How To Automate Bitcoin Trading?

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How To Automate Bitcoin Trading?

Bitcoin is the most accepted, traded, and valuable cryptocurrency. It has come a long way since its launch in 2009 and virtually all crypto exchanges offer bitcoin on their platform. If you’re looking to trade bitcoin, you should consider using crypto trading bots. This article will touch on what trading bots are and will provide tips on how to use them for automated bitcoin trading.

The Concept Of Automated Bitcoin Trading

Crypto trading bots are software designed to help crypto investors trade automatically round the clock. These crypto trading bots come in different varieties including the bitcoin trading bot which is the main focus of this article. Automated bitcoin trading is made possible with bitcoin trading bots. It goes a long way in helping investors who do not have time to monitor the crypto market 24/7.

You can enjoy automated bitcoin trading using bitcoin trading bots that can effectively trade on your behalf. All you need to do is input your preferred market parameters. When the market is within your chosen market parameters, the bitcoin trading bot executes the trade on your behalf. This saves you from constantly monitoring your screen for market changes and allows you to focus on other things.

Are Trading Bots Worth It?

Investing in a bitcoin trading bot so you can enjoy automated bitcoin trading is not a totally bad idea. It saves you time on trading and eliminates the emotional element in trading decisions. If you’re a bitcoin investment beginner, this is a good asset to have. It will help make the right decisions, albeit based on the predetermined market parameters you set. However, to fully enjoy the potential of a trading bot, you must do your research on the particular bot you want to go for.

This is for you to ascertain its functionalities and features to ensure it is as effective as promised. Some of these machines are used as scams, your research will help you avoid falling into their traps. Also, you need to be knowledgeable about bitcoin trading. You need to understand the crypto market and how it operates so that you can maximize the use of the trading bot. It is the parameters you input that it will act on.

crypto trading bots

So, if you do not understand the market and you input unfavorable parameters, it will go ahead to execute as you instructed. Therefore, if you can do your groundwork, then bitcoin trading bots are an investment worth every dime.

Pros & Cons of Using Bitcoin Trading Bots

Using bitcoin trading bots to achieve automated bitcoin trading could just be what you need for easy trading. It is best to use when the market is experiencing so many movements that you may not be able to monitor because of your busy schedule. All you have to do is set your preferred market parameters you want to take advantage of and the trading bots will execute it for you, no hassle. For example, if the market is experiencing a dip, you can program your bot to sell your Bitcoin when the price hits a threshold of $10,000 to make little gain before it dips further. Below is a list of some pros and cons of using trading bots:

Pros of Automated Crypto Trading

Timely Decision making

Trading can be complicated sometimes, even experts can be slow to decide in certain situations. But a trading bot saves you this problem by analyzing market situations as fast as possible. It makes the necessary trading decision in a timely manner to maximize your profit.

No Mistakes

When trading, an investor may make mistakes in his or her analysis of the market. This may be due to the level of expertise in trading and probably the trader’s state of mind. These are what we call human errors. A trading bot helps you avoid these errors as it analyses very clearly and free of any emotions using signals and algorithms.

Higher Volume Of Trading

A crypto trading bot can monitor, analyze and trade a higher volume of market situations more than humans. A trading bot is also able to trade on multiple crypto exchanges which guarantees the maximization of profits.

24/7 Trading

With a trading bot, you do not have to worry about having time to watch the market. Set your parameters and you are good to go. The trading bot will watch the market round the clock and make shrewd trading decisions based on your set parameters.

Cons of Automated Crypto Trading

Scam Bots

Some of these trading bots could be a scam. Some people promise that their trading bots can make you rich in no time. This is most likely a scam. Trading bots cannot guarantee you a specific amount of profit because it works according to the market parameters. Do not fall for this. Some people will offer you trading bots to gain access to your crypto account to withdraw your assets. These are scams you should be wary of.

Not Easily Built

Building a trading bot could be quite a difficult task as it requires sophisticated programming language and deep knowledge of technical analysis. Safe to say that not everyone can build a crypto trading bot.

