Simply put a crypto trading bot is a set of instructions that execute trades automatically with no need for human intervention.
A trading bot has a few significant components regardless of language & framework used.
Backtesting
Running an algorithmic trading approach blind would be the best way to lose all your money. To see if your approach works, you have to backtest it contrary to historical market information.
Collecting this high-quality, tick-by-tick information is usually done by tapping into exchange APIs. CCXT is a library that allows you to port with a lot of exchanges in precisely the same manner.
In order to mimic a sensible backtest, you should take into account latency, slippage, and trading fees.
Typically, you can retrieve historical price information, but you cannot regain historic order books. Therefore a few of the data can only be collected on a forward-going basis. This makes high-quality, historic data a valuable and scarce resource.
The code which implements the plan really constitutes a very small fraction of the whole project. However, it is where you would define calculations that decide when to trade, and in what quantities & the logic.
Once you've created a plan, you should backtest it in order to evaluate its own performance. Only strategies that are profitable make it out the stage that is backtesting because so much can go wrong in the world. Be careful here of overfitting your approach to data.
The universe of potential strategies is infinite. Some strategies try to forecast mean-regressing activity, others may predict momentum in a specific direction.
Execution
Once your plan is decided, the next step is order execution. Consider the exchange you're trading on and this a bridge between your strategy. This code turns your strategy into API requests that the market can understand.
Some robots are going to have paper trading attribute, which will let you mimic your strategy in real time with fake cash.
Lastly, you would like to let your bot run autonomously. Leaving your computer on all day isn't a good option. You want to spin up a server and set-up a project scheduler to implement approaches .
Why Use Cryptocurrency Trading Bots?
Save Time
Calculating trades and executing them is time-consuming and tedious work. The most difficult part is coming up with a strategy. There is no need to waste hours cranking work that is insistent As soon as you've done that. Bots may do it.
Faster & More Efficient Execution
Bots are much more effective at putting orders than individuals. You may be able to place 1 trade at a time but immediately have the ability to place fifty having a bot.
There are a lot of strategies which are not really possible to perform by hand. Calculation and cause the chance to be missed and implementation would take a long time.
Consistent Strategy
It's rather difficult to adhere to a consistent strategy by hand. Emotions get the best of us, and we make changes to the plan on the fly.
Algorithmic trading requires the emotion out of trading and may consistently execute the same strategy as time passes.
Can They Really Work?
There are two extensive use-cases for trading bots.
One, are trading bots which don't attempt to provide a winning approach. The aim for those robots would be simply to save time by automating the boring things that an investor could need to do anyways: portfolio diversification, indicator structure, portfolio rebalancing etc..
These types of robots surely get the job done, since it is much simpler for them to do exactly what they promise.
The second use-case is to attempt and beat the market and consistently make profit. This process is very difficult and needs a lot of time and research. Success is not guaranteed. Here robots can have an advantage over institutional because:
Smaller markets - individual retail investors can perform in markets that are simply too small for larger traders
Market impact- some lucrative strategies dissappear due to large amounts of capital can impact and disrupt the market. Retail investors typically don't suffer from this issue as they don't possess the funds to move the market.
Agility - big institutional funds are slower to pivot investment plans & require buy-in from several stakeholders prior to experimenting with something risky. Retail investors don't have this dilemma.
Types of Cryptocurrency Trading Bots
Unless you are a developer with a great deal of time on your hands, you probably don't want to plan your personal trading bot. Luckily there are tons of free & paid choices out there. I will go over the 4 varieties of crypto trading bots and provide examples for each.
Tribeca is a Market Creating Bot with Full-featured web client, backtesting, multiple integrations.
HaasBot is a Market Making cloud-based bot with broad array of trading strategies. Costs around $1k/yr
HodlBot is a Portfolio Automation Bot that produces any cryptocurrency portfolio index. Costs around $25/month basic & $84/month premium
TradeSanta is Cloud-based specialized trading bot. Costs around $15/month basic & $100/month premium
Arbitrage Bots
When you buy an asset in 1 market and simultaneously sell it in another market at a higher price, that is called arbitrage.
