The volatility and the incipient nature of the world of cryptocurrency is a much-acknowledged fact by now. The potential for making profit by trading crypto is considered as lucrative by many people. With the burgeoning increase of traders, the challenge widens extensively as well. This occurrence owes itself in large to one telling factor; human beings, regardless of their physical and intellectual prowess, find governance by one of the factors at their core – Emotions.
Emotion is one of the underlying threads that may influence on what we do. In the world of trade in general, and сryptocurrency trade in particular, being cautious and objective is beneficial. This necessitates the existence of crypto trading bots in the current scope of things. Crypto trading bots provide the automation that some traders seek. Crypto bots allow traders to keep a watch over swings and fluctuations that happen. Moreover, crypto trading bots try to imitate a trader’s virtual presence. They can allow a trader to continuously monitor the cryptocurrency exchanges and the cryptocurrency market without manually watching the price fluctuations all the time.
Over time human beings have come to increasingly rely on automation with intention to facilitate their activities. One of the major reasons for doing this is to invalidate the quotient of error that may seep in courtesy of emotions. As hard as we try to train ourselves into becoming rational, emotions in some cases may influence our decisions.
In fields like finance and trading where traders require maximum objectivity, emotions may be quite the deterrent. Thus, technology is widely used in the financial sphere. Automation techniques such as machine learning and artificial intelligence cannot substitute the brain of a human but may help to assist with crypto trading without imbibing any emotional quotient. This feature makes them very potent tools to maximize profits and trade in various business ventures that traders undertake. Especially in a field like cryptocurrency which often demands counter-intuitive measures, wisely developed technologies may come in handy. The objective of this article is to expand upon the scope of crypto bots; one of the prominent technological developments in cryptocurrency.
Crypto Trading Bots
Cryptocurrency as a field of finance and trading involves a lot of algorithmic implementations. Thus, entry level traders might need to do some research before they start trading. A crypto trading bot can make the process of trading a lot simpler. Briefly put, it is a piece of code that is programmed to automate trading activities in the field of cryptocurrency. Its development involves the introduction of certain operational parameters that are attached with it. A crypto bot reads the program and when set parameters are duly achieved, it carries out the trading process. It implies continuous monitoring from the trader’s end to bring a horde of new profit and trade avenues. Additionally, because some crypto bots don’t entail any manual intervention, they may stand limited risk of interruption as well.
Crypto bots attempt to meticulously read the crypto market candlestick charts to buy and sell cryptocurrencies at the most opportune moments. However, you should be aware that this has its share of ups and downs. Crypto bots make good trades quite a few times but they may falter at times as well. The primary goal of a crypto trading bot is to make the profit for its trader. Cryptocurrency is prone to fluctuations due to the variety of reasons. Traders need to be aware that crypto trading bots can generate not only profits but losses as well. Even a well-developed crypto bot cannot guarantee that the amount of profit surpasses the amount of loss. Monitoring and analysis of voluminous data becomes vastly convenient with the intervention of the predefined algorithms of crypto bots. Besides, some of the bots, depending on their functionality, may also allow traders to carry out multiple trades on single exchanges.
Structure of a Crypto Trading Bot
The design of a crypto trading bot implies a combination of both sophisticated artificial intellect and meticulous precision. While the metrics of each bot is customizable, at their core every bot has similar components. The following section aims to shed some light on some of these modules individually:
Backtesting is the process of correlating your bot’s algorithm with relevant historical market data. The key to having a reliable crypto trading bot lies in obtaining necessary backtests. The more realistic the backtesting result, the better is the reliability of the crypto trading bot. A number of factors go into ensuring that a backtesting comes out to be as authentic as possible. Notable among these factors are latency, slippage, and trading fees.
As an additional step you can also go ahead and procure high quality market data by accessing exchange APIs. This ensures bolstered credibility of the backtesting results. There are certain libraries in place that help facilitate this particular phenomenon. The widely recognised CCXT library under Python which is responsible for cryptocurrency exchanges and payment processing is one such example. These libraries allow you to interface with a bunch of interfaces which subsequently makes a seamless backtesting experience.
Strategy implementation is one of the necessary steps that are involved in designing a crypto trading bot. By virtue of strategy implementation, you are basically helping your bot predetermine the marketing strategy that it’s going to adopt. This gives it a remarkable distinction over other building blocks of a trading bot. In many ways, this particular step involves developing the brain and intelligence of your crypto bot. As a trader you are responsible for specifying the logic and the calculations that your bot should undertake in situations.
Only when it is properly fed with situational and circumstantial data, will it be able to determine what it should trade. It also helps guide the bot as to when it should participate in a particular trading move. However, strategy implementation doesn’t operate in the scope of a stand-alone step. After carrying out strategy implementation it is imperative that a routine backtesting is carried out as well. This helps determine the effectiveness of the trading strategy and logic that have been set in place by the program. If the performance of the implemented strategy is satisfactory upon backtesting, then subsequent pipelines can be set up.
Execution of a trading bot is the next logical step that follows after it has undergone backtesting and strategy implementation. It is a critical step for it helps the trader gauge the operational feasibility of a crypto trading bot. Thus, real-time execution of a bot algorithm is an important phase in this particular pipeline. The logic that was previously hardcoded in strategy implementation into your bot is basically dealt with in this phase. This stage is responsible for converting these set of logics into a sequence of API requests.
At the crypto exchange platform’s end, it is only these requests that the platform comprehends and processes. It is always a safe practice to allow your bots to run a number of simulations for your own convenience. Most traders let their crypto trading bots run real-time simulations on simulated currency. That way it becomes immensely easy for them to test the functional viability without bearing the undesired consequences. Subsequently your implemented strategy stands verified as well.
All the constituent components of a crypto trading bot are inextricably interlinked. The stages of backtesting, strategy implementation and execution are held in place by the job scheduler. It is the final link in the structure of a crypto trading bot. The overall automation and the eventual functioning of the trading bot are carried out by the job scheduler. The job scheduler may concern itself beyond the scope of the algorithmic framework of the bot as well.
In the greater spectrum of things, the job scheduler is also responsible for the automatic execution of your trading strategies. Without the introduction of an effective job scheduler the fundamental pipeline of a crypto bot loses all semblance of coherency. Without a system in place that can individually allocate and relegate responsibilities, the bot is reduced to a vestigial code. The most important responsibility of a job scheduler lies in the basic synchronicity that it renders to a crypto bot.
Effective Use of Crypto Trading Bots
It goes without saying that in a dynamic market space like cryptography, a trading bot is worthless without a pertinent strategy. In order to exploit the market to their benefit there are a horde of bot strategies that traders can adopt. The implementations of these strategies can be easy as some crypto bots provide such functionality. Notable among these strategies include mean reversion, momentum trading, arbitrage, naive bayes and natural language processing (NLP). These strategies are used in tandem keeping in mind the moment of implementation of a particular trading bot. Typically a crypto bot is brought into use keeping in mind the requisite parameters of repetitive tasks, time-management, and automation.
In the field of cryptocurrency, crypto trading bots can play a significant role in minting a profit from the investment made. It may diminish redundancy, effectively utilize time and automate the most trivial of manual interventions. In doing so, a well-developed crypto trading bot may prove itself as a helpful companion for a budding trader in the cryptocurrency domain. The well-built logical structure of a bot combined with the tactical acumen of its trader can be a good amalgamation in cryptocurrency trading. Narrowing in on a bot that’s tailor made to your requirements is a job half-done while you start out with robotized crypto trading.