Trading robots or bots for cryptocurrency have appeared long go almost at the same time when the first crypto exchanges were created. Those algorithms were in demand as they offer (according to their creators) an opportunity especially for beginners to start trading without any knowledge and earn money.
Why do those cryptocurrency trading bots are popular among novice investors? The main reason for this is the strong belief in miracles. Some beginners think that there is some kind of AI helping investors to take right decisions or even opening profitable trades all the time.
However, this is a myth as there is no such an algorithm, which is able to predict the price in all the situations. We are going to start with some most common myths about crypto trading bots.
Myth 1: the robot is able to assure 100 percent profit to you
We have already started to discuss this at the beginning of this article. The answer is “No, no and no!”. It is impossible as a trading bot is nothing more than an algorithm. There is no AI here. The robot follows scripts and dependson them completely.
Those who use trading robots have to remember that they need to conduct their own analysis as well. Leaving everything to bot means traders risk more.
Why do bots cannot assure 100 percent result in all trades? The main reason is that crypto robots are based on specific technical analysis indicators and have no AI inside. The robot cannot analyze the situation as it acts according to a special algorithm.
Let’s suppose your cryptocurrency trading bot “uses” RSI oscillator indicator. It gives signals when the curve returns from overbought and oversold areas. This trading tool gives the best entry points when there is no tendency. When a trend starts, RSI may stay for a long time in one of those areas. Let’s suppose we have an uptrend. RSI will stay within the overbought area for a long time giving no reverse signals.
However, reverses during the uptrend are corrections and it is very risky to trade them as they may be flat and brief. How will crypto trading bots act? They will open short positions once RSI’s curve will leave the overbought area. What does it mean?
Cryptocurrency trading bot will significantly increase your risks. Trends may be long and significant. During the tendency, an investor will likely lose a part of his capitals or all his funds.
Myth 2: cryptocurrency robots “think” and “learn”
No, it is impossible. Those bots are nothing more than simple algorithms. They cannot “think” neither “learn” as there is no AI inside. However, many novice traders pay too much attention to cryptocurrency trading bots as they believe that those algorithms are able to make miracles.
Unfortunately, many traders are trapped with this belief and they lose their funds before they understand the truth, especially in the cases when they buy crypto robots. Those who sell those algorithms do not tell all the truth about them.
We have decided to create this article in order to help traders to understand whether cryptocurrency trading bots are useful. We are going to cover other important things including the advantages and disadvantages of using this soft in trading.
Description of cryptocurrency bots
Those robots came from Forex and stocks markets. They are set up to free investors from some aspects of trading routine. Their main task is to open trading positions according to the parameters, set by the owner.
The simplest cryptocurrency bots buy cryptos when the price goes upwards and sell when it goes down. They have some technical indicators inside as the robot cannot see the chart itself. It can only react to some price changes.
More complicated crypto trading bots use several indicators and some chart data such as periods, for example. There are also some robots that are able to calculate several aspects.
All robots can be divided into two main groups– trading crypto bots that work within one exchange and arbitrage bots working with several exchanges.
How do cryptocurrency trading bots work
They do any steps according to their strategies. A strategy is a set of trading rules that a trader uses during his routine. In order to facilitate his activities, a trader can make his own software. The fewer settings bots have, the less flexible they are.
Experienced traders always try to work with robots that have the maximum number of settings. However, software developers try to set all parameters for beginners as novice traders may be confused by huge data massive.
Many investors think that crypto exchanges do their best in order to prevent clients from using cryptocurrency trading bots. The truth is that those trading places are interested in trading bots as those algorithms open many trades during the day meaning the volume of fees increases significantly. However, it is better to ask the support service of the chosen exchange whether they allow crypto bots or no.
Where to find cryptocurrency trading bots
There are several ways to get such a software. Traders can do them on their own, buy them or download. In order to create a crypto trading bot, one has to have skills in coding. Additionally, traders need to work with exchanges offering API (Application Programming Interface). It is to mention that almost all trading places nowadays have their own APIs.
Those who want to buy cryptocurrency trading bots find special companies or private persons via forums and blogs. There is no unique price for such software. It depends on functionality, number of settings, quality etc. One can also order his own bot, but trading skills required in this case.
Another way to get crypto robots is to download them. There are several links to do it but you have to understand that the quality of such software may be significantly lower.
Advantages and disadvantages of cryptocurrency trading bots
Those traders who use crypto robots in their everyday routing have the following benefits:
- They save their time. Trading takes much time. Sometimes you have to spend hours analyzing charts or placing orders. Robots are never “tired” and are able to work 24/7. However, it does not mean that you can rely on them in every situation as algorithmic trading involves more risks as we have mentioned above.
- Crypto bots do more than traders can. When you trade cryptos, you can follow a couple of coins in a period of time. Additionally, it is hard for a single trader to work with several exchanges simultaneously. Robots are “able” to analyze as more cryptos as you will indicate in their algorithms. Bots will “work” with the number of exchanges you want them to cover.
- Higher speed. This is another huge advantage of any crypto robot over humans. Traders are unable to make their analysis as fast as algorithms do meaning robots “can” open trades in the earliest stages of a new trend, for example.
- Robots are emotionless. Crypto trading bots “have” no doubts, they “are” quiet and patient, they “cannot” be confused by the market situation. They “have” no emotions and no fears at all. Traders may be greedy; they have fears especially after losing their funds.
As for the disadvantages, they are also numerous:
- Sheep need a shepherd. Robots may be compared to sheep and trader to a shepherd. He has always looks after his robot, otherwise, he risks to lose his money. Skilled traders will better forecast the situation than any robots as they understand where to open trades and where it is better to stay off the market.
- Crypto bots can be used only in a typical situation. However, as practice shows, the market often offer non-standard cases where bots are useless as they are “unable” to conduct fundamental analysis and to “understand” what is going on with this or that crypto.
- Exchange fees. Robots may open tens and even hundreds of trades per day depending on their timeframes. However, you need to remember that you are to pay fees to crypto exchange. If you have significant losses after your bot’s trading session, you will be negatively surprised by the commissions as well.
- Security issues. There are several security issues when traders deal with crypto bots. Including the following:
- Trading robots withdraw profit third-party accounts.
- Copy owner’s account data and transfer it to a third party.
- Other malicious activities.
Should novice traders use cryptocurrency trading bots in their daily routine
Many beginners think that using crypto trading bits is their unique opportunity to start earning. They look for some reliable software and hope it will significantly increase their trading chances. However, this is not the best way to start trading.
Novice investors do many mistakes when trading. However, they learn even from those mistakes and develop their skills step-by-step getting more experience. Over time they learn some market patterns and have chances to become good traders.
Finally, those who learn, reach new levels and gain more profits. However, those who used robots stay on the same levels and learn nothing. The end by having no background and trading experience. The only thing they know is how to set up their bots.
The other important aspect to consider is that simple crypto bots cost more than $10 per month. Arbitrage robots are even more expensive. The majority of those algorithms aim to take profit only and they do not sell the cryptocurrency until its price grows meaning trader risk to have huge losses.
Is it worth to use cryptocurrency trading bots? It is hard to give an answer to this question. Professional traders can use it in order to facilitate their trading routine. However, skilled investors never use their bots separately from their strategies. They learn first and then give robots a chance.
As for beginners, we recommend starting from trading education. When they get appropriate knowledge about markets and traders, they may start using crypto bots.
Arman Shirinyan
Alex Dovbnya
Vladislav Sopov
Dan Burgin