Would you confide in a computer program? Of course you would. We are surrounded by hundreds of programs that make our life easier, and we are used to having everything one click away. But in the cryptocurrency trading business, it is not that simple.
As you are about to see, using a crypto bot does not ensure profit. Bots are not inherently good or bad, and their success depends on a number of variables. This article will explain the basics of cryptocurrency bot trading and the way bots function, cover their pros and cons and show examples of using a real bot and a scam bot.
How do crypto trading bots work?
Earlier, bots used to be a simple automated buyer and seller. What does that mean? It means that they act based on parameters that you input. Simple as that. Let’s say a specific coin is worth $200. You can set your bot to collect a small 10% profit anytime the market goes up, which means you get $20 in this scenario. Then you set an “escape plan”, which comes into play if your coin starts going down. In that case, you instruct the bot to sell the coin and reduce your losses before it drops even further.
Bots of this type are still used today, but they are not everything the bot market can offer. For several years now, advanced technical bots have been dominating the market. Intermediate and advanced traders use them and they offer a lot of options, such as algorithms for predicting price movements. These are the bots you want to go for if you think you have a sound long-term strategy.
Crypto bots advantages
Advantages are abundant, but this carries a lot of ‘ifs’ along with it. First and foremost, bots are a great resource for automating your trading process — if your strategy is good, automatization is consequentially good.
Next, a bot extends your reach and potential. Imagine having five or more bots working in unison and bringing you greater profit figures. Also, they are emotionally neutral, which plays a huge role in preventing you from tilting, they don’t get tired and they save a lot of precious time. This all surely sounds like a strong pro-bot statement. And it mostly is.
Crypto bots disadvantages
On the other hand, the number of problems you can run into is in some cases equal or greater than the benefits. How so?
Well, for starters, when you expand your reach so much you get great potential for profit, but you are also at risk of losing more than you would without a bot. Then, there are different types of bots, each with different logic and structure. You may use the wrong bot for your specific strategy, which of course causes losses.
We would add to the list of disadvantage their appealing nature, too. This is because trading bots are especially attractive to new traders, which, of course, often makes them part with their money. Even intermediate traders may fall into the trap of relaxing too much and relying primarily on the bot instead of themselves.
Yes, scamming bots are blooming like crazy. Ironically for us, honest traders, to them this is a great opportunity to profit. For example, ScammerWatch debunked a now famous case of a fraudulent bot, Bitcoin Cycle.
Licensing does not check out, they paid for dozens of fake reviews, and they promised to make you rich overnight. Those are the red flags you ought to look for when choosing a crypto bot.
Are crypto trading bots legal?
In fact, bots are perfectly legal to use. Although some people call out bot users for not playing fair, there are no known cases of a major platform banning bots.
How to start using crypto trading bots?
The key is always to get informed about different types of bots and find the one that suits you best. The options are everywhere, with some bots being free and some not. Just remember to read reviews before starting and don’t rush; downloading and executing the bot will be really easy afterwards.
Bots are more or less catalysts of all that is good and bad in your strategy. If you are successful without them, they will make you happy by multiplying your profit. Conversely, if your strategy is bad, you will curse the day you first started using a crypto bot, because it will expose all the strategic flaws and cost you a lot.
Author of materials on the topic of cryptocurrency, also an active cryptocurrency trader.