If you have not had much experience in crypto trading, you may be wondering whether bots are actually effective. The answer is “yes” provided you know how to use this tool. Algorithmic trading has worked well in the Wall Street, and by the same logic, it should work equally well in the crypto market too. Effectiveness of trading bots will depend on many factors, including the type of bot, the platform you have selected, your own experience and expertise.
What A Beginner Should Know About Crypto Trading Bots:
An important thing to remember for a beginner is that unlike traditional assets, cryptos are volatile. For a passive investor who likes to buy and hold onto his coins, volatility is of no use. But for a trader, it can be most desirable. If he can buy when prices are low and sell when these skyrocket he can make good returns. And if he can use this principle to create an algorithm to automate his trades, it would be even better. This is what a crypto trading bot allows you to do. Immediate edge, a bitcoin auto trading bot, is one of the most significant platforms. The Immediate Edge app has a unique feature in this regard. This programme allows you to trade manually as well as employ a trading robot to trade automatically. This is a software that has an algorithm built into it. The mathematical algorithm enables the software to detect even the tiniest price changes and to make multiple purchases and sales each minute. Visit immediate edge website for more information.
You need to understand at the outset that crypto bots are not a guarantee for successful trades. They are essentially software designed to facilitate trades depending on a set of parameters defined by you. While they are automated, they are not automatic. So, to trade well, you must have an idea about how to use it to your advantage. There is no one-size-fits-all solution and you must be able to define your goals and priorities before using any bot at random.
Crypto trading bots work by interacting with exchanges directly and placing orders on behalf of traders, according to a set of pre-defined parameters. Trade bots are faster and efficient, making negligible errors and keeping emotions out of trade decisions. Bots will work in 3 stages, namely signal generator, followed by risk allocation, and finally, execution.
Signal generator represents a trader’s job where the bot makes predictions and spots prospective trades depending on technical analysis indicators and market data. In risk allocation stage, the bot identifies and distributes risks according to pre-set parameters/rules. This decides to what extent and in what manner capital will be allocated for trades. Execution is when signals that have been generated are converted into API requests which can be interpreted by the cryptoexchange.
Each of these 3 parts has their distinct algorithms; if your bot overlooks or distorts these stages, it cannot make good trades for you. Unlike humans, bots can respond much faster to market changes. They can run 24×7 so that you do not have to lose out on any good trading opportunity. Most importantly, bots are never driven by fear, greed, or impulse. These advantages make trading bots a preferred solution for new traders.
Algorithms and strategies that beginners can use include momentum strategy where you ride a positive wave till it changes, mean reversion, where prices will have a pull-back after they have shot up, or arbitrage, where you profit from price differences between exchanges, etc. But, you have to understand that a bot will be only as good as its creator. You must have in-depth knowledge of its working to be able to use its features optimally. You can minimize your risks by using multiple bots. Since the crypto market is volatile, a diversified portfolio helps. It may not be fool-proof but it will balance your risks with rewards. Most importantly, using trading bots ensures consistent trading discipline, despite market volatility. Such situations can make you trade out of fear or freed but bots can prevent this by keeping emotions aside.