7 Best Crypto Trading Bots Strategies
When you are entering into the world of crypto trading it makes sense to know in-depth about crypto trading bots. They are nothing but software designed to execute trades on behalf of traders. The objective behind using crypto trading bots is to take benefit of profitable trade opportunities and make as much money as possible by timing the trades right. It is not physically possible for traders to stay glued to their computer screens 24×7; instead, they can program the bots with algorithms to run trades when they are asleep. They can do so by monitoring the market continuously and responding to it according to a set of pre-fixed rules.
Important Crypto Trading Bot Strategies:
- Arbitrage: This crypto trading bot strategy involves buying coins on a certain exchange and then selling the same coins in another to take benefit of the price difference between the two exchanges. This strategy is one of the easiest to master and guarantees quick, safe, and profitable trades.
- Market Making: The primary benefit of using this strategy is to avoid major price swings. You have to make sell and buy limit orders close to the existing market price.
- Momentum Trading: This means following trends where the trading bot will buy cryptos as you ride a positive wave and then sell the assets when the market trend reverses. The idea behind this strategy is that the asset cost will rise above the average and eventually run out of steam and decline. The momentum trader will have to evaluate the rise and fall of the market momentum.
- Mean Reversion strategy is based upon the assumption that when the price of any coin moves away from its average, it will come back to it ultimately. This assumption is held for both traditional and crypto market calculations. This typically happens because of the overall market sentiment; for instance, when crypto A has $1 as its average price and the price goes up to $1.25, traders will immediately sell the coin in bulk. This brings the price down once again to $1.
- Naïve Bayes trading strategy makes use of machine learning for deciding the probability of some event happening. So, information is provided to the bot and this helps it to determine the right entry and exit timings.
- Natural Language Processing (NLP): In the crypto world, prices of assets can go up and down depending on events happening around us, like breaking news, tweets, or articles. With NLP programs bots can be taught ways to interpret phrases or words and assess their underlying meaning.
- Copy Trading: This strategy allows bots to automatically copy trades of other successful traders. You can simply use the click of your mouse to emulate successful trades of others.
These trading strategies used by trade bots may automate tasks for you but that does not mean your involvement is not needed. You must still look into the basics of the trade and exercise due diligence. It is only the time-consuming or repetitive tasks that should be automated. Crypto trade bots can relieve you of much of the stress and boredom that you would have to endure if you were to engage in manual trades all the time. But, there is no one-size-fits-all strategy and you must carefully research these to choose a bot smartly.