When the cryptocurrency bubble popped up, people started to trade bitcoin and altcoins. And the need for different technologies and platforms has started to grow, and people can trade cryptocurrencies easily. And this is how the concept and technology of crypto trading bot have emerged. In this article, you will learn how the technology works, the features, different platforms, and whether you should use it or not.
Let’s start.
Crypto Trading Bot
Simply put, crypto trading bot is an AI that examines and analyzes the data in the market, and according to that, it automatically tells which cryptocurrency would give the maximum profit. So, the need for crypto trading bots came when people started to see the market’s volatility. For example, Bitcoin’s price can increase or decrease by up to 30% in only one day, how do you know that?
So, crypto trading bot works on the basis of probability. You can say extreme quality mathematics tells you what to do or what not to do. A trading robot analyzes data and statistics for a particular coin in that you want to invest, and it also sees the possibility of that coin growing. Then according to the data, it invests in that, and you will get your profit. But you must know trading bots are not correct every time because the market is completely volatile.
How Crypto Trading Bots Work?
If we talk about the process, then basically, bitcoin robots employ machine learning and artificial intelligence to analyze data. Bitcoin robots anticipate risk, assess data and then select the exact assets following predetermined strategies. The robot overserves the market and then comes to a particular condition where you can get the maximum profit. ‘
Then trading CFDs of different cryptocurrency exchanges operate the trading robots. When a robot is successfully connected to an exchange, the bots start to monitor the market for specific price changes and events. There are specific signals and occurrences for different choices. There are bots that use historical data to get more information.
Crypto Trading Bot Concepts
Here are a couple of things that you must know.
1. Exchange System
It is basically a logical and organized process that is needed to deploy and implement trading strategies.
2. Trading Strategy
This is a series of events and actions that take place in different stages. When the market situations are validated, the events start to trigger accordingly. There are experienced traders who have strategies to meet a particular goal in the system. They have a plan which they want to execute.
3. Trading Bot
After the plan is ready, it is time to execute and apply the strategy. Trading bots help us to execute the plan based on the accessible data. There are simulations that work with real orders and manage the trade.
Bitcoin Trading Bot Process
There are mainly three moving elements that you will see to get the expected result.
1. Trading Signals Generator
Bitcoin robots make predictions about which currency can give the maximum profit. There are mainly two signal generators that work, the first one is the data collection, and the second one is the trade signal. If you see a platform like Cryptohopper, it uses technical indicators.
2. Allocation of Risk
There is another thing that you must care about, it is the risk related to trading cryptocurrency. We all know the market can crash at any time.
3. Execution
This is the last stage of execution. After all the previous stages are managed and concluded, the trading robot comes into the market.
Bitcoin Robots Type
Normally Bitcoin robots use very complex algorithms that run automatically with the help of mathematical calculations and then accelerate the process, which will lead to you getting maximum profit out of it.
- Based on Trends
This bot works on the basis of market fluctuations. And this is the most basic technique. There are no complex algorithms that are considered predictive analyses. So, this is very simple and basic.
- Arbitrage
Arbitrage means taking advantage of the fact that different exchanges offer cryptocurrencies at different prices. The value of cryptocurrencies varies from exchange to exchange. The reason behind it is that there is no single centralized exchange. And because of this, different decentralized exchanges offer cryptocurrencies at different rates. The role of fixing price in fiat currency.
- Making New Market
This type of robot help traders to trade cryptocurrencies in large amount. The traders need to rely on different bots and then automate trading, such as large quantities.
Should You Use Automatic Trading Bots?
Now, the question is whether you should use an automatic trading bot or not. See, we can easily answer the question with a couple of examples. When we invest or trade a cryptocurrency, we see the potential of that particular cryptocurrency. Or we see whether there is any famous person talking about the currency or the last trajectory of the cryptocurrency.
But, the reasons we use before trading are not concrete or logical. The most logical reason should be mathematics, and it can not be incorrect. The bots analyze the market with the currently available data and then analyze the history of the specific crypto that you want to trade, and finally, it executes the trade. However, there is no guarantee that you will get the maximum profit or even profit. But the results so far are positive.
Our Verdict
When it comes to trading bots and humans trading cryptocurrency, then there are a lot of advantages that you will have. First of all, trading bots can work 24*7, where humans need rest. Secondly, the speed of calculating and analyzing data is so much fast. There is no emotion when bots complete the trade.
Suppose I can see that Dogecoin has no future, but I still want to trade Dogecoin because I have faith that the coin is going to perform. Other than this, there are other disadvantages, like robots having much more capability, accelerating trading, consistency, and, most importantly, the risks becoming less.
So, as you can see, there are a lot of advantages to using trading bots. However, there are disadvantages, but the risks are very low compared to humans.
If you have any other queries, feel free to ask in the comment section below.
Thank You.
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