Technical Bugs

Sometimes your trading bots may be affected by bugs that will make it take wrong trading decisions that may incur losses. This happens especially when you cannot perform a code review of the back-end source code of the trading bot.

Some Monitoring Is Required

It is advisable to always check in on your trading bots to ensure that it is making profitable trades. You still need to check on it from time to time to ensure all is in order. You also need to understand the crypto market space to be able to set profitable market parameters for it to trade with.

Legality, Cost & Taxes Of Bitcoin Trading Bots

Before buying or building a trading bot, there is preliminary information you should know. Things like the cost, the legality of its use, and the tax implication of your earning by the trading bot.

Legality

Bitcoin trading bots are convenient trading software you can use to maximize your bitcoin investments. They are available to trade all kinds of cryptocurrencies including bitcoin. The crypto space in itself still has a bit of ambiguity when it comes to its legality in many countries around the globe.

It is only natural to want to know whether using trading bots is legal. Trading bots have been in existence and they are being used in the traditional financial market to trade stocks, bonds, and the others. The laws guiding the use of trading bots in the financial markets are explicit as they provide for how who and who cannot use trading bots.

This is absent in the crypto space but the rule of thumb is that whatever is legal in a general market will ordinarily be legal in a sub-market. This applies to using bitcoin trading bots. As long as you are not involved in the making or buying of pump, dump, or spoof bots, you are on the good side of the law. Therefore, it is essential to do your due diligence on the trading bot you want to go for. It is illegal to use trading bots in countries like China, Russia, Algeria, and Ecuador.

Cost

There are both free trading bots and paid trading bots you can use for your bitcoin trading. The free trading bots only charge transaction fees while the paid trading bots charge monthly subscription fees ranging from $15 to $85, depending on the bot you subscribe to.

Taxes

Your earning from automated bitcoin trading is subject to the same tax rules as to when you are the one trading. Using a trading bot does not exclude your earning from being taxed. The same IRS guidelines (15% capital gains tax on bitcoin held for more than a year before trading) will be applicable when collating your earnings for your tax filing. In the UK, once you make a profit of over £12,300, you are liable to pay tax. You can read more about how to cash out large amounts of Bitcoin in this guide.

How To Start Trading With Bitcoin Trading Bots

Automated bitcoin trading is very useful in the crypto market because of its 24/7 flurry of trading activities. Bitcoin trading bots will monitor the market situation round the clock and make trading decisions that are in line with your inputted market parameters. For beginners, please bear in mind that trading bots are not immune to the inherent risk of the crypto market.

With this in mind, it is advisable to start simple and go for a pre-built and already hosted trading bot. This is so you don’t have to go through the hassle of familiarizing yourself with coding/programming language or hosting software. Beginners should also note that not all bots work with every exchange. Confirm this before you set up your bitcoin trading bot. Intermediate and advanced trading bot users can decide to build their trading bots to their taste.

Each trading bots have its own terms and conditions and peculiarities of how they are compatible with every crypto exchange. Here are some tips on how to set up and trade with bitcoin trading bots:

Step 1

The first step is to set up your trading bot by creating your Application Programming Interface(API) which allows your trading bot to communicate with your preferred exchange. You can do this by creating a key, secret code, or password, depending on the crypto exchange platform you use.

Step 2

After the setup, remember to keep your API details safe just like to keep your crypto wallet details. Anyone with your API details can make trades on your account. Also, do not give your trading bot access to withdraw from your account. Else, anyone with your API detail can not only make bad trades on your account, but such a person can also make withdrawals. The only time you can give your trading bot access to withdraw is if you are into arbitrage trading.

Step 3

You should also create strong passwords and a two-factor authentification to make it difficult for anyone else to access your account. You can also use different emails for each of the platforms your trade on.

Step 4

After the setup, you can now select bitcoin as the asset you want your trading bot to trade. You can also choose to select other cryptocurrencies available on your preferred exchanges.

Step 5

The next step is to choose the trading parameters you want the bot to follow. This is where you determine how much you want the bot to buy or sell, the duration an order stays open, or the cooldown time between making orders. Basically, just set it up how you would trade, the trading bot will help you make the decisions faster and for when you are not available.

