A trading robot is a software that follows an investment strategy in the financial markets. There are multi-asset options and one asset-focused auto-trading tool. Let’s see what their perks are and how they work.
How does it work?
To understand how a trading bot works, you must understand what a trader does daily. First and foremost, a trader designs his investment strategy. In particular, it defines entry points, exit points, risk criteria, etc.
It analyzes the current situation, checks if this situation implies action in his strategy, then, if necessary, performs this action. For a trading bot, the same steps apply; they are simply adapted for software!
First, the trading bot retrieves data from the markets to analyze the current market situation. Second, it checks whether the current situation requires action in the investment strategy.
To do this, it must be able to understand this investment strategy, for example, by calculating variations, indicators, etc.
Finally, if the current situation involves an action, for example, “Buy one bitcoin,” it sends the order to the exchange platform thanks to its API. Most exchanges offer APIs. These are access points that allow any software to connect to these platforms. Thanks to these APIs, a bot can act on your account on an exchange platform.
What are the advantages?
The advantages seem at first glance to be numerous, especially with such volatile markets. Time can be saved since there is no longer any need to analyze the markets continuously.
We can increase its efficiency since a bot does not give in to its emotions (it is software, after all…). No more FOMO (Fear of Missing Out), no more panic when prices get agitated. The bot simply applies the investment strategy.
We can thus imagine Bitcoin bots that would apply a Dollar Cost Averaging (DCA) strategy. When you want to invest in an asset, the DCA consists of buying this asset for a defined amount at regular intervals.
The objective is to reduce the risks associated with volatility and psychological pressure. A bot allows you to save time. No need to log on to your trading platform every month to place the buy order.
Some advice to avoid errors and abuses
Finally, here are some tips to avoid errors and abuse:
Train yourself! It is essential to understand what trading is to use bots correctly. Many free online resources exist. Take advantage of them.
Choose your software wisely. To do so, read many reviews, such as the Biticodes review, which outline the main features of this amazing recently launched auto trading bot.
Test your bots. Most bot platforms offer simulation systems that allow you to risk-test your bots. However, remember that past results do not guarantee future results.
Beware of scams! In general, avoid bots that are too enticing and promises that are too good to be true.
When you connect your trading platform to a trading bot, you can usually specify what rights the bot will have over your account on the trading platform.
Only grant the minimum rights. In general, with Bitcoin and cryptocurrencies, remember that “Not your keys, not your coins.” Only keep what you want to trade on an exchange.