If you’re new to cryptocurrency, chances are that you’ve spent some time in the forums and chat rooms where crypto enthusiasts banter about trading bots. Crypto traders have been using bots for years to perform tasks like scalping their favorite exchanges or hedging in times of low liquidity. You might be wondering if these programs are effective or not! The answer is – it depends.
Trading bots can be extremely effective in performing certain tasks such as arbitrage and market-making. They are essentially computer programs that facilitate buying and selling cryptocurrency via technical analysis, inter-exchange arbitrage, and other strategies designed to generate a profit. The crypto trading bot market has become saturated with hundreds of programs that are available for free while others are offered on a subscription basis.
Arbitrage is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It’s possible to profit when prices differ across different exchanges, or between digital/fiat currency pairs. It’s important to understand that arbitrage opportunities only exist in the fast-paced world of cryptocurrency.
These aren’t opportunities for veteran traders, but newbies can certainly benefit from arbitrage trading on Bitcoin Evolution. Market making involves placing limit orders in an attempt to capture the spread between the bid and ask prices. If you believe that a coin’s value will rise in the future, consider placing a limit order to buy at a certain price.
The last thing you want is for your order to be filled right away. However, if it isn’t filled within a few minutes or hours, don’t forget to cancel it or adjust accordingly.
Trading bots can be extremely dangerous to your wealth if not used correctly. Because successful trading bots have been around for a while, it’s important to understand why they aren’t recommended for inexperienced traders. First off, the markets are unpredictable and highly volatile which can lead to disastrous results when using a trading bot. If this isn’t enough, you also have to consider the risk of hacking and DDOS attacks on cryptocurrency exchanges.
Many bots not only offer the ability to set your trading rules but also allow for configuration based on market conditions, such as holidays or weekends. These bots can be extremely valuable if they continue to make you money; however, there is one major risk associated with them; human error. One mistake can lead to a drastic loss which is why it’s important to use bots properly.
A good rule of thumb for using these programs is by limiting your trades to one exchange, having an exit strategy in place, and only risking 1-2% of your total portfolio value. Socialized Losses Trading bots aren’t the solution to every crypto trader’s problems. They are useful for performing repetitive tasks; however, they can’t make up for poor market analysis or emotional trading.
Are cryptotrading bots effective? The answer isn’t clear-cut because its usefulness depends on who you ask. Many professional traders lose money using them because their strategies revolve around human intuition to a certain extent. However, it does help facilitate several strategies that can lead to profits if used correctly.
It’s important to understand that they aren’t magical programs; they are merely tools designed to make the process of trading cryptocurrency less time-consuming and stressful. If you truly want to be profitable, consider limiting your trades based on technical analysis.
There is still so much to explore in the crypto markets and a lot to learn about trading in general. Don’t get discouraged if you’re not making money right away; practice & learn!
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