Automated Cryptocurrency Trading Explained
Crypto algo trading is an automation of cryptocurrency trading strategies. Algorithmic cryptocurrency trading uses automated software to buy and sell your assets using a computer program to automatically trade cryptocurrencies instead of manually.
As smartphones permeate increasing layers of society, crypto algo trading has emerged as one of the most prominent ways for traders and investors to enter the volatile world of digital currency assets from the palm of their hand. Even for traders who are experienced in the field, the idea of algo trading can be daunting. However, as technology advances and opens the door to new markets and new investors hoping to turn a profit, crypto algo trading has emerged from the corners of the industry to grow into a significant portion of the industry and something that can cause seismic shifts in the market.
Start trading cryptocurrencies with ByBitWhat is crypto algo trading?
Crypto algo trading simply uses automated software to buy and sell your assets at a particular price. Large institutional investors, who trade with millions, or sometimes tens of millions of dollars worth of cryptocurrency at any given time, are renowned for using sophisticated algo trading bots to measure price activity and buy and sell their assets at the best price.
With the rise of AI in crypto trading acting as an accelerant in this area of the trading world, increasing numbers of traders are seeking out the best algorithmic trading software for beginners as they enter the market, trying to utilize this technology to their advantage.
Once the asset hits your chosen price, it sells instantly, quicker than any manual order, and often operates within a strict set of parameters. As computer programs become more advanced, more money flows into companies developing the technology and software that underwrites cryptocurrency trading algorithms. The influence continues to impact the market to a greater extent, and it operates just as efficiently in the opposite direction, buying your asset instantly as soon as it hits your preferred price.
Pros and cons of algo trading
As with any new technology in the volatile world of cryptocurrency trading, it's not a one size fits all approach, and there's no way of guaranteeing a profit from your trade, regardless of how much analysis you do or how many "experts" you follow on Twitter. Do expert advisors really work? There's a vigorous debate among crypto traders and enthusiasts about how effective it can be following anybody who claims to be an expert.
Still, some traders have made a lot of money and know how the market works. While algorithmic trading cryptocurrency removes the manual aspect of setting up a trade, experts use plenty of cryptocurrency trading algorithms to try and churn out a passive income alongside their primary trading strategy - and no two traders have the same method.
Understanding the basics of cryptocurrency is an essential starting point. However, developing a trading strategy is the next critical stage once you have this knowledge and understanding. Ultimately, you need to find a strategy that works for you, and crypto algo trading is just one tool as part of a broader strategy. So let's take a look at some of the positives and negatives.
👍 Pros
• The biggest thing that causes traders to lose money is impatience and trading on emotion. It doesn't matter what market you trade, whether in commodities, stocks, or Forex; this applies across the board, and the best Forex robots have the same benefits as the top crypto algo trading programs; there's no mutual exclusivity between the markets
• By far the most significant positive that cryptocurrency trading algorithms offer is that they mitigate losses incurred because of emotional trading. Crypto algo trading allows you to trade purely on the data and numbers instead of getting caught up in emotion, which can quickly lead to severe losses. Given that you're putting your strategy in the hands of a robot, the trade will immediately execute at a lightning-fast pace
• Therefore, in the event of extreme volatility, where sometimes the markets drop and bounce back so ferociously that you can miss your entry and exit points, this is something that cryptocurrency trading algorithms can manage for you and help protect you from the most turbulent market conditions
• Cryptocurrency algorithm trading platform costs are lower than if you were to place single orders manually. Exchanges prefer crypto algo trading because it allows a more efficient and streamlined way to buy and sell crypto assets. This means traders can take advantage of sharp price turns and benefit from lower trading fees
• As AI continues to advance and increase in intelligence, the ability of crypto algo trading bots to register and analyze vast amounts of data and assemble effective strategies around this information increases in sophistication at a non-stop pace, which continues to give advantages for crypto algo traders implementing the latest tech
👎 Cons
• As with any new, exciting, emerging trading method, crypto algo trading is not a faultless or flawless system. Sure, removing human error and the complacency of emotional trading is a strong asset to have. However, there are negatives to look out for when using a cryptocurrency algorithmic trading platform, and understanding the positives and negatives is pivotal if you use algorithmic trading to your benefit
• Understanding a market and its workings is an essential aspect of any trading mentality, and the same applies to algo trading. Putting your money into an algo trading bot and thinking it's a magic money tree isn't how it works, and understanding how the programming process underpins this groundbreaking technology is imperative
• You don't need to know the intricacies of computer programming, but getting to grips with the basics is crucial - understanding that not all strategies can be automated and that some algorithms have a short life span are two key components. It's not a case of putting your funds into the trading bot and leaving it to accrue passive income; you need to be more proactive and pragmatic and monitor your usage when there's an issue with the algo bot
• Another argument that some traders have put forward is that an algo bot removes practical analysis and time spent in the market. There's no substitute for hands-on experience in assessing the live prices of markets, what causes dips, and how to understand the natural movement of the crypto market - leaving this entirely in the hands of technology isn't a good idea, and using a crypto algo trading bot to supplement your strategy instead of using one to dominate it is a wise move
Is crypto good for algo trading?
