Trading is very demanding when the user is anxious — mistakes are made and trading errors can be very expensive.
In order to minimize the damage from emotional stress and anxiety during trading, and to solve a number of other problems relating to human error, trading bots were developed. Their main purpose is to remove emotions from the decision-making process. A trading bot has no emotions, no euphoria, no fear, no excitement. Thus, it operates according to a predetermined trading strategy and makes decisions based on quantitative data and technical analysis — rather than on perceptions or expectations.
Emotional biases are the most common cause of failure in trading. Bots are effective in solving this problem.
Types of trading botsTrading bots are divided into two types:
Automatic trading botsFully-automated trading bots read market information, analyze it based on internal algorithms, and make the most efficient decisions from the point of view of machine logic. Typically, bots read information from trading indicators, such as the MACD, RSI, and/or moving averages.
The automatic bot itself:
- Gives commands on a crypto exchange
- Creates trade orders
- Monitors positions
- Decides when to close the position
In fact, an automated bot does all the work for the trader. But don’t get excited — despite the obvious advantages of such a decision, there are equally serious disadvantages.
A bot cannot perform fundamental market analysis. Market news, partnerships, agreements, failures, and lawsuits do not affect its assessment of the situation. There is a whole layer of very important information that bots cannot read, which still affects the market.
- A stable trading strategy
- Better than an aspiring trader
- Bad decisions can be made during times of high volatility;
- A lack of market flexibility;
- Limited analysis via quantitative indicators, only.
«We have two indicators: moving averages with different time periods — one with a period of 20 (a fast-moving average) and one with a period of 50 (a slow average).
The bot bases its trade strategy on their intersection, with the following conditions:
- When the fast moving average crosses the slow, bottom-up, we expect the price to rise and buy the cryptocurrency;
- When the fast-moving middle crosses the slow, top-down, we sell the purchased cryptocurrency.
As a result, the work of the automatic bot will be based on obtaining data from two moving averages — if they intersect from the bottom up, the algorithm sends an order to the exchange to buy a cryptocurrency. When the moving average intersects from the top down, the algorithm will send an order to sell the previously purchased cryptocurrency.»
Semi-automatic botsThis type of bot performs only one specific function that the trader assigns to it. These may be trade transactions that require the repetition of certain actions, such as the purchase of large amounts of a cryptocurrency using many small orders. If you do it with one big order, the asset price goes straight up — and that’s not what a big purchase of cryptocurrency needs.
What are the semi-automatic bots for:
- Making a trading operation with the right script. As described above, this could be a chain of small purchases or sales of cryptocurrencies or another combination;
- Finding the right moment to make a trade. The trader can give the bot a task to analyze the market in anticipation of a certain sequence of circumstances and then give the signal. The final decision rests with the trader;
- Processing applications and maintaining positions. In the event that the trader has a number of positions with different cryptocurrencies and has different trading strategies for each of them, and has the time and desire 24/7 to keep an eye on everything, it can pass the tracking on to the trading bot by giving it the necessary parameters to exit from each position.
The algorithm for tracking trader’s trading positions is also on the KickEX. It is called «Trailing Stop».
«You buy a cryptocurrency and input a stop loss — which saves the trader from losing the deposit if the price of the cryptocurrency starts to fall. The "Trailing Stop" algorithm, according to the settings we set, will move the stop loss in the desired direction whenever the cryptocurrency rises in price. In case of a strong increase in the cryptocurrency’s price, the stop loss will be moved up (the sale price will be equal to the purchase price) and move higher as the price increases. In case the cryptocurrency price starts to fall, the stop loss is activated and our cryptocurrency will be automatically sold — which will allow the trader to take advantage of market movements and leave the position as soon as the trend changes.»
Arbitrage botsAs the name, arbitrage bots do not trade within the exchange, but use the exchange rate difference between multiple exchanges. It is at the expense of the difference, trading between the crypto exchange, that the bot takes profit.
«You have 1 BTC and 10,000 USDT on KickEX and the same deposit on Binance. You can see that the Binance BTC costs 300 USDT less than the KickEX and you want to play on the difference. You configure the arbitrage bot to purchase the BTC on Binance, then sell it on KickEX and transfer the USDT back to Binance. You set the necessary conditions and leave the bot to do its work».
Kickex Bot Instruction
- First of all, define the functional bot for your tasks;
- Register your KickEX account;
- Privately generate the API keys with which the bot will connect to the exchange and conduct trading;
- The bot will be authorized by these rules;
- The bot will receive data through these queries;
- Orders for the bot;
- Get the balance here;
- After all your actions, replenish your balance with a small amount and test to ensure the bot works;
- If you are satisfied with the real-world testing process, start the bot.
Risks with trading botsAny operations with bots must take into account the risks of their use. Automated bots don’t see the whole situation on the market.
To avoid this sever losses, use your deposit insurance instruments as much as possible, such as:
- SOM (sell-only mode) when the bot is in asset-only mode;
- Stop-loss — a mechanism for selling an asset if its price has dropped below a certain mark.
You can also test your selected bot with the following mechanics:
- Backtest (backup) — you test the efficiency of the algorithm based on historical market data;
- Paper trading — trading in a demo account.
This material has given you an introduction that will help you decide whether to use an automated bot for trading, what option to choose, how to test it, and how to protect your deposit. Remember, bots are just an additional tool for trading — taking on the routine part of the work — and are not the ultimate solution to all problems.