Automated trading is all the rage in the world of finance, and the field of cryptocurrencies is no exception. Learn about the advantages of automated trading in the crypto space and what it can mean for you.
If you’re active in the cryptocurrency market and prefer trading over HODLing, you’ll need a well-planned strategy to generate outsized returns from market fluctuations. There are a variety of ways to go about this, and unquestionably one of the most promising ways to go is automated trading. It can help you capture the best market moves, manage risks, and neutralize emotions.
In general, cryptocurrencies are highly volatile, and the prices of the different coins fluctuate frequently. Many would claim that tracking all the prices around the clock and making split-second trading decisions perfectly every single time is virtually impossible. This is especially true if you have a diverse portfolio.
Trading psychology also plays a significant role in our decision-making, and a considerable share of losses in this market are attributed to mental factors. In such a fast-moving environment, making the right move at the right time could mean the difference between a minor loss and a major one if a trade moves against you. Likewise, the decisions you make could define whether you end the day in the black or not, and this is even more striking when looking at your longer-term PNL.
It’s essential to keep in mind that manual trading can be tricky, mainly when rapid price fluctuations occur. Large market moves could catch you off guard, and oftentimes, psychological factors such as greed or panic can take over as well. This is precisely where automatic trading comes into the picture and is one of the leading methods of choice for cryptocurrency traders worldwide. Automated trading systems, also referred to as crypto trading bots, algorithmic trading, or automated trading software, make it possible for you to trade cryptocurrencies without constantly monitoring market changes or making calculation errors or emotional decisions.
It also enables you to manage several trades simultaneously by using different algorithms and parameters and “cuts through the noise” to detect the various patterns to make the best predictions. The cherry on top is the ability to optimize risk management, closing unsuccessful trades in time, and realizing returns when needed. The advantages of automated trading are clear when it comes to reviewing the hurdles that go along with manual trading.
Read on to learn more about automatic trading, how it works, and why it could be your best bet in the dynamic world of cryptocurrencies.
What Is Automatic Trading?
Automatic trading, as the name suggests, is a hands-free method of managing your trades. Trading bots or automated trading software, which rely on preset parameters and algorithms, buy and sell various assets at selected times on your behalf. Using the power of math, preset rules and conditions, artificial intelligence (AI), and data analytics, these intelligent bots open and close trades around the clock and all year long. Once you make an informed decision about the bot you wish to use, based on reputation and history performance, all you need to do is let it run and monitor the account at your leisure.
At EndoTech, for example, you have a choice of 10+ strategies, each with varying levels of risk and different trading styles. These strategies are based on the most advanced algorithm-based systems available today, making decisions based on math, trajectory, and pattern detection.
In general, the factors that are taken into account when a trading bot is in action are:
- Account balance
- Market volatility
- Risk levels as defined in the account
- Historical behavior of the asset
- Pattern formations on a technical level
The common phrase “history has a tendency of repeating itself” couldn’t be more relevant to the field of automatic trading software, where historical price action is analyzed so optimal decisions can be made. When AI is used, the more history that any software has at its disposal, the better, as algorithms become more refined as more price patterns unfold over time.
How Do Automatic Trading Bots Work?
Most automatic trading bots work via APIs, acting as the intermediary that trades on your behalf within an exchange-link account. They directly communicate with crypto exchanges to place orders based on preset conditions, delivering exceptional speed, accuracy, and efficiency while minimizing risks and potential losses.
For instance, if you wish to use EndoTech systems, all you need to do is generate the API (Application Program Interface) key and the secret key, map them within your exchange wallet. Once implemented, your crypto trading bot is ready to work.
As a simple example, suppose your bot was based on the two simple rules below, using moving averages. In this case, the moving average implies the average of previous data points used to identify trends.
- Buy 5 Dogecoin when its 50-day moving average exceeds its 200-day moving average.
- Sell 3 Dogecoin when its 50-day moving average is lower than its 200-day moving average.
By applying these two rules, the bot will automatically monitor the price and the moving average indicators to buy and sell the specified number of Dogecoins when the appropriate conditions are met. You don’t need to monitor the trades, follow the markets, or place the orders manually. You also don’t need to second-guess your trading plans in real-time. The software does everything for you by correctly identifying the opportunity quickly and executing it flawlessly.
The Advantages Of Automated Trading
Unlike traditional investment markets, cryptocurrency trading goes on all day, every day of the week. As humans, it is impossible to monitor (and trade) 24 hours a day, seven days a week. However, crypto trading bots can operate around the clock, offering unmatchable speed and ensuring all transactions are properly timed. Bots don’t need to rest, take breaks, or sleep, and they certainly don’t get confused or emotional. They don’t hesitate to execute their strategy in real-time, and most importantly, they always stick to the plan.
A Breakdown of The Advantages Of Automated Trading:
- Processing speed: Bots, in general, can process many gigabytes of data per second. With prices constantly fluctuating, a few seconds can mean the difference between a profit and a loss. With automatic trading, bots will do the heavy lifting for you, monitoring the market in real-time and processing orders as soon as the desired criteria are met.
- Driven by data, not emotions: Unlike humans, bots are devoid of emotions. While it is common for humans to buy and sell assets based on their feelings, automated trading software relies on data to make decisions. For instance, if you face losses on a couple of trades, you may be hesitant to enter the next one. On the other hand, algorithms are designed to do what’s statistically correct.
- Availability: Cryptocurrencies are highly volatile. The market frequently evolves, making it near impossible to track manually. Humans can’t work 24/7, but bots can. While you sleep, an automatic trading bot will keep monitoring the market around the clock.
- Allows diversification: Automated trading software allows you to set multiple rules for different cryptocurrencies. It can execute all of the rules at the same time, enabling you to diversify your portfolio.
- Statistical testing: Most automated trading programs allow you to test your rules on existing market data or view the full history, giving you a great idea of how it will perform.
To give a classic example that encompasses all these tremendous benefits, we can examine the latest Bitcoin slide of May 2021. EndoTech’s algorithms outperformed HODLers, as the bots detected the ultimate time to exit a long trade, and some strategies even opened a short position from the very top.
This is a prime depiction of the power of automated trading, as even many seasoned investors experienced losses during this period – feeling euphoria or committed to their bullish position, without being able to see the plain math as an algorithm would.
Bottom Line – The Advantages Of Automated Trading
Algorithmic trading is an excellent way to capitalize on trading opportunities by utilizing pre-programmed rulesets. It’s a systematic and data-driven method designed to perform well in the fast-paced crypto space, thus allowing traders to generate returns from split-second price fluctuations, which is almost impossible to act upon manually.
If you’re an active trader looking to maximize returns while endeavoring to minimize risks, feeling flustered from years of trading, or simply seeking a hands-free approach to the cryptocurrency market, this choice could deliver the results you desire. The advantages of automated trading in the cryptoshere are crystal clear. Remember always to carry out proper due diligence when choosing your automatic trading plan, and never invest more than you can afford to lose. For more information, check out EndoTech’s AI-driven crypto trading bots and strategies designed to truly tick all the boxes when it comes to automated crypto trading.
EndoTech COO Dmitry Gooshchin concludes, “Don’t forget that trading is a zero-sum game. For every buy, there is a sell on the other side and vice versa. Successful trading means being more prepared than your counterparts, and I believe that choosing the right systems constitutes the entirety of that decision.”