A trading bot is a computer program that uses an algorithm and artificial intelligence to automate trading for financial market investors. Trading bots make investing easier because they allow traders to determine at what price, an asset will be bought or sold. Using this information, investors can engage in smarter, more profitable trades, but how successful are these trading bots?
Trading bots are relatively successful in helping beginners make money in the financial markets. However, each trader’s success depends on the accuracy of the bot they use and their level of involvement with it. Traders can make money with bots, but leaving bots unattended could result in losses.
Further in this article, we will discuss how trading bots work and the primary advantages and disadvantages of using them. Additionally, I will also share a few trading bots that are time tested to deliver healthy returns in the cryptocurrency markets, and various red flags to watch out for when in the market for a trading bot. So, without further ado, let us get started!
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
How Do Trading Bots Work?
The world of capital markets changes at a rapid pace and it’s almost impossible to keep up with the market’s volatility and still have a job or participate in activities you enjoy. Consequently, trading bots were created.
Trading bots track market fluctuations and help reduce the chances of human error. They are beneficial, in part, because they take no breaks. Because trading bots are purely virtual, they can watch the market a full 365 days per year.
Trading bots cannot make decisions without user inputs, but they do automate buys, sells, and holds efficiently and without error. They place orders automatically when the exchange price of an asset gets to the preset number investors are willing to pay.
These programs can also automatically sell when the asset’s price reaches the investor’s sell price. They are faster than humans and they don’t allow emotions to influence their decision-making processes. That’s because trading bots function via consistently updated algorithms.
The appeal of trading bots is that they save time because they perform repetitive, mundane tasks and work without breaks, so they do not miss anything happening in the market. However, trading bots are only as good as the human programmer who created them.
Trading bots utilize artificial intelligence (AI) technology and cannot trade based on subjective thinking, which can be both an asset and a liability.
Advantages to Using Trading Bots
Beginner-level traders and investors could benefit tremendously from using trading bots. Some of the most notable advantages of using trading bots are:
- Trading without emotion. The trading bot performs a function without any attachment to the money made or lost by its action. This function alone can make many beginning financial market traders more successful because beginners are especially susceptible to market volatility and the emotions that come with it.
- Trading without break. Trading bots can be a successful tool for traders because bots never sleep. Changes in the market are met with an immediate response that human traders can miss due to required breaks from the computer.
- Trading bots execute orders efficiently. Trading bots successfully execute trades based on mathematical programs. Therefore, they do not waste time second-guessing a trading decision.
- Trading bots are more effective at backtesting. This process is a simulation that tests how specific trading strategies have performed and predicts how the same strategy might perform in current market conditions to gauge profitability. Backtesting is a complicated system for human traders, but good trading bots successfully backtest in a fraction of the time humans can.
- Trading bots save time. The availability of trading bots makes them especially useful for beginners because the trading bot can be programmed to do the work, saving time for the trader to spend time learning more about trading.
Disadvantages to Using Trading Bots
Listed below are the primary disadvantages of using trading bots that you must account for in your trading plan:
- Trading bots need a constant internet connection. For many traders, this disadvantage is a non-issue, but power glitches and weak internet connections will render trading bots useless. This need is also a reason that bots must be monitored.
- Traders need to monitor trading bots. Although the trading bot will work consistently unless there is a power or internet break, it does not know if it is being profitable. Therefore, traders must learn how to program the bot and then monitor its performance.
- Trading bots can be hacked. Any computer program that is written can be hacked. Still, trading bots are more susceptible to hackers than exchanges because they conduct trades using API keys rather than blockchains. The method is beyond the scope of this article, but it is worth investigating before deciding how successful trading bots will be in your particular situation.
- Trading bots are not created equally. If you elect to use a trading bot, do your research to determine which ones are profitable.
Trading Bots To Consider For Cryptocurrency Traders
Cryptocurrency is a pretty new sector, however, there are already several trading bots from which you can choose. We’ve researched some of the best options for you to consider. These are:
Cryptohopper
This bot was created by two brothers and remains a family business. It boasts of being user-friendly for beginners and comes with four subscription options. The first option, Pioneer, is a free trial. The bot has tutorials, blogs, and a helpdesk for users, and it offers many trading tools. Cryptohopper also has both an algorithmic and social trading option.
CryptoHero
This bot is also advertised as user-friendly and suitable for beginners. There are only two pricing plans for this bot: Basic and Premium, but CryptoHero permits users to cancel at any time, and there is no auto-renewal feature. Users are pleased with the ease with which they can get the bot running.
3Commas
This bot is more sophisticated and may not be the best option for beginners, but they offer four plans, and the first is a free trial. This trial is limited to one account per exchange, but it is an excellent way to determine if this trading bot will be successful at helping you make money.
What Makes Trading Bots Successful?
Trading bots certainly simplify the trader’s day, and they allow beginners to enter the financial markets. Still, statistically speaking, it is difficult for a trading bot to beat an experienced human trader.
Experience is a grand teacher, and trading bots are programmed, not taught. It is also important to remember that cryptocurrency is new, and therefore, very few traders are genuinely “experienced” or considered “professionals” in the market.
However, the variable that makes trading bots successful is that they stick to the plan the trader inputs without being influenced by society or emotions.
How To Avoid Trading Bot Scams?
There is a scam artist waiting around every corner, but with education and a bit of healthy skepticism, most can be avoided. Here are two of the most dangerous scams to watch out for if you are in the market for a trading bot:
Imposter Websites
This scam is rampant in all sectors of the internet market, so be careful when you use a link or are redirected to a different link. Imposters are talented and can make websites look authentic.
They can also make URLs look nearly identical, making unsuspecting users fall prey to the imposter website. One protection is to type the website address into the URL address bar rather than using a link you received.
Fake Mobile Apps
These counterfeit apps are on Google Play and the Apple App Store. Once owners of these sites see the affected apps, they have them removed, but by the time they see them, the damage is done.
So, when searching for an app, consider everything about the app. For example: Is the grammar correct? Is the app’s name misspelled? Is the logo right both in color and design? What do the reviews say? If you feel that anything might be suspect, do not download the app.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Most beginners make mistakes when they start trading, but trading bots can level the playing field by allowing for twenty-four-hour per day trades; remember, bots do not need breaks. Using them also removes emotion from trading, and allows for more efficiency, which saves traders time.
Whether using bots or not, the best rule to follow is to only invest money that you can lose, and this rule is especially true when investing in more volatile assets like cryptocurrencies. It is a volatile market and relatively new to all investors, but trading bots can level the playing field for those who have money to invest, making these bots a viable way to make money. Just make sure you research well and avoid scammers.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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