Can They be Profitable?
Crypto trading bots are computer programs that buy or sell different cryptocurrencies automatically using artificial intelligence to generate profits and achieve maximum efficiency. Unlike traditional trading, crypto trading never stops and keeps working 24 hours a day, 365 days a year.
Humans are not efficient enough to work 24 hours a day; that is where the crypto trading bot comes in.
How Do Crypto Trading Bots Work?
Crypto automated trading bots use software techniques and algorithms to make profitable trades. These crypto automate trading bots communicate with the crypto exchanges to gather data and place orders automatically based on the pre-defined conditions.
Crypto trading bots access your accounts using API (Application Program Interface). You can authorize the use of your account to a bot using the API keys. You stop or withdraw the bot’s access at any time.
Now we shall continue discussing the three essential parts of crypto automated trading bots.
1. Signal Generator
The signal generator is the most important part of a crypto trading bot as it does most of the trader’s work. It uses algorithms to predict and determine a profitable trade.
Crypto trading bot identifies profitable trades by analyzing market data. If you come across a bot that uses technical indicators, it’s good to stay away from it.
2. Risk Allocation
After finding a potential trade, crypto automated trading bots use risk allocation to minimize the risk involved in those trades. Crypto bots try to eliminate potential risks using parameters and rules set by a trader who helped develop the bot.
After making an analysis and deciding which trade to make, the crypto trading bot makes a trade based on the analysis in the execution stage. In this stage, the trading bot generates a signal converted into an API key request that the crypto exchange understands and makes a trade.
Can Crypto Trading Bots Be Profitable?
Crypto trading bot is a great innovation, which has the potential of and already is revolutionizing crypto trading. Crypto trading bots are a great set of tools as they can perform ’emotion-less’ trading, unlike humans.
Around 80% of traders lose their money because of many factors, one of which is ’emotional trading.’ Crypto trading bots are also highly efficient as they are computer programs and can work 24/7, unlike humans. They can also trade at speeds that no human can as they perform millions of calculations per minute.
However, crypto trading bots are still not a perfect tool that offers guaranteed profit. One of the reasons is that many of them are not designed well, especially the free ones. They don’t have access to the trading data that large trading firms have, which makes most of them highly inaccurate.
Another reason these bots are not profitable is that using them efficiently requires a lot of knowledge about the crypto market. Still, most of the people using crypto trading bots are beginners who are looking for easy profits. Also, they are very bad at handling unpredictable situations like COVID-19, which unexpectedly impacted the market.
A cypto trading bot can be a useful tool to help in trading, but it is a horrible decision to leave a crypto trading bot alone with access to your account if you are a beginner.