Bitcoin is the most popular cryptocurrency by community support, asset value, and trading volume. This has made many investors interested in its trading. However, like other cryptocurrencies, its volatility can be a challenging issue to overcome, especially as a beginner trader. Many even consider Bitcoin the first Decentralized Autonomous Organization (DAO) because it’s an entity without governance by a central authority.
However, it doesn’t stand as a DAO in today’s standards and definition. But it’s still not regulated by a central authority, and therefore prices can rise and fall uncontrollably. Fortunately, technology has made it easier for traders and investors to automatically trade without constantly monitoring prices.
What is Automated Trading
Automated trading is the use of algorithms to trade. That is, buy and sell bitcoin or other cryptocurrencies. You can use different strategies to execute trades based on your portfolio’s proportion value, asset price, or technical indicators. Automated trading is excellent when you have limited trading time or don’t want to hold and speculate bitcoin.
You’ll need automated trading software or trading bots to execute trades on your behalf. To automate trading on a platform, you need to open an account and choose the strategy you prefer to use. Once selected, the program will buy and sell your bitcoin based on the software parameters.
Many automated trading software work as application programming interfaces (APIs). A Bitcoin API trading bot will act as the intermediary by trading for you on the exchange platforms. New advancements in automated trading operate on the blockchain instead of an API or website. They use smart contracts, which is a set of code that automatically executes predetermined functions.
Types of Bitcoin Trading Bots
The following trading bots are mainly based on the common buy and sell strategies common in crypto markets as well as traditional markets.
- Trend trading bots: These bots take advantage of the asset’s momentum when executing trade orders. When the bitcoin price shows an upward surge, the bot automatically enters a long position and a short one when the price drops.
- Arbitrage bots: The arbitrage trading bots utilize the differences in bitcoin prices across various markets, allowing you to benefit from the imbalance.
- Coin lending bots: This bot offers an exciting way to earn with bitcoin by lending coins to margin traders. Automating this process enables you to get the most favorable interest rates.
Benefits of Automated Bitcoin Trading
Automated trading can work for novice, expert, low and high-volume traders. It’s also a good option in OTC bitcoin trading. Here are the benefits you can get when you automate bitcoin trading:
Timing: Because trading bots execute trades bases on preset rules, they buy or sell your coins faster than you would manually. They’re also quicker at analyzing trends and making the most favorable trading decision based on your chosen strategy.
Lack of Emotion: A trading bot effectively removes emotional trading from the equation. With bitcoin being quite volatile, fear of missing out can affect your trading decisions, and you end up losing. A bot only trades according to the market analysis and not a ‘feeling.’
Consistency: A bot can operate non-stop without needing a rest, making them more consistent than the most experienced trader. All you need with automated trading is to set the trading parameters and specific indicators, and the bot executes your trades any time of day.
Repetitive tasks: If you’re a market indicator trader, a bot does all the work for you.
Time-saving: Instead of being held up marking market analysis, a trading bot saves you immense amounts of time because it watches the market and executes trades on your behalf. If you don’t have time or the capacity to monitor the bitcoin market constantly, a trading bot is the best option.
Disadvantages of Automated Bitcoin Trading
On the flip side, automated trading also has some drawbacks, including the following:
Lowered security: bitcoin trading bots are ordinarily secure. However, you need to hold your bitcoins in an exchange platform that has a likelihood of experiencing a cyberattack, although most exchange platforms have proper security measures in place. A hardware wallet is a more secure place for holding your bitcoins.
Failed trading strategy: You need to keep a close eye on the bitcoin market even when a bot is trading on your behalf. With bitcoin being too volatile, your trading strategy may need to change from time to time.
To Automate Bitcoin Trading or Not?
Notably, automated trading is not a guarantee that you’ll get a good return on your investment. Trading, whether manually or through trading bots, is risky. Besides, bitcoin is very volatile and unpredictable. Relying on technical indicators may not always work. However, they present an excellent chance to beat the market when the strategy and the trading parameters are just right.
Also, automating bitcoin trading saves you time and makes more precise orders faster than you can do manually.
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