Some Bot Trading Basics and Insight for Those New to Bot Trading (Tips for Automating Your Crypto Trades)
The crypto market is a 24/7 global market filled with volatility. It can be hard to manage positions by hand, and that is where bot trading comes in.
Here are some tips for bot trading crypto for beginners. That is, some tips for automating your cryptocurrency trading using software.
NOTE: Trading cryptocurrency is risky, and thus it stands to reason that automating trading is also risky. Make sure to do your research and take care to manage any risks you take (for example by toggling withdrawal off, keeping account balances low when an API is connected, keeping position sizes low, and using stops and trailing stops).
An Introduction to Bot Trading for Those Looking to Get Started
First off, let’s talk about what bot trading is.
Bot trading is using software to manage your crypto trades.
Or in more detail, bot trading is using crypto trading software software, connected to an exchange’s API (an interface for apps that let’s the app talk to the exchange), that allows you to manage your positions automatically (to buy and sell cryptocurrency), using a custom strategy.
Simply put, “using a bot” allows one to automate part or the whole of their trading process programatically.
Bot trading is 100% legal. It is allowed by almost all cryptocurrency exchanges (and some stock exchanges). And in many cases it is even welcome (as exchanges want active traders).
Choosing and Setting Up a Bot
Setting up a bot can be fairly difficult if you try to build and host your own bot, but there are user friendly platforms that make life easy.
With that said, even if you go the user friendly route, there is still a bit of a learning curve in terms of technical knowhow required (especially if you have to host your bot).
Further, some of the best bots are fairly expensive, and fine tuning a strategy (or set of strategies) can be a lot of work.
So there can be some serious barriers to entry depending on how you approach this.
So with all that said, it is smart to start with the simple options.
The simplest solutions involve paying a fee for a pre-built and hosted bot (so you don’t have to learn about coding, compiling programs, and/or hosting software).
Of pre-built and hosted bots you can go with fully built ones that have a pre-programmed strategy (typically more expensive) or programmable ones that require you to implement a strategy using the bot / automated trading platform (price range depends on what you pick).
If you are just starting out, the platform I recommend is Cryptohopper.com (affiliate link; click for free trial, after that it is $20 a month for the cheapest option). NOTE: Like Coinbase or TREZOR, the affiliate link is here because we recommend it, we aren’t recommending it because we have an affiliate link. 😉
The Cryptohopper platform has some ready made strategies, but mostly it is a platform that will require you to build out your own strategy using their web-based interface.
At its simplest, you can just use the platform to take profits and set stops and trailing stops, at its most complex you can set a bunch of conditions and base trades on indicators like moving averages and RSI.
The reason I recommend Cryptohopper is simple. It is a beginner friendly (as far as bots go) platform that is hosted for you and offers a 1 month free trial. It works on most exchanges. Plus, it is actively worked on by a friendly and diligent team with a focus on community and customer service. Simply put, it is a platform that allows you to get a feel for what you are up against in a relatively safe and welcoming environment before putting money on the table.
The drawback of this solution is that you need to program your own strategy, if you want you can go with hosted premium bots with pre-programmed strategies like the ones on Cryptotrader.org (the bots on there differ by price) or premium bots you host like Haas (which can also be costly, is more toward the professional end of the spectrum, and requires you to have a decent grasp on technical indicators).
However, for me, these other solutions are step 2, not 1. This is because you have to pay to play and thus you have to make choices before you know what you are doing.
In other words, I recommend Cryptohopper to start, even though there are many good options.
Meanwhile, there are a handful of other choices, including building your own bot or using a platform that is free but requires coding like Gekko.
With that said, of the bots that are commonly accepted to work and are commonly used by traders, there is no wrong choice.
TIP: Most bots work with most exchanges… but not every bot works with every exchange. Make sure to double check before you get started!
TIP: Do your own research when choosing a bot. Even upstanding services carry risks in crypto (and in all cases you need to do your own research and avoid taking tips on what platforms to use or how they work as investment advice). That goes for all bots, all exchanges, all wallets, all coins you invest in or trade, etc. The cryptocurrency is not a risk free space. I can recommend the Cryptohopper platform, but like with Coinbase Pro the exchange, there are still risks in terms of hacks and making bad trades (again this applies to everything crypto essentially).
You Have a Bot, Now What: Tips for Bot Trading
So let’s assume you have picked a bot (but haven’t necessarily set it up). Keeping in mind that all these automated trading platforms and bots have different quirks and requirements, here is some general tips and tricks for bot trading.