There are two different ways to arbitrage cryptocurrencies. The first is by finding prices mismatches. The other is by locating price differences across exchanges.
Listed below are a couple trading bots that feature arbitrage strategies.
Blackbird
Blackbird Bitcoin Arbitrage is a C++ trading system that will automatic long/short arbitrage between Bitcoin exchanges. Adhere to the setup instructions and you ought to replicate the repo to run it.
Requires Coding: Yes
Characteristics:
Unlike other Bitcoin arbitrage systems, Blackbird doesn't market but really short sells Bitcoin on the brief exchange. This attribute offers two major benefits:
The strategy is obviously market-neutral: the Bitcoin market's moves (up or down) don't impact the plan yields.
The plan does not have to move capital (USD or BTC) involving Bitcoin exchanges. The sell/buy and buy/sell trading activities are done in parallel on two distinct exchanges, independently. There is no need.
This really is a Github project that detects triangular arbitrage opportunities within Binance. To use it, you need to replicate the repo and follow the straight-forward installation measures.
Although it does not execute the transactions mechanically, it will show you the top possible arbitrage triplets.
Requires Coding: hardly any
Price: Free
Characteristics:
Identify top potential arbitrage triplets sorted by adulthood
Show measures for execute a successful arbitrage trade
Market Making Bots
Market making is a strategy where the trader concurrently places both purchase and sell orders in an attempt to gain in your bid-ask spread. Market makers stand ready to buy and sell from other traders, thus supplying liquidity to the market.
If let us say, BTC is trading at $17,000 a pop, you produce a buy order for $16,999 plus a sell order for $17,001. When both orders become filled you get $2, the spread, for supplying liquidity to other traders.
Tribeca
Tribeca is a totally free Github project. It sports backtesting a full-featured web client, and integrations with cryptocurrency exchanges. To use it, you ought to clone the repo and set your surroundings up.
Tribeca bot logo
Characteristics:
Supports a large number of currency pairs across multiple exchanges
Customizable quotations through internet UI
Low latency on modern hardware
HaasBot
HaasBot emblem
Haasbot is a cryptocurrency bot in line with out Rotterdam, that has existed since 2015. It boasts a variety of trading options with market making being one of them.
It's constructed for non-technical traders and has a user-friendly UI. Haasbot runs on the cloud therefore there are no required.
Demands Coding: No
Price: 0.32 BTC a year ($1,148)
Features:
Multiple trading strategies
All major exchanges supported
Portfolio Automation Bots
Rather than active trading, portfolio automation bots assist users create, gain, and maintain a their desired portfolio. This is my category of trading bots because it is something any investor can use. These bots aren't necessarily trying to beat on the market, but rather just helping consumers automate up to the boring stuff as possible such as portfolio rebalancing.
By way of example, one of the portfolios you may create with HodlBot is an index comprised of the best 20 coins by square-foot market cap. After the market changes, portfolio allocations will drift away from goals. HodlBot automatically rebalances your portfolio by promoting assets in favour of ones to preserve its path.
HodlBot
HodlBot Dashboard
HodlBot dashboard
Requires Coding: No
Price: Free for Accounts under $500. $10/month for accounts over $500.
Features:
Backtesting instrument with accurate and detailed historic data
Automated rebalancing with customizable time intervals
4. Technical Trading Bots
Technical trading bots trade on indexes & signs. They try to forecast future price movements and use these forecasts to earn profit. These are by far the hottest and most widely used bots available on the market.
Profit Trailer
Profit trailer logo
Gain trailer comes with a broad range of active approaches & technical indicators. The strategies are divided into three classes: bear markets, bull markets, and neutral markets. To conduct gain trailer you want to download it and run it.
Demands Coding: No
Price: Fundamental is $30/month. Pro is $45 a month.
Characteristics:
16 Strategies based on technical indicators
Multiple bots
Multiple exchange integrations
3commas 3Commas
Much like Profit Trailer. The biggest difference is that 3commas includes an internet interface so you don't have to download anything to use it.
