We know cryptocurrencies as an asset are volatile in nature, and most people see an advantage in this. Why? Investing at lower prices and offloading risks when markets are on the rise is great. However, as humans we need to sleep, eat and take some time out, and usually miss chances where we can earn a little extra.
However, if we can create algorithms that can automate this whole setup, we really wouldn’t miss a chance in making a profit. These are known as Crypto Trading Bots.
What are they?
Robots or bots that use algorithms to trade. It is important to note that most bots are not profitable. Bots usually generate profit and ideally this profit is greater when it is adjusted for risk, that is when your positive gains relative to your negative gains is a bit better. Over here you would choose the option which is more consistent instead of higher riskier returns.
So how do bots work?
Bots have 3 parts to its functionality
- Single generator: this usually helps make predictions
- Risk allocation: decides on how much to buy and sell
- Execution: executes the above by trading
These 3 functionalities have separate algorithms and optimization for the process to be completed
Bots are better than humans, right?
Bots are most consistent and monotonous compare to humans, they have an advantage with respect to speed, longevity, rationality, and capacity (space).
Do we need different algorithms to use bots?
You need 2 types of trading algorithms
- Momentum: This can be seen as, when prices are up, and we assume for them to continue to rise, we buy. Statistically the “win” does not often happen, but when it does its gain is quite large.
- Mean-reversion: over here prices are up, but we assume it’s because of a pull-back or drop in stock for a short period of time, so we sell. Statistically, winning is more common in this case, however the gain is much smaller.
But the most important question? Are bots profitable?
No!
- All commercial bots I’ve tried lost money compared to buy and hold, no matter what settings were tried. — intertron
- All commercial bots I’ve tried lost money compared to buy and hold, no matter what settings were tried. — intertron
- If bots worked everyone would use them. This does not discount the private bots used by BlackRock and other massive trading firms. We will never have access to the data and teams of devs that they do. — vibrate
- Its a good way to lose all your money….if people here don’t know what they are doing in the market I wouldn’t expect them to be able to […] set [a bot] up so it is useful. — Person51389
But the algorithms used are extremely profitable. Therefore, I believe in the near future when there is more access symmetric to information and people have more knowledge, this platform would be the most supported method of trading.
References:
https://towardsdatascience.com/crypto-trading-bots-a-helpful-guide-for-beginners-60decb40e434
https://www.reddit.com/r/BitcoinMarkets/comments/7jkc8g/anyone_have_success_with_gekko_or_other_bot/
https://www.reddit.com/r/BitcoinMarkets/comments/7jkc8g/anyone_have_success_with_gekko_or_other_bot/
