Whether you are new to crypto trading or a more seasoned crypto trader, you may elect to use trading bots to give you an edge in the market. Trading bots have been used by traditional Wall Street investors for decades. Crypto investors have also been putting them to good use in the market for some time. In fact, they are more useful to crypto investors than traditional market investors because crypto markets are open 24 hours a day, seven days a week (24/7), all around the globe. It is impossible for a human being to be on top of every crypto market 24/7, so crypto trading bots are the best tool that every trader should use (unless they are HODLers).
The trading strategy you choose will determine which type of trading bot(s) you employ when trading your crypto assets. The bots must be programmed and able to interact with your trusted crypto platform(s), process parameters that set your trading conditions, and effectively execute your trades.
Let’s look at the types of trading bots currently available on the crypto market.
Trend Trading Bots
These programs analyze market data and look for a pattern of price increases and decreases over time. When the bots spot these trends, they execute the bot operator’s instructions to buy/sell the specified crypto assets. When the trend for the asset suggests an increase in price, the investor will proceed. On the other hand, when the trend is for the price to fall, the investor will short it. The trends are determined by using different types of technical indicators. The indicators used by the bots may include moving averages, momentum indicators, trend lines, and chart patterns.
Arbitrage bots scour crypto exchanges around the globe looking for price differences or any opportunities in the crypto market. When the bots find the kinds of price differences that the investor/owner finds attractive (i.e., lucrative), then the bots execute the buy and sell orders simultaneously on different crypto platforms. The timing of the buy and sell orders is crucial because the prices listed on a crypto exchange fluctuate unpredictably and can change in seconds. Arbitrage profits come from exploiting the inefficiencies/price differences in the crypto market.
Coin Lending Bots
Coin lending bots are used by crypto investors who want to earn income by loaning their crypto tokens to margin traders. The margin traders borrow the crypto tokens and then return them to their owners with interest at a later time.
Although these loans can be done manually on the Bitfinex and Poloniex crypto platforms, it is more efficient to use trading bots to do them. To do this manually consumes a lot of time because each new contract must be set up with the best interest rates the lender can find on the market. By automating this process, the tedium, inefficiency, and time-consuming aspects of the strategy are significantly reduced for the trader. Plus, the bots can find the best interest rates and terms when each new contract is initiated a lot faster than a person can.
Coin lending traders can suspend or activate trading at any time, too. They may suspend trading when the interest rates drop too low. They can also delay activation of contracts until their tokens from a previous contract are returned to them. Another reason to activate a contract is that their crypto token of choice can be loaned out at an interest rate that is very attractive/lucrative to them.
Some top crypto exchanges offer free coin lending bots to investors on their platform who make loans to margin traders. Other crypto exchanges will charge a fee for using coin lending bots on their platform.
Market Maker Bots
Market maker bots use order books to execute trades that are profitable to investors. The trading done with the bots is based on a crypto asset’s trading margins. Actively traded assets have wide trading margins and are quite profitable, whereas infrequently traded assets tend to have narrow trading margins and are more likely to generate trading losses.
Market maker bots place orders at prices higher than those listed on the crypto market for a specific asset. The difference between the price set by the market maker and the market price is the investor’s profit. Market makers are advantageous to their users because they continually scan the market for the ideal conditions for the trader to place orders for their crypto assets (e.g., time, volume, price).
Scalping bots are used to make fast trades throughout the day. The trades take anywhere from seconds to minutes to execute. Traders’ earnings come from small, consistent profits from each trade. The bots use a variety of trading strategies to find good trades, often by using multiple indicators such as the relative strength index, moving averages, and Bollinger Bands.
Grid bots are very similar to DCA bots, but they are not the same. Grid bots place multiple orders, one order at a time. In contrast, DCA bots place multiple sell orders all at the same time. With grid bots, you can place a series of orders all at the same time for a specific price range. Grid bots will not place orders after an asset’s price falls below the lowest limit set by the trader. After the bot places an order, it immediately places the next order at a lower grid level. Bot users set the number of levels. The more levels the user selects, the smaller the profits from each transaction. A major advantage of grid bots is that they allow you to trade 24/7, and you can be offline when the trades are executed.
Dollar Cost Averaging (DCA) Bots
Dollar cost averaging bots buy crypto tokens at specified trading frequencies. The process works by having the bots place the first order and then make subsequent orders just in case the asset’s price moves in the opposite direction predicted by the trader. Every time an order is placed, the volume and price of the take-profit is calculated.
DCA bots are a boon to investors because they can set the trading intervals and the amount of funds spent on each transaction. The greatest advantage is that the bots can automatically calculate the take-profit, fund the transactions and execute the trades when the market conditions set by the trader are found on the market.
Historical Price Data Bots
The historical price data bots leverage different prices of crypto assets over time to make informed trading decisions. The bots check the historical data of a crypto asset and use it to make profitable trades. When using these bots, the trader assumes that history repeats itself (to some extent). The potential profitability of current trades is based on the previous market performance of the asset.
Basket Order Bots
Basket order bots buy and sell multiple crypto tokens simultaneously. This trading strategy spreads trading capital across different assets for maximum gains and limited risk.
Regardless of which bot trading strategy you use to maximize your gains in the crypto market, you should still monitor the bots as well as the crypto market and adjust your trading strategy accordingly. Using bots is a way to save time, money and eliminate tedious activities. However, they are not a substitute for developing your own trading strategy, adjusting your trading strategy, or monitoring the market.
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