Demands Coding: No
Price: Fundamental is $25/month however includes an extremely restricted feature set. Pro is $84/month.
Features:
Sets up intelligent profit taking & prevent loss targets
Multiple approaches based on technical indicators
Supports most Well-known exchanges
Cryptohopper
Cryptohopper
Crypto hopper is also a web-based tool that utilizes technical signs to automatically execute trades.
The biggest difference here is that it is possible to utilize Cryptohopper to subscribe to outside signals posted by technical analysts. You can opt to be alerted, or automatically execute transactions As soon as you're subscribed to outside signals.
Demands Coding: No
Price: $19/month for basic (limited feature set). $49 and $99 per month to the tiers.
Characteristics:
Multiple trading strategies based on technical indicators
Subscribe to outside signs
Multiple trade integrations
TradeSanta
TradeSanta
TradeSanta is a brand new cloud-based trading platform that permits users to make robots, and trading templates based on Bollinger band strategies.
TradeSanta categorizes the strategies provided as long/short strategies. The strategies are straightforward: sell high and buy low.
Demands Coding: No
$15/month for basic. $100/month for your bot.
Characteristics:
Short/long strategies
Trading templates
Bollinger band strategies
Multiple exchange integrations
Technical indexes
Factors to Take into Account
Every strategy requires a minimum quantity of capital in order for it to be successfully deployed. As a rule of thumb, additional capital is always required by higher frequency strategies. Check the trading bot you have more than the minimum quantity that is recommended. Else, you may imperfectly execute your plan and lose money.
Crypto trading generally charge a subscription fees to get a monthly or annually pass. Other charges include transacation fees which is set on a per trade basis.
Exchanges like Binance and Kucoin have reduced trading charges 0.1%, making higher frequency strategies more viable. Exchanges like Kraken, Bittrex however, have higher trading fees 0.25%. Depending on your strategy, every tiny bit may rely.
Moreover, you should be cautious of trading pairs that have low liquidity. Pairs with low trading volume generally have greater bid-ask spreads and slippage. Slippage is described as the price difference between what you wished to execute the transaction at, and what the price really filled at.
We conducted a slippage analysis for the Binance market and found that unpopular trading pairs around the most voluminous exchange had high levels of slippage (50%+).
Community
Before utilizing a trading bot, you should have a look at the community to learn what users have to say about the bot.
How to Spot False Advertising
Most trading bots assert to make their customers profits, but rather, they are earning money for themselves.
In almost any financial market, it is very tricky to think of a strategy that out-performs the market on a long period of time. Any strategies that could probably do this, are desired, infrequent, and valuable.
That's why it does not make any financial sense for trading bots to sell legitimately performant strategies to their own users.
Legitimate trading bots don't claim to be the be-all and end-all. At best, bots are another tool that will help you create, test, and automate your own trading plan. In the end of the day, the human element is still quite important.
Don't let these trading bots sell you on a pipe dream!
Remember that 3rd party sites may also try to recommend you into a trading bot in an disingenuous manner to make an affiliate earnings
Security Concerns
In order to use a trading bot, a user needs to give access for their private API keys. This information is very sensitive. It might compromise the consumer's account, if it falls into the incorrect hands.
Careful risk mitigation is important. Here are.
Simply use a Reliable exchange with a solid track record of protecting against attacks
You want to select an exchange which has a previous record of defending against attacks and putting the user . Plug into trades that are sketchy .
Always disable withdrawal accessibility
Usually, there are 3 distinct levels of API permissions:
Read -- the capacity to receive data about holdings, trade history, and the market.
Trade -- skill to execute trades
Make certain to disable withdrawal access. Your API keys are compromised,you want to limit the energy a actor has over your funds.
Disable trade permissions after you are done your trades
If you are very safety conscious, it's a good idea to manually disable and re-enable trade access if you wish to execute your trades. This isn't going to work. But let's say you're conducting a portfolio automation bot and it rebalances after. You can place yourself a reminder to toggle permissions.
No comments:
Post a Comment