Are you looking for the best crypto trading bot but not sure how to start? We are here to help!
A crypto trading bot uses an algorithm that tracks the live crypto market and analyzes it using technical indicators such as trends and moving averages. It then gives buy and sell signals based on its analysis. Simply put, crypto trading bots buy/sell crypto on your behalf.
However, remember that crypto trading bots are not perfect. Since cryptocurrencies are very volatile, bots can sometimes generate false signals. For instance, the bot might calculate a downward trend while the market might actually be moving upwards.
Like with independent trading, there is an inherent risk factor that comes with cryptocurrency trading bots. As always, it is advised not to invest more than you can afford to lose.
How to Choose the Best Crypto Trading Bot?
There is no doubt that crypto trading bots can make trading easier for you. There are many different types of bots available in the market. For instance, some bots follow a long-term strategy and follow the trends, while others follow the more aggressive pulse strategies.
However, beginners might have difficulty deciding which bot they should use.
To help you out, we have put together some tips for choosing the best crypto trading bot.
Do Some Market Research
Before you choose your first crypto trading bot, do some market research and monitor the changes. This will help you determine the overall sentiment in the market.
We also suggest going through any recent crypto events and knowing which coins are performing the best.
Is the market currently trading in a range? or is there significant volatility with quick lows and highs? Your choice of the bot will change depending on the strategy you want to rely on. That is best determined by analyzing the market conditions.
So, some basic knowledge of cryptocurrencies and technical analysis is a prerequisite to effectively using a crypto trading bot.
Check the Credibility
The importance of researching the bot that you want to use cannot be stressed enough. Safety and trust-factor are both crucial because literally anybody can create and publish a trading bot on the internet. However, these bots usually access your exchange account to buy/sell crypto on your behalf. So analyze the bot’s reputation in the industry. Alternatively, you can create your own trading bot if you have the prerequisite skills. Have you heard of the bitcode method?
Check the Exchanges it Supports
Cryptocurrency trading bots are usually not compatible with all exchanges. So, before choosing a bot, double-check whether it works with your preferred exchange. A solid bot will be compatible with multiple cryptocurrency exchanges. However, this is the hallmark of the more advanced and premium bots.
Some Common Mistakes to Avoid
Before you get started with crypt trading bots, it is important to know about some common mistakes.
Relying on the Past Performance
As a crypto trader, you should remember that past performance does not guarantee a good future. That is because trends and market conditioners keep changing.
There is always a chance that a bot that has performed very well in the last 6 months will fail for the next 6 months if it follows the same strategy. Due to changes in the global market, the existing strategy of the bot may no longer apply.
Instead of relying on past performance, try to understand which strategy is the best suited to the current market and then pick a trading bot accordingly.
Being Reckless and Impatient
Sometimes, trading bots will close and open positions within microseconds or seconds. However, being patient is the key here. Beginners often switch bots too quickly without waiting until market conditions become favorable for the bot to perform well.
For example, a short-only bot will be neutral if the market is currently going in an uptrend, making higher highs and higher lows. However, as soon as there is a market rebound and prices begin falling, the bot will be all set to perform. So before shifting all your funds to a different bot, it is wiser to wait for the right market conditions to occur.
Choosing Risky Coins to Start
Of course, it is tempting to choose coins that have a higher potential for returns. However, these alt-coins are much riskier and more volatile as compared with established cryptocurrencies such as Ethereum and Bitcoin. Before you get fully accustomed to the cryptocurrency market, it is a good idea to stick with Ethereum and Bitcoin.
Conclusion
Indeed, it can be difficult to choose your first cryptocurrency trading bot. However, you now know about the top mistakes that beginners make when choosing trading bots, along with tips on choosing the best bots. With these tips in mind, we hope that it will become easy for you. By keeping at the top of your consideration set (1) accuracy & adaptability, (2) the strength of a combined human & artificial intelligence, and (3) flexibility and choice in how you deploy and use your solution, you can have a more effective bot management strategy.