What are crypto trading bots?

September 30, 2021

Trading cryptocurrencies has become a contagious trend, especially among younger people who are new to investing. One of the first things you’ll notice studying Bitcoin charts is that the price is extremely volatile. One day your account can be up thousands of dollars and the next it can be down by the same amount. The key to taking more control of your crypto trades is automating your transactions with crypto trading bots.

Tapping Into Bot Subscriptions

Trading bots are typically designed by software developers who offer a subscription model that allows for regular software updates. The trader pays the developer then downloads a code for the bot.

The trader will need a crypto wallet with accounts set up across crypto exchanges.

Make sure your crypto wallet is user-friendly. In some cases you may need to create different crypto wallets to trade different cryptocurrencies. Multi-cryptocurrency wallets such as Exodus provide access to over 100 different crypto selections including Bitcoin and Ethereum.

Keep in mind there are also different types of bots used in the trading world. An arbitrage bot, for example, takes advantage of price imbalances across exchanges. Some bots track historical data while others are used to trade fast-moving markets that most traders miss. Bots can be programmed in various ways, such as executing a trade triggered by a certain volume level.

What are Bots Used For in Trading?

Unlike humans, computers don’t add emotion into the trading equation. Software programs don’t have fear of falling prices or greedy visions of colossal price spikes. You can use trading platforms that give you tools for setting entry and exit prices for trades. With a little bit of effort, you can program bots to do all your trading for you. Automated trading bots follow your parameters and only execute trades according to your configurations.

Understanding what bots are used for will help shape your crypto trading strategies. You can stop rolling the dice then panicking when the price rips in the wrong direction. Trading bots bring a rational approach to trading that can take humans many years to learn on their own. Trading bots inject objectivity into the trading equation, as they don’t make sudden mysterious moves. They do exactly what you program them to do so that you don’t have to monitor the price all day.

Automating your transactions gives you more control and less to worry about. The worst that can happen is the bot sells your crypto to avoid further value decline based on the stop loss exit point you set.

24/7 Market Monitoring

Since various cryptocurrencies are available to trade 24/7 on the global market, it helps to use trading bots to work for you while you sleep. No trader can constantly monitor markets all the time in real-time even when they’re awake. Bots are the solution for 24/7 trading. Just remember that trading bots work only as well as your trading strategy. In other words, they are most useful for executing trades you would have made in your most rational state of mind based on your logic.

You still have to choose what to trade, along with the entry and exit points. Furthermore, you still need to pay attention to crypto markets and develop deep knowledge about them. You can’t expect trading bots to help you earn money unless you do continuous market research to adjust your trading strategies as they evolve.

Controlling Trades in a Volatile Crypto Market

The cryptocurrency trading market is one of the fastest places to take profits, but it’s also where you can drain capital just as quickly. Novices who aren’t experienced trading wide price swings can get burned by buying Bitcoin or another cryptocurrency at the wrong time, then panicking when the price does one of its quick drops. Like stocks, crypto prices move up and down through channels that ultimately point up or down. Once you understand these cycles it will make trading much easier.

One problem with humans trading any type of financial vehicle is that emotion can get in the way, causing you to sell at the wrong time for a big loss. One strategy is to just buy and restrain from selling, but this strategy presumes the price will eventually be much higher. There are no guarantees on any investments, so you have to free your mind from fantasies that “Bitcoin is going to the moon.” A safer strategy is to have an intention to buy low and sell higher through multiple cycles, not to hold it forever.

The key to staying out of downward spirals in financial markets including crypto is to practice risk management. In many ways crypto trading bots serve as a useful layer of risk management that you control.

Conclusion

Trading bots have grown in popularity and mystique over the years and have even become an essential part of crypto trading. Automating your transactions is an excellent way to protect your capital and crypto assets. Risk management is the clear answer to the question newbie traders ask: what are bots used for?

Wide swings can occur in the crypto market at any time, so it helps to use reliable technology as part of your risk management strategy to avoid sudden losses. Trading bots can be valuable tools that scrape cash into your account on a regular basis while you relax or focus on other projects.