Which Bot is the best for you?
A trading bot is one of the most widely used software in the cryptocurrency world by traders. If you are a trader or choose trading as your first or second job, you must use trading bot as a prerequisite. However, trading bot refers to a large set of trading software that helps make money in various ways. Bots also have multiple features, and each bot may offer one or more options. In such a situation, many people interested in cryptocurrencies and trading do not know what bot is right for them. If you have such a question, stay with us until the end of the article.
How Do Trading Bots Make Money?
Many people may be wondering how a trading bot will make money. Bots do not make magic. This computer software will automatically profit you just by buying and selling in the market. For example, the price of two cryptocurrencies may be different on two different sides of the world, or one cryptocurrency may have reached its ATL price. Bots act in such a situation and trade instead of humans.
The main advantage of trading for traders is the very high speed and accuracy. However, many traders also use bots to monitor the market at 7/24. Such a thing is impossible without the use of trading bot.
Types of trading bots
As we said, a trading bot earns money in different ways. We will overview the most important trading bots that you can use in the following.
Arbitrage Bots
The most popular type of trading bot is the arbitrage bot. When the price of a crypto is not the same among crypto exchanges, there is an opportunity to earn money, which is called arbitrage. Arbitrage means buying an asset at an exchange at a lower price and selling it at another exchange at a higher price. This method is very popular because it can be done in bullish, range, and even bearish markets and does not require much market analysis.
Arbitrage trade can also be done manually, but the buying and selling speed must be very high. Prices usually fluctuate rapidly in exchanges. Also, the transaction of crypto withdrawal from the exchange and the time of confirmation of the transaction on the blockchain network makes arbitrage not profitable manually. Arbitrage trading bots do this through APIs connected to the exchange, which is very fast.
Portfolio Automation Bots
These types of bots are commonly used to manage people's portfolios. Some people interested in investing in several cryptocurrencies can use portfolio automation bots to manage the portfolio. Portfolio bots usually have limited features and do not analyze market conditions, and buyers use these bots to do time-consuming tasks manually.
Some advanced portfolio trading bots have additional features. For example, some portfolio automation bots average up when the crypto price in the portfolio falls below a certain level. Others sell it quickly and add another crypto to the cart.
Signal Trading bots
If you are familiar with technical analysis tools, you must know that every trader buys crypto according to this tool. It is what the trading signal does. This bot uses several ideas to increase purchases, trend power, etc., to set buy and sell signals. These bots usually use a limited number of indicators and usually tell you which crypto has the potential to buy and sell. The trading bot signal may not set buy and sell orders and may not give you entry and exit points. Some more advanced signal generation bots have this capability.
The big drawback of these bots is that they do not work well in bearish markets. It is because these bots only look at cryptocurrencies separately. If you are a professional trader, you know that more than 40% of the total cryptocurrency capital is on Bitcoin, and a few percent reductions in the price of Bitcoin can make the whole market red for days. This type of trading bot does not take such conditions into account.
Artificial Intelligence Trading Bots
Artificial intelligence bot is designed to fix the defect of single trading bots. This type of bot tries to use artificial intelligence science and its sub-fields such as machine learning and neural network to study the market. This science tries to make computer code smarter to learn a process instead of executing it. Learning in this science is done so that coefficients are plotted on a graph for the distance to the specified point, and better results are obtained with each (most) repetition.
Artificial intelligence trading uses technical analysis (and sometimes fundamental analysis) and combines it with machine learning. The bot analyzes the entire market and decides to examine the circumstances of a particular coin. However, in the early stages, there may be failures. The failure, of course, becomes less and less with each repetition of the trade, so much so that it is not possible to distinguish bot performance from a human. In other words, the bot has become as much an intelligent professional trade.
However, using this bot does not require knowledge of artificial intelligence. All you have to do is turn on the bot to trade daily.
Conclusion
Different bots are used in the cryptocurrency market, each with advantages and disadvantages. It would help if you found the right bot for your preferences. Arbitrage bots are suitable for people who are looking for small daily profits. Portfolio management bots are designed for people interested in holding and long-term investment. Buy/sell signal bot is also for people who intend to make limited trades daily in bullish market conditions.
If you are a professional trader or want to have many trades per day, an artificial intelligence trading bot is the best option for you.