As you know, cryptocurrency trading is a roller coaster of ups and downs. Sometimes, this volatility can work in your favor and other times - it just doesn’t. This unpredictability can be pretty scary for those who are just getting started or less-experienced traders. However, once you begin to understand how the crypto market really works, you can start to take advantage of the turbulence and reap the rewards of clever trading.
A proper understanding of the market requires in-depth technical and fundamental analysis, something which may sound intimidating but doesn’t need to be when you’re working with the help of crypto trading bots.
You’ve heard of crypto trading bots before, you might even know someone who uses one but what actually is a trading bot?
What is a crypto trading bot?
Cryptocurrency trading bots are, simply put, programs that buy and sell various cryptocurrencies at the right time on your behalf. It is a piece of code that is designed to trade for you. Normally, this ‘bot’ will try to interpret market data, scrutinize price movements and react based on rules which the bot creator has defined. Millions of people use trading bots to retain a firm grip over their trading activities whilst sitting back and (hopefully) watching their profit grow.
How do trading bots actually work?
Trading bots work by communicating directly with exchanges and placing orders automatically on your behalf. They decide what to do or which action to take by monitoring market prices and movements as well as acting on your preset rules. An exchange user provides access to the trading bot by giving the bot their API keys. Two keys are used to tell the exchange that a bot has been allowed by you to access your account and trade on your behalf.
There are essentially three moving parts in a trading bot: signal generator, risk allocation and execution.
The signal generator is where it makes predictions. Market data is fed into the signal generator to buy or sell emerging signals. Then, the signal for the trade (buy or sell) comes out the other end.
Risk allocation is where the bot takes the buy or sell signal and says, “O.K. now I have to decide how much to trade. Should I use our entire capital or should I just use a portion?” Obviously, risk allocation is important in making the right decision for your funds.
Execution: let’s assume you want to buy a large amount of a cryptocurrency like Bitcoin. Instead of doing this all in one movement (which will probably lead to an unfavorable price), you could ‘dribble’ it into the market to get the best price possible. So execution is also something which requires careful consideration and planning when developing your bot.
What are the advantages of using a trading bot?
There are several reasons why you should consider using a trading bot.
A bot can process infinitely more data than any human will ever be able to. It can analyze and predict the market before any trade happens ensuring that it makes the right decision mathematically and based on cold, hard logic and statistics.
Another benefit of using bots is that they act without emotion. Listen, we’ve all been there, we’ve all felt the FUD and we’ve all made terrible trading choices based on those feelings - but bots don’t. Bots can prevent you from making questionable, emotion-based decisions before you’ve even had time to shout ‘sell, sell, sell!’
Furthermore, bots operate infinitely faster than a human, ensuring top performance and allowing you to trade beyond your limits. And they do this 24 hours a day, 7 days a week meaning no more missing the boat when you’re asleep and the market shifts.
So the question really becomes: why aren’t you using an automated trading bot already?
You’re probably sitting there and thinking, “I can’t code. How am I expected to build a trading bot?”
Thankfully, we’ve already thought of that for you. Tools such as the Trality Rule Builder will help you get started with all the features you need to build a bot in a simple, clean user interface. It takes less than five minutes and requires absolutely zero coding knowledge.
Let’s see just how easy it is.
How to build your own bot
So you’ve made up your mind and the time has come. You want to begin reaping the rewards of having a multi-faceted, smart robot do all your work for you? Well, we’ve made it easy to set up a bot in a matter of moments with zero coding knowledge necessary.
It’s worth mentioning that some of the terms we use here will only be familiar to seasoned traders and investors. If you’re not sure what we mean when we say things like strategy, indicator or signal, then you should become a little more comfortable with trading terms before you begin building your bot.
If you’re already confident, then it’s time to get started. Below is the step-by-step process to help you create, backtest and deploy your first crypto bot.
Step 1. Register a free account
Step 2. Create a new bot
From the dashboard, click ‘Create new bot’ and a box will pop up asking for some specifics.
You are able to name your bot whatever you choose in this section.
Select ‘Rule’ as the bot type. The Trality Rule Builder is a drag-and-drop interface that allows you to create trading strategies, backtest them on historical data and fine-tune those strategies until they are profitable.
