Crypto markets are a tough nut to crack with high volatility and no fixed trading time (24/7), it is a nightmare for traders. While the challenges of the market serious, they also present many unique opportunities. To make use of it many crypto traders are turning to bots, or computer software capable of trading on behalf of a person or company. Bots are flexible and can be programmed to do exactly as wanted and they can run 24/7 keeping up with the market continuously. Bots work with algorithmic strategy. Let’s dive into the world of bot trading.
The main of using bots is that unlike the equity market, the crypto market runs throughout the day. And it is impossible for a human being to trade continuously. The second advantage is speed and accuracy. Information can be processed and correct trade execution can be done in the blink of an eye while human beings take time to process the information and think about a strategy. Human error can also be reduced. Another factor that affects traders are emotions and biases, and bots are not susceptible to both. They trade based on algorithms. In many aspects, bots are far superior to humans.
The most common algorithmic trading strategies follow trends in moving averages, channel breakouts, price level movements, and related technical indicators. These are the easiest and simplest strategies to implement through algorithmic trading because these strategies do not involve making any predictions or price forecasts. Trades are initiated based on the occurrence of desirable trends, which are easy and straightforward to implement through algorithms without getting into the complexity of predictive analysis. Using 50-day and 200-day moving averages is a popular trend-following strategy.
Arbitrage techniques are used in the equity markets, where buying a dual-listed stock at a lower price in one market and simultaneously selling it at a higher price in another market offers the price differential a risk-free profit or arbitrage. The same strategy can be applied in crypto where there are hundreds of exchanges listing the same coins. This is a guaranteed profit strategy especially incase of crypto markets where there can be some significant difference in prices for the same asset across different exchanges. Bots implement an algorithm to identify such price differentials, and placing the orders efficiently allows profitable opportunities.
Standard mean reversion
Standard deviation indicates the amount by which values deviate on average from the mean. The higher the standard deviation, the riskier the investment as it leads to more uncertainty. A term associated with standard deviation reversion is Bollinger Bands. It is a trading indicator (which consists of 3 lines) created by John Bollinger. What do the 3 lines mean? Upper band – Middle band plus 2 standard deviation, the Lower band – Middle band minus 2 standard deviation and Middle band – 20-period Moving Average. It can help you :
- Identify potential overbought/oversold areas.
- Identify the volatility of the markets.
Mean reversion strategy is based on the concept that the high and low prices of an asset are a temporary phenomenon that reverts to their mean value (average value) periodically. Identifying and defining a price range and implementing an algorithm based on it allows trades to be placed automatically when the price of an asset breaks in and out of its defined range. This strategy is predicated on the idea that markets have a long term trend, but as we have seen with crypto this might not always be true. Thus caution must be used while using this strategy.
Basically any strategy someone can think of can be coded into a bot, and it can execute it with high precision. can blindly rely on bots. No, It’s not magic and needs proper research as well as technical skills to code and run it (although there are a few free generic bots available). The nature of crypto markets demands bot to trade. The number of exchanges and coins are really something a single person cannot comprehend. There is a strong argument that once everyone starts using the same algorithms, profits cannot be made from such a strategy. While it might sound right, the truth is people will keep inventing new algorithms.
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Disclaimer: The authors of this website may have invested in crypto currencies themselves. They are not financial advisors and only express their opinions. Anyone considering investing in crypto currencies should be well informed about these high-risk assets.
Trading with financial products, especially with CFDs involves a high level of risk and is therefore not suitable for security-conscious investors. CFDs are complex instruments and carry a high risk of losing money quickly through leverage. Be aware that most private Investors lose money, if they decide to trade CFDs. Any type of trading and speculation in financial products that can produce an unusually high return is also associated with increased risk to lose money. Note that past gains are no guarantee of positive results in the future.
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