  • Day trading. In this case, there are not so many trades, but still they open and close during the day. The same type of automation works here through a bot chosen by the trader.

  • Swing and medium-term trading. These types of trading involve opening deals for several days, weeks and even months. Bots are used less often in this case, but still, this approach can be used.

  • Investments for a long time. Robots are practically not used for long-term investment, as they do not have significant advantages. You can always go in and assess the state of the market on your own to understand when to buy more or withdraw the coin.

There are quite a few situations in which each of these strategies will be relevant. Usually, a trader needs to monitor several charts at once in order to catch a certain movement and adjust his bot accordingly. Programs excel in a bear or bull market when the price moves rapidly in one direction with little care for correction. At the same time, nothing prevents you from tracking sharp collapses or certain fluctuations. Everything depends solely on the experience of the trader who creates the bot.

How to choose and where you can use bots

There are many programs for trading. They can be used on any API-enabled exchange. There are special sites that provide their services for connecting bots to one or more exchanges. You create an account, connect your trading accounts there, choose a bot, set the settings and start auto trading. However, most often for this you will first need to subscribe to the bot, since these types of services are practically not provided for free.

Familiarization with sites for the provision of trading bot services

Not all robots work the same, each of them has its own efficiency. It is checked using a test called “BackTesting”. In this case, the bot is trusted to work with the graph of the past and see how it will react to situations. A simulation of real trading is carried out, after which the creators or buyers of the robot draw conclusions about its effectiveness and decide whether to use it for their own purposes or not.

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A simple example of using a trading bot

Buying a subscription to special sites and choosing a job there from the library is a rather difficult task, which is better for experienced traders. You can start with the simplest use of a free bot on exchanges. One of the most popular exchanges that supports the creation of a robot for automatic trading is called ByBit. Thanks to it, you can not even create a bot, but copy the most successful ones in a day or a week, but here, too, you should take into account the risks.

  1. To go to the section with robots on this exchange, expand the menu “Trade” and find an item with the appropriate name in it.Go to the section on the website to create a trading robot on the ByBit exchange

  2. As I said above, ByBit allows you to use ready-made bots that have brought a lot of profit during their activity. You see the daily and weekly ranking. When copying such a robot, you completely keep its settings, but enter your amount to invest.View the most profitable settings for creating a trading bot on the ByBit exchange

  3. If you want to create your own bot, click on “Create more”.Button to go to manual settings for creating a trading robot on the ByBit exchange

  4. Now start setting it up. First, one of the available trading pairs is indicated, and then the minimum and maximum price range is determined. Based on this, the robot will make buying and selling decisions based on the number of grids.Choosing a pair and range to create a trading bot on the ByBit exchange

  5. The number of grids is the number of trades that will be opened in the range you specify. The bot can be bought several times on the dip, the average price, and sold in the same way, minimizing risks.Entering the number of grids to create a trading robot on the ByBit exchange

  6. It remains only to specify the amount of investment, that is, the amount that the bot will be able to manage to open transactions in all its grids. After that, confirm the creation of the robot and start watching how it works.Entering a deposit to create a trading robot on the ByBit exchange

  7. ByBit displays quite extensive statistics, showing profitability, the number of transactions and the time of operation of the robot.Viewing the general status of the created robot on the ByBit exchange

  8. If you open the detailed settings of the program and go to the history, you will see at what moments the bot buys and sells the token and how many times it has already been done.Viewing the history of transactions after creating a trading robot on the ByBit exchange

The ByBit bot works in such a way that if the price drops below the set minimum, it simply stops working, and you are left with the tokens it bought. This minimizes the risks, but you still keep the coins and they can depreciate. In this case, you decide for yourself whether to exchange them at the current rate or wait until the bot returns to the range and starts trading.

Pros and cons of trading bots

I think that after reading the previous sections of the article, you have already formed a certain opinion about trading bots, but nevertheless, let’s briefly run through their main advantages and disadvantages.

Pros:

  • Automatic work with a large number of transactions. You can create many bots for different pairs with your settings and number of grids. At the same time, they will all work automatically, and you can do other things.

  • Price response. The robot is not distracted by any extraneous matters and does not leave the computer. He always monitors the price and instantly reacts to any changes, if it is written in his behavior. He works faster than the average person, providing the largest number of daily transactions.

  • Round-the-clock work. Even if you turn off your computer, go to sleep or go on vacation, the bot will continue to work and will continue to do so as long as it has funds in its balance and the price of the pair stays within the specified range.

  • Lack of human factor. Some perceive trading not as a job, but as a game of chance. In this case, the trader is prone to emotions, can drain his deposit very quickly, making rash decisions. The robot will not deviate from the given strategy.

Cons:

  • Problems in finding quality bots. There is a huge number of different programs on the network, distributed by both experienced and novice developers. You need to spend a lot of time to find a really working option among them.

  • Lack of flexibility. The settings of the bot are quite meager, it is not possible to write any additional rules to it so that it responds promptly to favorable changes and quickly completes or enters into transactions.

  • There is no independence. The market sentiment changes regularly, and the bot continues to work with the old strategy until it is disabled or reconfigured. This forces you to constantly monitor the situation yourself and set new parameters for all your work when necessary.

For some traders, the bot will really become the same “loot” button that you only need to press, and the profit will fly into their pockets. However, good results will be achieved only by those who independently understand the market and configure bots for themselves, counting on their values, technical analysis and other parameters. Or you can just be happy and buy a program that will show a big profit in the moment (but this is not guaranteed in the long run).

The use of trading bots has its own huge risks associated with an unstable market situation and a sudden change in mood. My article is not a recommendation to use such trading strategies, it is only informative. You decide for yourself whether it is worth investing in this type of trade. At the same time, I advise you to read as much information as possible on this matter, look at the guides and start with small investments, if you decide.

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