Automated Crypto Trading: Do’s and Dont’s

Algorithmic trading was first tried out 40 years ago on NYSE and has been growing ever since. According to JPMorgan research, only 10% of total turnover is traded manually. The success of algo trading may be attributed to the following facts. Machines work 24/7, have no emotions and can track market data for a large number of pairs. Most experienced cryptocurrency traders come from a traditional finance background. It’s logical to suppose that the cryptocurrency market will most certainly follow the way of the traditional trading market.

From its inception in traditional finances trading robots were expensive, difficult to start and maintain without special technical knowledge. On the other hand, thanks to the cloud tech rise, more and more services appear aimed at start providing their algorithms to private traders. The phenomenon took up in crypto trading.

There are no formal requirements for crypto traders to use cloud trading software. Anybody can sign up, set up their trading parameters and launch a bot. The connection between the trader’s exchange account and the bot is enabled via API. This is available on all major exchanges. After the launch, a crypto trading bot monitors the market 24/7 and follows the rules set by the trader. The “side effect” is that total turnover increases dramatically. Reportedly 20-50 times compared to manual trading. Profit opportunities are higher. Sounds like a dream, doesn’t it?

Successful Cryptocurrency Bot Trade With TradeSanta:

In reality, algorithmic trading has its own risks that should be taken into account. Unrealistic bot settings and sudden market movements may lead to losses and traders risk ending up with a large position of a low-liquidity altcoin.

How To Start Automated Trading?

Based on my trading experience with various crypto bots and platforms, there are few universal suggestions how to start using bots if you decide to try:

1. Be aware of scams. Don’t trust services that promise income after depositing your assets into their “smart contract”. Trading bots connect via API to a cryptocurrency exchange and don’t need direct access to your funds. You can monitor all orders placed by your bot on the exchange. Also, make sure your API access doesn’t allow withdrawals.
2. Cap your risk. Create a new exchange account for a trading bot. Thus, you will reduce risks of losses to the amount allocated in this account.
3. Start small. It’s a universal rule to trade only what you can lose. In the case of crypto markets, minimal orders are rarely larger than $10. It’s enough to have 10 orders deposit value to try the crypto trading bot. Check the minimum order volume on your exchange and start accordingly.
4. Play safe. Don’t trade altcoins with little liquidity. Start with top coins by volume. Thus, you’ll have enough volatility to trade and avoid inexplicable price spikes that may leave you with the unprofitable position.
5. Be realistic. Study the market and set reasonable Take Profit levels. It’s better to close one deal with 0.2% profit than no closed deal at all with 3% TP parameter.
6. Do your homework. You don’t need to be a pro trader to check the markets every day. Learn the basics of technical analysis, check you’re trading and update your bot setting accordingly. Although, trading is automated bots still need to be managed regularly in order to perform well.

Avoid Making Emotional Financial Decisions

If in case of a sudden market decline or spike, you end up with a position steadily losing in value, the first thing you need to do is take a deep breath and avoid making emotional financial decisions in panic:

1. Fix your loss. Turn off the bot and sell coins manually on exchange. Thus, you’ll release more funds for future trades and have a chance to recover your loss.
2. Keep waiting. Crypto market is volatile and often the market bounces back and reaches take profit order price. It may take months, but you still have a chance to close this particular position with a profit. Be aware of the risk of the market falling even further. In this case, you’ll have your funds frozen in an asset that’s losing its value.
3. Set up a bot in the “opposite direction”. Turn off the previous bot and use the funds to launch a bot with an opposite strategy. Probably, the bot won’t bring you the initially expected profit, but it can gradually reduce your position.
4. Reduce the average purchasing price. Take profit level by purchasing more of the currency. This option is called Dollar Cost Averaging strategy (DCA) and is rather risky. Don’t exploit DCA if you’re new to trading.

Cloud algorithmic trading is the growing trend that started not so long ago. It allows numerous crypto holders to earn from their assets without investing more in crypto. Automated crypto trading is suited for professionals who want to automate their strategies, as well as for beginners, giving them a smooth intro to the seemingly complicated world of crypto trading.

Final Thoughts

Exchanges have huge benefits of automated trading as well since it’s dramatically increasing trading volumes. You’re welcome to try out TradeSanta crypto trading platform and automate your trading activity. The platform is easy to start and it takes only 5 minutes to set up a bot. Still, make sure you know how to manage your risks and keep an eye on your bots.

Disclaimer: Nothing in this article should be considered as investment advice. It’s the opinionated and only representative of the author’s views and experience.