Can using crypto trading bots assure traders of better returns? The truth is trading bots are useful provided you know how to use these. These are automated programs designed to execute trades on behalf of their users. They can do this by monitoring the crypto market diligently and responding to market changes according to certain prefixed rules established by the user. The user is also free to customize the trade bot according to his preferences and needs. Depending on your needs, the bot will evaluate market movements like orders, trade volumes, prices, etc.
Strategies that you can use for your crypto trading bots:
These are some of the common trading strategies adopted by crypto trading bot users. Trade bots can be extremely beneficial for newcomers who lack expertise and sound knowledge about crypto trading. The bots can save you a lot of time and effort by executing trades even when you may be away from the computer and focusing on other work.
- Mean Reversion: This crypto trading strategy is founded on the direct assumption that when the prices of any coin move away from its average, it will ultimately go back to the original price. This assumption is valid for both traditional stock markets and crypto markets. The main reason being the overall market sentiment. For instance, whenever the prices of an asset rise, traders try to sell the asset in bulk to make profits. This consequently brings down the price of the asset soon. Likewise, one the price falls, the market gets in a panic mode and starts to buy as many coins as it can which automatically escalates the price.
- Arbitrage: This is a much widely-used trading strategy which is based upon the principle that price of one asset can be different in different cryptocurrency exchanges. For instance, the price of the same asset X can be different in two exchanges A and B. Using the arbitrage strategy you can buy the asset from an exchange where it is priced low and sell it off in another one where the price is higher. This helps you take advantage of the price differentials but you have to make sure you buy and sell almost simultaneously.
- Momentum Trading: The investor using this strategy will assess the rise and fall of markets by the momentum. Ideally, a trader using momentum strategy is going to ride positive momentum waves and then sell the assets off when the trend reverses. The main idea behind this strategy is that an asset’s prices will go above its average and eventually run out of steam and come falling down.
- Naïve Bayes: This trade strategy makes use of machine learning tools for determining the likelihood of an event happening. You can feed relevant data to your crypto trading bot and enable it to determine the right entry or exit times.
- NLP: Natural Language Processing or NLP programs will help trade bots interpret works or phrases from current news articles, tweets or blogs in order to evaluate the overall market psyche. For instance, any news of partnerships is viewed as a positive event and likely to boost mainstream adoption of an asset.