Regardless of the market you trade, there's always room for opportunity - knowing what to look for and when to strike is where most of the skill lies. Cryptocurrency, in particular, is extremely volatile, and with significant volatility, risk and reward can be two sides of the same coin.
While algo trading permeated the industry in the late 1980s and is now the number one method in which institutions trade, cryptocurrency is privileged to have much sharper dips in price so that traders who know what to look for can take advantage of it and make a significant profit.
Ultimately, crypto algo trading bots can take advantage of these sharp fluctuations. Given that digital currency markets are much more susceptible to ferocious dips and swings in price than almost any other trading market. This does provide ample opportunity for those who know what they're doing and want to use a crypto algo trading bot to supplement their strategy. In addition, algo trading bots allow you to buy and sell without having to keep a 24/7 lookout on the price. An algorithm crypto bot will execute your trade in the middle of the night or while you are busy and don't have eyes on the market.
Can algo crypto trading be profitable and safe?
Any method of trading can be profitable, but they all carry risks. While some can be safer than others, the most important way to safely insulate yourself from the most serious market dips is to instill proper risk management into your strategy. A crypto algo trading bot is one way to effectively manage risk as you set your buy and sell order and don't allow emotions to dictate your strategy or "move the goalposts" and stay in the trade longer than you planned.
As discussed at the end of the last section, a cryptocurrency algorithmic trading platform allows you to buy and sell your assets regardless of the time, day, or night. Setting entry and exit points and appropriate stop loss and take profit limits to help manage your losses and risk in the event of a complete market capitulation.
If you have been in cryptocurrency long enough, you'll know that these circumstances are more common than many traders would hope, with a few seriously rough days over the last 18 months, to say the least. However, effective risk management stops you from taking losses that can happen abruptly and painfully. Ensuring you understand these markets, algo trading and risk management comprise an excellent foundation for a strategy that might help you profit in these incredibly volatile markets.
Best crypto trading bots for algo trading
Cryptohopper – best overall crypto bot
As one of the highest-rated crypto algo trading bots, Cryptohopper has some excellent features including:
Over two dozen indicators to choose from
Being able to use it across all of the top 5 crypto exchanges (based on volume)
Implementing risk management tools like trailing stops and DCA (Dollar Cost Average)
Instructing your crypto algo trading bot to scalp trade amongst other specialist trading methods such as arbitrage trading
Programming your bot to detect a breakdown in price which could indicate a bear market. Likewise, in the other direction for a bull market
With an accessible app and no navigation issues, Cryptohopper is considered the top algo trading bot on the market today. It accepts payment in dozens of currencies (standard and crypto) and can implement your strategy effortlessly
Coinrule – best crypto bot for strategies
Although Cryptohopper is considered the top crypto algo trading bot as an overall package, there are elements of Coinrule that outshine its competitor. Firstly, Coinrule has zero trading fees, regardless of the crypto trading bot you use. At the same time, it bears similarities with Cryptohopper in that you can use it across all of the top exchanges and for broadly the same strategies. There are over 200 strategies you can automatically select and use immediately; it's clear why Coinrule is the market leader regarding the scope of strategies to select from.