This is where you will decide which exchange your bot will run on. With Trality, you can trade on the world’s leading crypto exchanges such as Binance, Kraken and Coinbase but the list is constantly expanding with other user favorites.
The last step is to select the ‘Quoted asset,’ which is the currency against which all trades will be executed. For our example, we’ll use Bitcoin [BTC].
You can even theme your bot with your favorite color to help you differentiate between bots.
Step 3. Select your assets
This is where you tell your bot what it should be buying or selling. In the ‘Assets’ tab of your bot setup, you can select from a list of available base assets. Only assets which are available on your selected exchange will show up in this list. To keep it simple, we’ll select Ethereum [ETH] so our bot will trade ETH/BTC.
Please note, before you select the assets you want your bot to trade, you should visit the exchange itself to double-check that there is enough market volume for the selected asset for your bot to be able to execute the trade. A low volume might make it difficult for your bot to run properly.
Step 4. Choose your parameters and tinker with the settings
The Settings tab is the ‘fine details.’ Here you will tell your bot how much of your portfolio it can actually use to trade with, how much or little it can buy or sell. It is also the tab when you can define how long an order stays open before it is canceled or the time between making orders also known as ‘cooldown.’
For a detailed description of all parameters and settings, head over to the Trality Docs and check out the Rule Builder section.
Step 5. Choose your strategy
Selecting the strategy is the core of building your cryptocurrency trading bot. It is by far the most important step and something which you can never spend too much time thinking about.
Start by clicking the ‘Strategy’ tab and proceed to ‘Add new.’
Here, you can select from a long list of pre-defined strategies - these are the strategies which we’ve decided are useful for our users. For those who are new to cryptocurrency trading, some of these names can seem daunting but we promise they’re not so bad. If you’re having trouble, just refer to our handy strategy guide which describes in detail what each and every one of the strategies actually does.
You must then decide whether this will be a ‘buy’ or ‘sell’ strategy and you will most likely want a strategy for both.
At this point, you could go one step further by clicking the ‘Expert’ switch. This allows you to really customize the strategy and make it your own by allowing you to detail different specifics within the strategy such as the interval, signal type, indicator parameters and keeping a signal. It’s not obligatory to do this but if you don’t flick the ‘Expert’ switch then the strategy you have chosen will just use the defaults.
Some strategies are more complex whilst others are far simpler (such as the Relative Strength Index) so please make sure to thoroughly research which strategy is best for you when getting started.
Step 6. Time to backtest
Backtesting is at the heart of every bot creation iteration. This is the last step you will take before sending your bot out into the wild west of cryptocurrency markets. It is really just a test to see how well your bot could perform in the future. It is called ‘back’ testing because you are testing your bot in a simulation of the past to see how effective it would have been in that environment.
A good place to start backtesting is simply running your bot against the past six months or one year. When you have finished the backtest, you will get the results which include all the important information you need to understand if the bot is doing its job properly e.g. Returns, gains, number of trades executed, fees paid etc.
If the results are not quite what you expected or if the bot is not acting in a way that brings you profit then you might want to go back and either a) adjust your strategies, or b) add new strategies that compliment your already-existing strategies.
Step 7. Start your bot
The very last step is to launch your bot on the exchange you’ve chosen. Click on the cloud button on the top right of the interface and follow the instructions in the dialogue box.
That’s all! Wish your bot good luck as you send it out into the big wide world of crypto.
Get building your crypto trading bot!
We believe that every single investor should be able to benefit from the advantages of algorithmic cryptocurrency trading bots and even though the name sounds complicated - running a bot doesn’t need to be. Trality brings automated trading from the complex and expensive terminals on Wall Street directly to your laptop, phone or tablet and we’re doing it in a way that works for both beginners and experts alike.
Whether you’re all set to take the plunge or still on the fence, don’t be a stranger. We encourage you to explore the state-of-the-art tools on our website for free and see it for yourself how easy it is to create, backtest and start your own trading bot.
Disclaimer: Backtests are not indicative of future results. The above article is merely an opinion piece and does not represent any kind of trading advice or suggestions on how to invest, how to trade or in which assets to invest in or suggestions on how trading bots or trading algorithms can or should be used! Always do your own research before investing and always (!) only invest what you can afford to lose!