Cryptocurrency trading bots are a set of software or algorithms that trade on financial markets on behalf of the client. They automate the process hence making work much easier for traders although they are not entirely perfect.
The automated method is a long-established and legitimate activity today. Although most have been developing for Bitcoin, there are many others for altcoins.
There are different types available for both beginners and novice users but the user needs to come up with a decision about the bot method applied and a trading strategy.
How trading bots work
Cryptocurrency trading bots work by talking directly to financial exchanges and placing and selling orders automatically on behalf of the client.
They decide on what to do or actions to take by watching market prices and movements as well as acting as per set of predefined rules on their codes.
Cryptocurrency trading bots work in a variety of ways, some through browser plugins, OS clients, trading servers or those infused in cryptocurrency exchange software. Some are available for free, others can be bought and still, others rented.
In regard to a strategy of trading, many works by exponential moving average (EMA) as a starting point. EMAs track markets over a set of time and bots are programming to react to that price’s change — or act further when the price behaves in a certain way such as moving beyond certain thresholds.
Other bots work on the basis of a tweaked EMA approach, for instance, using DEMA [double exponential moving average] or TEMA [triple exponential moving average]. These can respond faster than EMA-based bots.
Other bots use relative strength indicators and regression analysis methods especially useful for unstable markets.
CryptoTrader, for instance, is a bot marketplace where people develop bots that facilitate different trading strategies and either sell or rent them to others.
Brokers and investment houses usually have a direct access to crypto exchanges’ electronic order books especially in the Bitcoin exchange community where exchanges grant customers’ computers direct market access or DMA.
For those wanting this kind of technology, bot trading is not a “fire and forget” kind of technology. First, you need a bot trading strategy. Secondly, trading at crypto exchanges does not rely entirely on technical analysis alone. Bots cannot decipher fundamental market conditions and trends such as rumors and market forces that are a basis for price changes.
Cross-exchange market makers
Some bots are designs to use inter-exchange arbitrage. They can notice the differences in prices between orders on different exchanges. Since to make decisions such as where to buy and sell the cryptocurrency in question.
In this case, there are bots optimizing or set to work on many exchanges.
Examples of cryptocurrency trading bots
Butter Bot allows clients to trade via a Google Chrome plug-in.