Best crypto exchanges for algo trading
The market for bots is much smaller than it is for algo trading. With multi-billion dollar exchanges fighting it out, they are all hoping to steal a march on their adversaries, given how much potential profit is if they can get the formula right. Most analysts believe that over 50% of all trading is algorithmic, so if exchanges can establish themselves as the premier destination for these hugely sophisticated and profitable programs, they'll reap the rewards.
ByBit
With over $3.5 billion in assets and a 24-hour volume that regularly exceeds $500 million, ByBit is an exchange snapping at the heels of the more prominent exchanges in the industry, like Coinbase and Binance.
One battleground they're keen to get ahead in is that of algo trading, and ByBit is renowned for being accessible and compatible with those investors who are looking to turn a profit by using a crypto algo trading bot. Irrespective of whether you are a professional trader or a retail trader looking to make passive income, ByBit has been earmarked as a growing exchange with an excellent range of algorithmic trading options.
OKX
Unbeknownst to many traders, OKX is the second biggest exchange based on trading volume and has some of the top algorithmic trading bots to choose from within the industry. Both ByBit & OKX have a set of criteria to rank the quality of trading bots so that you can make an informed decision before you use one to perform your algo trades. If you want to implement scalping, trailing stops, or leverage into your trading, OKX can facilitate your trading needs. However, do not put your money into products or automated trading bots you don't understand.
Summary
The innovation of algorithmic trading was a luxury afforded to institutions that operated in the stock market throughout the 1990s and early 2000s. However, thanks to the rise of cryptocurrency, DeFi, and a greater scope of knowledge facilitated by the internet, they have become the tools of many proficient retail and professional traders.
If you're a beginner, ensuring you fully understand crypto algo trading before investing your hard-earned money is crucially important, and even if you do grasp the idea, there's no guarantee of making money.
FAQs
Is algo trading crypto profitable?
It can be highly profitable, but it's all about understanding the market and what to look for. Patience, risk management, and keeping emotions at the door are all signs of an excellent trader; these aren't skills you learn overnight. They take time and patience and often cost you money before you become a profitable trader.
What is crypto algorithm trading?
Simply put, it is leveraging AI and automated technology to perform your trades for you at predetermined levels. Depending on the analysts you study, some believe up to 80% of trading is algorithmic. Still, the general belief is that it is between 50% and 80%, accounting for trillions of dollars daily.
What is the most profitable crypto trading strategy?
Knowledge, patience, and the ability to understand what drives the market is more critical and has more scope for profit than one specific, rigid strategy.
How successful are algo traders?
It depends on the trader, the cryptocurrencies you trade, and how risk-averse you are to trading. Only 15% of retail traders make a profit and the ones that do rarely have the same approach.
Glossary for novice traders
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Trading
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
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Broker
A broker is a legal entity or individual that performs as an intermediary when making trades in the financial markets. Private investors cannot trade without a broker, since only brokers can execute trades on the exchanges.
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Cryptocurrency
Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.
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Algorithmic trading
Algorithmic trading is an advanced method that relies on advanced coding and formulas based on a mathematical model. However, compared to traditional trading methods, the process differs by being automated.
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Crypto trading
Crypto trading involves the buying and selling of cryptocurrencies, such as Bitcoin, Ethereum, or other digital assets, with the aim of making a profit from price fluctuations.
Team that worked on the article
Anthony is a contributor to the Traders Union website with experience in finance, investing, and cryptocurrency writing. He gained higher qualifications in Business & Economics and studied English at Liverpool Hope University before pursuing his passion for creative, engaging writing within the financial sector. He is proficient in writing about finance and cryptocurrency markets, and also enjoys writing about football and boxing.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).