- To get your bot going you need to create API keys in your exchange. You’ll need at least a key and secret (if not other things like passwords). Follow the exchange specific instructions carefully (your exchange and/or the platform you choose should provide documentation). If your keys don’t work, double check the information, type it in by hand, use a different browser (try Brave for example), or try creating a new set of keys.
- Just like with private keys and wallets, you’ll never want to share your API secret with anyone. Keep it somewhere safe and offline if you can (just like with private keys).
- If someone gets ahold of your API key and secret they can make trades on your account.
- In general never give your bot withdraw access. Giving a bot permission to withdraw money from your account is almost always unnecessary. The only time in which this isn’t true is if you are doing something like arbitrage between exchanges. If you are doing arbitrage, it likely means you already have a solid grasp on the rest of this as it is a rather advanced move.
- If your bot can’t withdraw, the worst a person can do with your account access is make bad trades (this is still not good). If this is happening, you can do things like delete your keys, change passwords, and open a support ticket with the exchange to report it.
- Put two factor authentication and strong passwords on everything you can. The harder it is to access each platform you use, the better. It is good practices to use different emails for different platforms as well.
- Use backtesting and live testing. Backtesting allows you to run strategies on historic price data. Live testing allows you to simulate a strategy on the live market. Most automated trading platforms allow backtesting, and many offer live testing. Backtest the daylights out of every strategy you think you might want to use. Then keep in mind that backtesting is only a test of what would have happened in the past, not what has to happen in the future… and honestly, live testing is only a test of right now, it doesn’t test the future either.
- Different coins behave differently. BTC tends to be the steadiest coin, stops tend to hit less and moving averages and RSI tend to be meaningful. Some altcoins might respond better to other strategies. Some strategies will work great on all coins, some will work well on some coins and not on others.
- Expect losses (and use a stop loss)! Automating trading is not the same as ensuring profits. Bots lose money all the time, the best strategies are simply the ones that make more gains more consistently. Don’t let the losses scare you, if you take losses, then turn your bot off and miss gains, then turn it on and take more losses… it’ll grind you down.
- You need different strategies for different market types. A strat that works well in a bull market might not be up to snuff in a bear market. Prepare to switch up your strategy as the market changes.
- Use small amounts to start. Make sure you feel confident in what is happening before you throw your whole bank roll at a bot (not that I recommend throwing your whole bankroll at anything in general; just making a point here). Even if you know what you are doing, it can be smart to only trade a portion of your investable funds. You can always mirror your bot by hand if you feel like it made a really solid move.
- The spreads on exchanges can be really lackluster for altcoins (watch out for low volume pairs; stick to high volume pairs to start). Your bot can end up buying and selling at less than ideal prices… simply because traders aren’t filling in the spread. With that said, one option is a market maker bot (a bot that fills in spreads). Everyone loves a person who runs a market maker bot (a bot that fills in the spread with small limit orders)… but they aren’t necessarily the most profitable.
- Remember that cryptos can go up or down 10%+ in moments (so again, stick to high volume pairs, and use stops). If you are buying and selling based on a strategy that works on longer time frames, it can end up buying high or selling low when these quick moves manifest. It still might be the right move, but don’t get caught off guard.
- In some cases you’ll need to make trades manually. For example, even though a bot might close a position for you based on its program, there are many cases in which you’ll want to close a position early or make a buy before it does. Think of a bot as a helper, not a replacement.
- Watch out for your bot overriding your manual trades. Turn it off if you need to.
- You need to understand technical analysis (TA) to do most bot trading effectively. Even a pre-built and hosted bot is likely using technical analysis to make choices. If your bot is using ichimoku clouds, but you don’t know what that is, it’ll be hard to get the most out of your bot.
- Even though TA is vital, you can sort of get away without it. At its simplest you can just automate basic things like stops and trailing stops with a platform like Cryptohopper. Exchanges don’t have a trailing stop option or a take profit option, so features like this give value to bots even if you don’t use their other features. It is often a great move to put trialing stops and stops on altcoins, because they can make really big and quick gains and then lose them again in a very short amount of time (and a trailing stop will automatically take profit for you).
- A ton of people use basic indicators like 12, 26, 9 MACD on 4 hr candles… you increase your risks when you use out-of-the-box strategies. If everyone sets there bots to buy/sell on a cross over or under of the same indicator… then it’ll add to the chaos. Likewise, if everyone uses the same premium pre-programmed bot, it’ll be chaos. Consider working out a unique strategy or putting your own flare on things so you are a little in front or behind the pack (it’ll help the markets be more stable if everyone does this; don’t martyr yourself, just keep it in mind).
