📊 Trading Cryptocurrencies Part 3 - Trading Robots

Why using trading bots?

             Trading robots are essentially programs that are able to exchange in automatic or semi-automatic mode. Trading robots can be used in a wide range of markets, including Forex, stocks, cryptocurrencies and various derivative instruments. These robots operate according to a strategy made of basic rules.

              Each trader is able to select the most appropriate trading strategy, keeping the ratio between the amount of profit from one order and the chance of this order execution in mind. Many traders prefer to make fewer orders, but generate more revenue. To monitor the current state of the market they use special trading terminals with sound or SMS notifications in case of a successfully executed order. However, proper conditions for an order can be met in a couple of days or even weeks. The main disadvantage of this strategy is its instability and unpredictable nature.

              The scalping gives more predictable and clear results. Keeping in mind small differences between selling and purchasing prices, the trader can execute several orders every day, thus creating significant profit. The main disadvantage of this strategy is that the trader is required to monitor the execution of orders.

               Trading robots can be used to solve this problem. Unlike traders, bots can monitor prices 24 hours a day, 7 days a week. Every trader needs to rest, because constant monitoring causes tiredness, which can result in mistakes and significant losses, while the robot follows a selected strategy and simply can’t make a mistake. Furthermore, the robot monitors the exchange rates up to several times a minute and will perform required actions faster than any trader.

               The trading robot is the perfect solution for the automation of routine tasks, which have to be performed every day and every hour. The logic of the trading robot has to be clear for the trader – it’s not recommended to use complex systems, which look too difficult.

               In general, the trading robot allows the trader to select an optimal strategy with the proper number of orders and adequate profits. This approach allows more efficient use of the trader’s time. The trader will move to the next level after increasing the number of executing orders and automating the majority of routine procedures.

Advantages of automated trading            

             Trading robots are incredibly popular for the following reasons:

1.      They can monitor prices and buy and sell assets in an interruptible manner. Unlike live traders, trading robots do not require breaks because they don’t get tired. Any trader will become tired during continuous work, while a robot can work as long as is required.

2.      They are stable and fast. The trader may need time to make a decision and enter data to place an order (the quantity of assets and the selling / purchasing prices), the robot can do that in a split second.

3.      They are emotionless. The trader may have doubts or be scared to lose money, thus affecting sound decisions and forgetting about the current trading strategy or money management practices. Constant stress can also be the reason for many trading mistakes. The robot has no emotions - it simply follows an algorithm, strictly observing all the rules.

4.      Robots can’t make typos (incorrect entry of correct data). The trader can easily enter a wrong amount or make a mistake (especially with numbers, e.g. 0.0000021 and 0.00000021). The robot can’t make these mistakes because it’s against the basic algorithm.

5.      Robots are also versatile. A robot can be used for many exchanges at the same time. It’s tiring for a trader, especially when several orders have to be executed one by one. Furthermore, several robots can follow different strategies and work simultaneously.

             Trading robots can be very useful for any kind of a trader. However, it’s important to mention several misconceptions and wrong assumptions made by many traders and beginners.

Wrong assumptions to be aware of

1. There are no perfect robots. Moneymakers who can guarantee a steady income with no respect to current market conditions don’t exist - it just can’t be like that. Robots can make forecasts and perform superficial analysis with several criteria, however, none of them can predict price changes (on the developed markets). Prices are constantly changing and there’s no such algorithm able to take all factors into account and create a precise pattern of behavior. Therefore, all offers of smart robots with complex AI that can predict prices with more than a 60% accuracy rate are nothing but a marketing trick. There are robots with optimized strategies, which have been tested and well-proven in the past, but there’s no guarantee that such bots will be successful in the near future.
2. The whole concept of artificial intelligence is terribly misunderstood. Beginners consider trading robots as incredibly complex software solutions, capable of performing thorough fundamental analysis of market conditions and correctly predicting the price more often than a group of live traders. This is wrong. Some robots can work in accordance with incredibly complex strategies, can analyze huge amounts of data, and may imitate the learning process, however, there is no guarantee that forecasting will be profitable. There’s no sense in creating artificial intelligence that will copy the behavior of a real trader, simply because live traders are not perfect in what they are doing. There’s an amazing book by Nassim Nicholas Taleb about luck, uncertainty, and probability, called “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets”.
3. Some traders believe that trading bots are too complex, that strategies are difficult to understand, and plus they require constant control from the trader. It’s not really like that in the majority of situations. Trading robots help to automate routine operations, such as price monitoring or order placement. If a trader follows some working strategy, the latter can be automated and reduce the number of routine operations and possible human-made mistakes. However, if the trader has no strategy, it is strongly advised they don’t use any bots! The sure way to lose a deposit is to trade with a bot that uses some complicated or secret strategy the trader doesn’t understand - even if developers guarantee steady profits and demonstrate significant results.

Conclusion

               Trading robots can make the life of a trader much easier, allowing the automation of many routine operations, increasing the speed of work, and reducing error rates and fatigue. However, development of an effective trading strategy is the task of the trader and not the robot. It’s like a car that allows faster driving and more comfort, but it is up to the driver to decide how to get to the destination. And most importantly, it is the driver who is responsible for all actions. You can’t just select a destination point, enter it into the car’s computer and enjoy a book while the car drives to the destination (at least for now). The same principle works for trading robots. They can be extremely useful, but they shouldn’t be left to make decisions on their own.

               Above all, trading robots can perform all routine operations, giving more time for planning and developing the strategy. In cases when traders have an efficient trading strategy and completely understand what to do, a trading robot can be a great solution and an efficient tool.

Links to other parts of my Cryptocurrency Trading "Trilogy" can be found below.