How trading robots work
Trading bots work thanks to an algorithm specially developed for each of them, depending on the goals and strategy that they want to use. These strategies, in turn, are based on technical analysis, which allows you to identify patterns of changes in the cryptocurrency market. To conduct a technical analysis, data on changes in the course for a certain past period, which should be at least a year, are used, and for a deeper analysis, the more the better.
In some cases, it is possible to identify a connection with some events and information throws. Further, the trading strategy is checked for potential profit or loss in connection with possible similar events that previously affected the market. When meeting the needs and goals, such a trading strategy becomes part of the trading bot algorithm. A cryptocurrency bot program may consist of actions that will be performed during certain events, or based on an analysis of current market changes in the presence of specified indicators.
Strategies for trading cryptocurrency robots can vary greatly in complexity. From the simplest thing - to buy at a decrease, to apply at an increase in the price of an asset, to complex models with many parameters, taking into account historical data, trading signals and indicators with analysis of hundreds of variables before performing a given action.
Also, trading robots can have various options for adjusting their programs, can be customizable and not customizable. If you have experience and you know what exactly you need to change in your trading strategy, then of course the first type of trading bots will be more suitable for you.
Most bots can track rates for a certain period of time, evaluate the market situation, predict changes, create orders and report on the results of cryptocurrency trading. Bots can also give signals if the trader prefers to trade manually.
Pros and cons of using trading robots
Let's analyze the advantages of using cryptocurrency trading bots:
- Speed. To make this or that decision to perform certain actions on the market, a person who even has extensive experience in exchange trading will need to analyze the situation on the market, which can take a lot of time, while sometimes you need to act very quickly in order to take advantage of the opportunity for profit. Traders without experience will need much more time to conduct such an analysis. The machine intelligence of bots allows you to do this much faster and without any doubt. Robots can process a much larger amount of information in a short period of time and match almost any number of currency pairs.
- Strict adherence to the algorithm. The human factor can often lead to errors in various technical areas, since a person is prone to moods, errors and emotions. Robots do not have such shortcomings and the prescribed algorithm is unchanged for execution. In the analysis of information arrays, bots always win against a person who can make a mistake for a variety of reasons. Very often, under the influence of their psychological state, people inadequately assess their risks and opportunities.
- Work without breaks and days off. The robot does not need rest, it is able to trade cryptocurrencies around the clock and without days off. In addition, many traders can only spend a little time on cryptocurrency trading every day, despite the fact that trading in digital assets is global in nature and does not stop for a minute. The bot does not need breaks for lunch or sleep, but it in turn frees up free time for a person. There are still trading bots that can trade cryptocurrencies completely automatically.
- Discipline. People can often make risky transactions, for example, entering into excitement. The algorithm by which the trading robot works will never allow it to deliver more than indicated. The bot will not experiment and risk capital.
A significant drawback of cryptocurrency bots:
- Actions are strictly within the predefined framework. What is one of the advantages of trading robots is their biggest drawback.
- Inability to make decisions independently. So, without the intervention of a trader in a similar situation, the bot will continue to perform the same actions as before changes in the market until the money runs out on the trading account.
This state of affairs necessitates regular monitoring of the trading bot.
Types of cryptocurrency bots
The cryptocurrency bot is essentially a program with a given algorithm of actions. Such a robot, programmed by the creators to profit from trading, will make the purchase or sale of cryptocurrencies, depending on changes in the market. Since 2012, trading bots have not been stopped being improved by developers. The first robots were intended for binary options trading and have become so widespread that it is estimated that over 90% of short-term transactions in this market are made using robots.
The following 4 main types of cryptocurrency bots exist:
- Exchange. It works on a specific, single exchange. Income is based on different time lines, both short-term and long-term.
- Arbitration. It works from two or more cryptocurrency exchanges. Income is carried out at the difference in rates between the sites.
- Bots for cryptocurrency cranes. Cryptocurrency cranes are special sites where, at certain intervals, you can receive cryptocurrency for free. However, for this it is usually necessary to solve the captcha. For this, these bots were created - solving captcha and generating income. Either on one, or on several sites at once.
- Telegram bot. In the messenger, the Telegram automatically searches for buyers and sellers who agree to buy / sell a particular cryptocurrency.
Most popular trading bots
After a relatively short time, several well-established trading cryptocurrency bots appeared.
- Php trader
You can read more about them in our next article: