How crypto trading bots work

Smart traders of any type can find opportunities in both bear markets and bull markets. Warren Buffett, the Oracle of Omaha is well known for benefiting immensely from bear markets. You, too, can profit from a bear market if you know exactly what you are looking for, spot the opportunities, and stay ahead of the curve.

Algorithmic trading has been employed extensively by the entire financial industry for years. A 2018 U.S. Securities and Exchange Commission study noted that "electronic trading and algorithmic trading are both widespread and integral to the operation of our capital market." Today algorithms are responsible for and support an even greater proportion of trading activity on Wall Street.

Retail investors of all stripes, including crypto investors, are also getting in on the game. But profiting in a bear market in the extremely volatile crypto markets can be highly challenging going on your own. It calls for significant time investments and commitment. This is where you can benefit from a crypto trading bot. Whether you are a new crypto trader, an experienced regular trader with small holdings, or an expert with substantial holdings, a crypto trading bot can help you go farther and faster than you can on your own.

So if you are still undecided about entrusting a bot to trade through a crypto bear market, read on to find out how they can be incorporated as part of your overall investing strategy.

Although it is neither fair nor practical comparing us humans with bots, crypto trading bots can do many things that we humans cannot. Here are the most obvious.

• Speed and bandwidth. Trading bots are created with immense computational and monitoring capacity. Most humans do not have these capabilities, however smart they may be. Bots can spot trends, make calculations and execute transactions quickly (faster than any human brain can).
• Bots work tirelessly for you 24/7/365, with no breaks. Once you have set the rules and unleash your trading bot on the crypto markets, the bot will get to work immediately and continue to work until you put an end to it. Crypto trading bots can work 24/7, every day. Unlike you, trading bots don’t get tired, need a break, or go to sleep. This is critical considering the 24/7 crypto market.
• 100% rational, never emotional. Bots are not and cannot become emotional, impulsive, or distracted. They don't have fear or panic attacks. They are not subject to various biases that humans have. They operate according to preset rules. In contrast, even the most rational human can be prone to emotional ups and downs, which may get in the way of rational trading decisions and execution.
• Crypto trading bots lower the barriers to entry. Things can turn quickly in highly volatile cryptocurrency markets, and you can easily miss opportunities. It can be exhausting to remain on top of the latest developments and trends in the market. And then there is the fact that no amount of research guarantees success. A crypto bot automates most of the research, trendspotting, and analysis.
• Enhances transparency and monitoring. As opposed to making individual trades on your own, a trading bot offers a detailed record of trades so you can monitor how your holdings perform over time.

Together with their speed and capacity, trend spotting abilities, and execution capabilities, crypto trading bots are a powerful tool for delivering profits in both bear markets and bull runs.

With so many crypto trading bots available, here’s what to consider when choosing which bot to use. (Note that there’s no reason why you couldn’t have more than one bot trading from different providers simultaneously.)

• What types of crypto trading bot do you need? Some bots are designed for specific trading strategies, e.g. grid, DCA, etc. Depending on your need, you can pick from arbitrage bots, coin lending bots, margin trading/leveraged bots, or market maker bots.
• Does a crypto bot integrate with your trading platform? Most crypto bots connect with a small number of the larger crypto exchanges (Binance, Coinbase Pro, etc.) You might need to create a new account to use a bot.
• What coins can the bot trade? Most bots can trade large-cap cryptocurrencies and various altcoins, but there are always limitations. What can be traded will impact profitability.
• Is there a free trial? Some of the top crypto trading bots have a free trial plan for a given period. You may want to check how things go for you and your trading strategies with a free trial plan before committing money to a paid subscription.
• Subscriptions and pricing. Some crypto bots are free, while others have a monthly subscription with different plans to suit trader needs. Others charge a percentage of each trade (for example, Pionex with 0.05% per trade on their free plan).
• Is there a mobile app? A good app experience is reassuring since you can track performance on the go.
• Can the bot be customized? Some bots and platforms are customizable, making it possible to alter how they trade to suit your desired strategy. The higher the number of rules on a bot, the more customizable it will be.
• What is the minimum threshold? As with stock trading or forex trading platforms, crypto trading bots can have their own minimum trading limits.
• How quickly will the bot pay for itself after the monthly cost or percentage of success fee? In investing terms, we call this the payback period. Each bot comes at a cost. How long does it take for the bot to pay for itself and then begin making profits for you? This varies among various crypto trading platforms and bots. You should know this before you begin trading to have a realistic expectation of potential profits from a bot-supported crypto trading strategy.
• Is it easy to turn off the bot or switch trading strategies? This is very important. Each trading bot can operate according to its own set of trading rules according to a set trading strategy. If market conditions change — for example, from bull to bear market conditions — and things look like they are going south for your crypto holdings, how easy is it to turn on or off your trading bot? What does it take to turn it off? Is there a cost?
• Is your crypto portfolio exposed to increased risk by using a trading bot? People frequently ask whether enabling access to a crypto trading bot exposes their crypto holdings to increased risk. This is a fair question. Theoretically, the answer is yes. It is possible to have your cryptocurrency funds and/or personal information stolen by malicious actors, whether or not a trading bot is involved. Any crypto trading bot should have a high level of security. Exercise caution and be careful by keeping your credentials and keys secure.
• What do other users say? You can learn a lot about the reputation and performance of a bot from what other verified users say about it. If a bot has a lot of bad reviews, you should probably stay away from it.
• Is there good customer service? Find out how you can access customer service, their operating hours, and whether customer service and technical help are available via online chat, email, telephone, etc.

Now that you know the most important factors to look for in selecting a trading bot to suit your investment strategy, you will find our comparison more meaningful and useful.

Set and forget investment strategies with crypto trading bots can offer you peace of mind. However, not all bots are created equal, and changing market conditions may prevent your bots from delivering profits.

Here are some things that can go wrong when using a trading bot in a bear market (or any market).

• Some trading bots are just scams. Some bots you’ll see marketed with long-form sales letters are created by anonymous developers who want to make a fast buck by selling their generic bots to as many traders as possible. Such bots will lure investors like you with promises of high returns, but they are often unsupported by substantive data to back up the claims. Be cautious in the absence of data about the performance of these bots or even their creators and history. We only list reputable bots from legitimate companies on Finty.
• Poorly designed bots that deliver marginal returns. What you can get from a trading bot depends entirely on the instructions and algorithms it runs on. Do not fall for marketing claims. Seek proof and verify claims.
• Failing to understand how crypto trading bots work. With technology, remember that it is always GIGO: Garbage In Garbage Out. If you don't pick the right bot for the right job, provide limited or faulty instructions, or misunderstand and misuse bot rules, you only have yourself to blame when your trading bot does not deliver expected results.
• Potential for making losses, not profits. Trading bots can deliver profits when properly configured. You can often backtest a configuration on historical market data to see what the bot would have done had it been trading.
• Crypto bots are unregulated. This means you are operating in a market that does not have protections for you, the investor. You can stand to lose significant sums and holdings if you are not careful. Only ever invest money that you can afford to lose.

Now that you have the basics of trading with crypto bots, good solid choices on your part will deliver profits that you may not achieve trading in crypto on your own.