Step 6

The next step and probably the most important step is choosing your trading strategies. For beginners, you can go for pre-defined strategies provided by the trading bot platform while you learn some other strategies on your own. Intermediate and advanced bot users can select from a variety of technical analysis indicators to choose their trading strategy. You can start from simple strategies and graduate to the more sophisticated strategies as you advance in your learning of different trading strategies.

Step 7

Don’t forget to live test or backtest your automated bitcoin trading strategies before inputting them into your trading bot. Luckily, most trading bot platforms allows you to simulate your strategies either by backtesting or live testing. You should bear in mind that backtesting only allows you to test your strategies on historical market situations while live testing tests your strategies on current market happenings. Things could change in the future when you really want to use the strategies.

Step 8

Automated bitcoin trading is not loss-proof. Bots lose money too because of the strategies you input. Ensure your strategies makes more profit than losses. You will also from time to time need to make trades manually. Remember trading bots are programmed. You might want to change your position before the trading bot is programmed to do so.

Step 9

Intermediate and advanced trading bot users may be familiar with technical analyses. For a beginner, it is essential to learn technical analysis so as to be able to maximize your trading bot.

How To Choose The Best Trading Bot?

There are quite a number of bitcoin trading bots you can use but it is important to do your homework before making a choice. There are things to look out for that will ensure you pick the best bitcoin trading bot. Here are some tips on choosing a good trading bot:

Free Trial

It is ideal to go for a trading bot that allows a free trial. A free trial allows you to test-run a trading bot to confirm its efficiency before going ahead to purchase it. Cryptohopper offers free trial usage.

Livetesting & BackTesting Features

Before you make your choice, ensure that the trading bot has strategy features that allow you to backtest or livetest your intended trading strategies. This will allow you to see how they will perform against historical and current market situations. Cryptohopper trading bot has backtesting features.

Social Trading Features

This allows you to develop your trading strategies by following a carefully selected pool of other traders for better insights on trading strategies. 3Commas is an example of a trading bot with social trading features.

Choose A Cloud Based Trading Bot

This is the tested and trusted type of trading bot and it is the one you should go for. You may come across trading bots that are server-based, ensure you avoid those types of trading bots. Trade Santa is an example of a cloud-based trading bot.

Customer Support & Tutorials

Ensure that you use a trading bot platform that has a good record of user support and also provides tutorials on how to use their trading bots. The tutorials may be in form of videos, training modules, or blogs. Coinrule has impressive customer support with guidelines on how to use it for trading.

Tax Collation

Once you start automated bitcoin trading, it may be difficult to keep track of your earnings and losses for tax purposes. It is advisable to go for trading bots that have tax integration software for easy computation of your profit and losses. You can also research crypto tax software that is compatible with your trading bot platform. TaxBit is an example of an integrated API tax Calculator.

Some of the best crypto trading bots you can use on exchanges such as Binance, Coinbase, and Kraken include: Zignaly; Coinrule; Shrimpy; Cryptohopper; Gunbot; cryptoTrader; and 3Commas.

Alternatives To Automated Bitcoin Trading

While automated bitcoin trading has its advantages, there are other types of trading methods you can use that can still earn you as much profit as you want. Some of the alternatives include:

Buying and Hodling

This is a common method, especially for long-term investors. It involves buying the bitcoin and keeping it with the hope that it will increase in value over a long period after which you can then sell for profit. It is a passive form of investment that does not require your everyday attention.

Day Trading

Day trading is a more active type of trading wherein you will have to continually check the market situation so you can change your position to a favourable one. This is however done in a single day. This means that you are not exposed to overnight fluctuations in the market. you start and end your trade on the same day. This type of trading is only suitable for short-term price movements where you can take advantage of the volatility of the value of bitcoin within the same day.

Best Exchanges for automated crypto trading:

Conclusion

While it is not compulsory to use bitcoin trading bots for your crypto trading, it is guaranteed to make trading easier if you can do your research and understand the crypto market. Other alternatives to automated bitcoin trading include arbitrage trading and leverage trading.

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