- Watch out for fees. If you trade a lot, you will pay a lot of fees. You need to make enough profits to cover fees.
- Sometimes (in fact often in my experience) it is worth paying fees to lock in the price you want. If a coin is dumping, you’ll save a ton of money paying the fee to do a market sell. If a coin is shooting up and you catch it early, you can make up for the fees in profits as well. It differs case by case, but I’ve found that paying the fee is often worth it when automating my trading, as once my conditions are met, I generally want to buy or sell RIGHT NOW and not when my limit order gets around to filling.
- Signals pair nicely with bots. Signals are sent out by “signal groups.” The black hat versions of these groups are called “pump groups.” You likely want to stay away from pump groups due to the legal grey areas they operate in and their often rather predatory nature. However, there are many white hat signal groups that will help clue you in as to what coins they think are currently good buys. These groups generally run complex algorithms to determine buy / sell signals (these groups can be found in the stock market as well, for example even your stock broker is likely to offer buy/sell/hold signals; that is all this is in the white-hat form).
- Using stops with your strats is smart. Using stops with some other group’s signal is almost necessary. Signal groups sometimes get it wrong, giving you a buy signal right at the end of the last wave of an epic pump… you don’t want to be the last person buying a coin that just went up 120% or whatever. I’ve seen some signals result in 50% gains, I’ve seen others result in equally as big losses. You’ll want to protect your capital. As going all in twice on coins that produce 50% losses means you are broke (don’t want that).
- If you turn your bot off, don’t forget to turn it back on again. The best deals in crypto are often found in the most difficult times.
- There are countless strategy types. Some focus on Elliot Waves, some on moving averages, some on a variety of technical indicators, some are meant for arbitrage, some accumulation (getting more coins), some distribution (selling), etc. The right one for you depends on your goals.
- Try programming strategies for longer time frames. If you try to get too meta and focus on too short a timeframe you can open yourself up to a quick stream of losses due to the volatility in the market. When you focus on longer time frames like 2hr, 4hr, 1day you suss out a lot of the noise and focus on longer term trends.
- If your strategy involves buying and selling trends, you’ll essentially never get the best buy price or best sell price. As you’ll always be waiting for the trend to form before buying. There are no crystal balls, so getting the best prices often involves guesswork. If you are going to guess commonly used indicators like Elliot Waves, Fib levels, RSI, Stoch RSI, and Moving Averages can help give you and/or your bot clues.
- You can have your bot short instead of sell.
- Be careful about FOMOing buy or panic selling. When your strategy says sell, but you get FOMO and buy, you are taking risk back into your own hands. Sometimes this is the best move, but it’ll leave you out of sync with your bot. When you did your backtest, you didn’t test for your random FOMO and panic. It add a factor in that wasn’t previously accounted for. If you do buy or sell manually, make sure it fits your strategy.
- Using stop sells and stop buys can be helpful. You can set Cryptohopper to preform actions when certain conditions are met. You can program things like “if it goes below X price sell or above Y price buy.” This can help you avoid missing out on buying or selling if the price moves very quickly.
- With Haas there is a concept called insurances (risk protection; very important). The concept here is that you can stop your bot from trading if [for example] the price drops or raises too quickly. This sort of protection can help you to avoid buying or selling a flash crash or spike (those aren’t common, but they have historically occurred).
- To that last point, Haas’s documentation is super useful for getting a sense of what is possible with bot trading. Haas is probably the most complex customizable bot, and that means it can do a lot for the price tag too.
- If you do a lot of trading, remember there are tax implications. You may want to pair bot trading with a program like CoinTracking to keep a running ledger of your trades.
- If you don’t understand something, open up a support ticket or check out the forums. Some bots will have you asking questions direction to a reseller, some will have robust forums, some will have limited documentation. It depends on what direction you go in.
- Unless you are doing it as a hobby, it is generally better to go for a premium bot and avoid trying to build one out yourself.
- You need your funds accessible or your bot can’t trade them. If you have for example limit orders set on your exchange, your both won’t be able to use the funds committed to those orders.
Hopefully the above insight helps you to get started with bot trading without running into any of the pitfalls.
Keep in mind, almost all the pitfalls involve losing money. So if you start with very small trades, you’ll limit the amount you lose while you learn. Small trades means you have lots of room to mess up. Big trades means each bump and bruise is going to hurt more.
Given the above, my general recommendation is start with a free trial of Cryptohopper using the lowest amount of money you possibly can to get a taste of bot trading. Then you can expand in the direction that works for you once you start to get an idea of how everything works!