What is a Trading Bot? Is it Worth the Investment?

Trying to find out what is a trading bot? The following section will define and explain the basics of this unique trading option.

What is a trading bot in the context of cryptocurrency?

A trading bot is a script that can trade on different cryptocurrency exchanges by sending predetermined signals through an API

How do trading bots work?

There are different types of cryptocurrency bots. Some are more suited for beginners, while others require extensive programming knowledge to be set up.

Basically, the user needs to enter a set of parameters that will trigger a trade. Once they are running, bots scan cryptocurrency exchanges repeatedly. As soon as the conditions that were input by the user are met, they execute a trade. 

To do this, they communicate with the user’s cryptocurrency exchange account through an API and send buy, sell and stop-loss signals. 

Some more advanced bots can even be programmed to follow broad trading strategies and use more complex indicators to emulate human thinking and even make use of machine learning. 

Is it worth investing in a trading bot?

Trading bots can be a huge time-saver if set up properly. But as with any trading activity, you should always DYOR, especially about their functionalities and features. 

Thanks to their multiple adjusting variables, trading bots re also great for beginners. They eliminate emotion from the decision-making process and help the users better understand what works and what doesn’t. 

For more experienced traders, they can be very profitable. Since users are not able to be everywhere at all times, a bot will keep a good overview of their trading progress.

But keep in mind – a bot is only as good as the person who sets it up. Therefore, before you get one, make sure you know how to trade.

Choosing a trading bot

There is a plentiful amount of automated trading bots and the vast majority of them have very sophisticated algorithms. However, in many cases, the most profitable and secure bots are those that are easy to understand and have a simple pattern to follow.

For instance, one of the simplest and efficient bots currently existing in the cryptocurrency market are bots provided by Bitsgap. 

Bitsgap has developed automated high-frequency trading bots to provide traders with a unique set of investment opportunities for the sideways and bullish market trends. The diversity of automated bots allows choosing the right one depending on market conditions.

Bitsgap bots are based on the GRID algorithm, which places simultaneous and proportionate buy and sell orders at predefined levels. The aim is to seize as many market swings as possible. 

Bitsgap bots are based on a user-friendly and practical approach when your investment is distributed within the chosen range, allowing you to make a profit little by little on every market move.

Users are provided with a stop-loss to have full control over loss limits and a trailing function to have a trading range following the upside momentum. To test automated bots there are some default ready-made strategies that are based on the backtesting results, current market conditions, and trader’s available balance.

what is a trading bot

Backtesting


Backtesting is a key to any automated trading, and Bitsgap is the only platform to provide users with this feature. The idea of the backtesting is to simulate a trading algorithm using historical data of a chosen cryptocurrency pair to analyze volatility and profitability before risking any actual capital. 

Volatility measures the severity level of market fluctuations, making a frequency and breadth of price movement to determine the number of trade opportunities for automated bots to make a profit regardless of the trend direction:

trading bot strategies

Active HODLING effect

HODL stands for “hold on for dear life” and is widely spread in the cryptocurrency community. Basically, HODLING is nothing more than just buying a certain cryptocurrency to hold it for a long period of time and do nothing about it until a significant price appreciation occurs. 

However, a better solution would be to make use of your passively HODLING coins. Automated trading bots are using the base currency to make profits in a quote currency. This is called the “Active HODLING” effect. Here is an example: 

active hodling effectHere is an active HODLING profit maximization example:

active holding

This automated trading bot has managed to achieve an overall 14.86% of the investment return of which a 6.16% return is the added value generated by the SBot. The bot has been buying low and selling high each time the price has moved. These trades are indicated as red (Sell) and green (Buy) circles on the chart.

Here is another optimal scenario of using automated bots on a sideways market, when the price is moving within a certain trading range, bouncing off the support and then reverting from the resistance level. Here is an example: 

what is a trading bot

Demo trading

Demo trading is a crucial instrument when it comes to risk-free testing and trading optimization. For example, Bitsgap allows users to have access to a Demo trading mode, this means that you can test your trading skills and automated trading bots without risking real money. 

To conclude, automated trading has a list of undeniable advantages. There is no behavioral bias, the bot simply doesn’t have any emotions in trading. 

Since trade orders are executed automatically by the computer when trade rules have been met, traders will not be able to hesitate or question the trade. 

Secondly, bots can reach an astronomical trading speed, and manually you can not keep up with it. 

Thirdly, it allows replicating your strategy on multiple cryptocurrency pairs at the same time. 

Keep in mind that sooner or later any strategy becomes obsolete, so you’d rather follow those who are constantly working on bots optimization and provide users with a diverse list of automated strategies.  

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