To start this article, you might have one question in mind (and that’s obvious): what are Bitcoin trading bots exactly?
It is a Bitcoin or cryptocurrency trading software program that enables automated trading.
The most basic trading bots purchase and sell currencies in response to price fluctuations, whereas sophisticated bots employ artificial intelligence to enhance their trades and optimize earnings.
The trading landscape has altered dramatically since the introduction of cryptocurrencies.
The crypto market, unlike regular markets, is open 24 hours a day and is extremely volatile, making bots more enticing to investors.
Trading bots for cryptocurrencies, either Bitcoin or altcoin, follow pre-programmed and algorithmic trading principles.
Users typically fine-tune the finest crypto trading bots to fit their personal trading preferences.
Brief History of Bitcoin Trading Bots
While Richard Donchian developed a set of regulations to follow when trading the stock market in 1949, he coined the term “automated trading system.”
It took about 30 years for well-known traders to adopt this rule-based trading method on a widespread basis.
Trading bots have been increasingly popular in the market in recent years.
What Are the Benefits of Using a Bitcoin Trading Bot?
Trading bots have two major applications.
For starters, bots may streamline and simplify the whole process.
They can handle things like portfolio diversification, index creation, and portfolio rebalancing, among other things.
Automation, on the other hand, does not imply that it is totally hands-off.
You must still pay attention to the fundamentals and conduct due diligence on the cryptocurrencies chosen by the bot, among other things.
The second application is more complex and advanced, in which employing bots as part of an active day trading strategy to automate components that are time-consuming, repetitive, and may include needless complexities.
Here are some of the specific benefits you might want to consider in using Bitcoin trading bots:
- Speed and Multi-Tasking: In the fast-paced world of cryptocurrencies, speed is crucial. Humans can only study cryptocurrencies and market circumstances one at a time, but trading bots can monitor market conditions in several cryptocurrencies at the same time and execute trades whenever profit margins are available. They can also do routine duties for you, such as periodic rebalancing, at a far faster pace.
- Time-Saving: Hand-calculating and executing transactions takes time and effort. Coming up with a strategy is the most challenging aspect. There’s no reason to waste hours doing the same thing after you’ve accomplished it. You can take the services of bots to complete the task.
- Emotionless Trading: Human traders may conduct unpredictable and impulsive trades as a result of large price swings in the bitcoin market. Trading bots eliminate this risk by making orders based only on the information provided and a set of predefined criteria.
- 24/7 Trading: A bitcoin trader, however committed he or she is, cannot spend the entire day and night in front of their computer. Of course, they got to sleep and rest well! So, in their absence, a bot will continue to watch the market and place orders, allowing them to trade without having to stop.
Consider These Factors When Choosing a Bitcoin Trading Bot
Is it easy to use?
The majority of customers want a bot that will make trading simpler for them, so seek one with a user-friendly interface that matches your level of experience.
It’s also crucial to pick a bot that complements your trading approach and determine how much adjustment is necessary.
Is it trustworthy?
Be wary of scammers!
If you install a trustworthy bot, you can be certain that it will do all possible to help you make a profit.
To mitigate the risks, look for characteristics that indicate a reputable team behind your preferred trading bot, such as previous employers of the members, the length of time they’ve been working on and testing the bot, the track record of members, the technical ability of the core team, and so on.
Is it profitable?
A bot is only useful if it helps generate income for its consumers regularly.
You should study reviews before investing in a bot to determine its success rate.
Is Using a Bitcoin Trading Bot Legal?
Using a bitcoin trading bot is not only legal but is frequently encouraged. In the bitcoin and stock markets, bot trading is completely legal (although only certain brokers allow it).
Anything that would be unethical under usual conditions is also illegal in bitcoin trading.
How Can I Find a Bot?
One of the first things you should do is choose a reliable broker. If you are having difficulties with this step, you can take a look at Immediate Edge.
Based on reviews across the internet, the platform provides easy-to-understand Bitcoin robots for experienced traders.
On the same website, it clearly states that using a bot does not guarantee profits.
So, finding a robot is one thing, utilizing it efficiently is another.
Here Are Some Strategies You Can Use with Bitcoin Trading Bot
- Arbitrage: Cryptocurrency bots use the arbitrage approach to take advantage of price differences between various cryptocurrency exchanges across the world. Buying on one exchange and selling on another is referred to as arbitrage. Since markets are unpredictable, bots are ideal for this. When employing arbitrage, the user must buy and sell at the same moment. Using bots makes this very simple and reduces the danger of the price moving negatively while the deal is being made.
- Mean Reversion: This strategy is straightforward and based on an assumption. A trader will use a mean reversion strategy when the value of an asset, stock, or currency has drifted far away from its historical average, and there is a conviction that it will return.
- Momentum Trading: Momentum trading is keeping an eye on the market’s EBB and flow based on its speed. The investor hopes to profit from a wave of bullish momentum before selling when it turns negative. Bots are beneficial in this situation since the timing of buys and sells is critical to the profitability of this strategy.
Related: How to Invest in Bitcoin Cryptocurrency for Beginners