The Ultimate Guide To Crypto Trading Bots

Get your crypto grid bot template right now.

Introduction

If you have ever traded or invested in cryptocurrencies before, you might have noticed that these assets can be quite volatile in the short and long term.

While trading daily or weekly can yield very good profits, it’s highly demanding of you time, capital and attenton.

Taking the opposite approach and making profits by buying and selling over a Weeks, moths or years often prests a lot of missed opportunities, however still making investors some profits.

That’s where crypto trading bots come in to help you optimize and automate your trading strategies, so that you can enjoy your free time or spend it on other High Income Producing task (IPAs).

In this blogpost we will provide a rundown of crypto trading bots, including some pros and cons, how they work, what bot to use as well as some tips to pick and run your bots smoothly.

What are crypto trading bots?

A crypto trading bot is an automated that executes buy and sell orders when specific market conditions or parameters are met.

Those parameters are setup prior to starting a bot with a specific trading pair and are often used when users thing the market might make a significant move in hopes of making both volatility and capital gains.

Terms to know

Cryptocurrency

A cryptocurrency is a virtual currency that is secured by cryptograhpy and not issued by a central authority like the US Central Reserve or the European Central Bank.

Cryptocurrencies are by nature decentralized and work on top of different blockchains, which supported by a network of computers around the world.

That makes it so that the users and individuals themselves can support the network transactions by providing they own computational power and reicive rewards on a specific cryptocurrency.

Trading Pairs

Trading pairs are assests that can be traded for each other on an exchange. In this case you can trade a cryptocurency for another without selling it for FIAT Currency such as Dollar, Euro, Pounds and others.

Exchange

An exchange is a marketplace or website where you can exchange financial intruments. In the crypto markets you can trade Coins, Futures, NFTs but also subscribe investment products to earn insterest or other rewards over you crypto holdings.

Capital gains

Capital gains are increases in the value of an asset when it’s sold. So if you bought Bitcoin for $10.000 and you decide to sell once the price increases to $20.000, you would have made $10.000 in capital gains.

Volatility

Volatility represents the variation of trading prices over a specific time frame. If volatility is high an assets can increase or decrease in price rapidly, which can present good trading opportunities but also some risk associated with it.

Price range

Price range is level or space between the lowest and highest pricein which a pair is trading. These ranges can often be refered to price channels where a price usually tends to bounce of between a certain higher price and low price for a while.

Futures

Futures are contracts where parties are obliged to buy or sell an asset at a specific date in the future.

The expiration date will always apply despite of the current market price.

It’s what allows you to bet on how an asset will perform in the future! In this case you could open short and long positions in crypto by using Futures.

Index Fund

An Index Fund as the name suggests, is a fund made to track or match certain components of a financial market, offering a broad market exposure, low operating costs and risks.

In crypto it’s just a basket or portfolio of multiple cryptocurrencies that have a certain amount or percentage allocated to each asset.

Crypto Bots Pros and Cons

Software follows a set of instructions, if there are no instructions for a certain input then there will be no results.

In the same way this can happen with crypto trading bots and that’s why in spite of being able to automate trading strategies they still requiere a certain level of monitoring.

So you will need to check often if the price and current market conditions still apply to the bot you started previously.

That being said there are a ton of mechanisms and extra features you can use to make sure the risk of loss is keep under a resonanble level while reaping the benefits.

Speaking of benefits, you can still participate in the markets and make trading gains. While you might be out and about the bot will still execute and make profits.

That’s both a win on your reclaimed time and in overall trading profitability since software is not affected by human emotion when preseted with a stressful situation!

How do crypto trading bots work?

When it comes down to trading there many different strategies one can use to make returns for the markets. Those strategies translate into different bots which use different settings and perform better or worse on certain market conditions.

Nowadays that are really many variations and automation tools you can use but the most well know and referred on the industry are:

  • Grid Bots
  • DCA Bots
  • Rebalancing Bots
  • Futures Bots

Grid Bot

Source: Pionex Grid Bot; Pionex Blog

A grid bot allows users to make money from tiny price movements by consistently buying low and selling high, in a specific price range.

The grid is formed by multiple buy and sell orders which are placed on the price range you select avoiding irrational decisions that are often made by inexpirienced traders.

You will gain not only from those volatility movements but also with price increases as the assets price will go up and add to said volatility gains.

This is by far one of the best strategies to use as a beginner or an experience crypto trader because you don’t need to predict market moves but rather react and operate your bot accordingly. 

Allowing you to earn quite good returns at a moderate risk depending on the pairs you chose to use the bot with.

Works well for short and long term, althougt in my personal experience I have find the optimal time intervals to be around 20-30 days at max.

If an asset loses its value you can simply open a new bot on that new price range while the price recovers and make further profits!

Some of the best crypto grid bots are Bitsgap, Pionex and 3Commas. But if I had to pick one without looking at the pricing I would always prefer Btsgap over the others.

DCA Bot

Source: DCA Strategy; Binance Blog

DCA bots use what’s know as a Dollar Cost Averaging strategy to buy the same dollar amount of an asset at a regular interval such as 4 Hours, 12 Hours, 1 Week or even 1 Month.

No matter what the current price is the bot will keep buying within those set time intervals, and that’s why this particular strategy performs well mostly on the long term, with well established currencies such as Bitcoin.

Such currencies tend to grow overtime making you mostly profitable on a 1 Year, 3 Year or 5 Year period.

With DCA you will average out the buying price, reducing the risk of buying at the top, beacause your investment is devided by multiple buy orders.

So for example, instead of investing $1000 right away, you devide it by 10 and buy $100 dollars worth of BTC at different prices throught the year.

You will also be able to make more profits with DCA when ncompared to just buying and holding a coin.

Try the dcaBTC tool if you want to get a better understanding on how the underlying strategy works.

Futures Bot

Source: Pionex Futures Arbitrage Bot; Pionex Blog

I hope you didn’t miss the Future defenition above! 

But as a quick reminder, this is what allows you to short and long crypto betting on future prices.

There are a lot of variations of this bot just like Spot Arbitrage, Futures Trading (Long or Short) and more.

For the sake of making it easy to understand let’s focus on the most basic Futures bots from a conceptual standing point: Long & Short bots.

If you launch a Long Futures Bot you will make profits when the price moves up or sideways. If instead you opt for a Short Future Bot you will make profits whe the price goes down or moves sideways.

The way these bots work also depends on the platform being used. 

On Bitsgap Futures bots will use DCA to place half of the oreders while the other half will be allocated to a buy position. And the positions will be incrementally closed using grid orders.

Therefore you can use leverage to trade in any market direction, risking more capital but earning more profits in USDT.

Personally, I would only recommend Futures bots for experienced users but if you want go ahead or consider using a less reskier option: ETH or BTC Arbitrage Bots.

Rebalancing Bot

Source: KuCoin Smart Rebalnce Bot; KuCoin

My second pick after grid bots are Rebalacing bots. The concepts are very easy to understand.

You can think about it like an Index Fund where you invest your funds in a set of different cryptocurrencies and make Average Market Profits overtime. Exept that in this case you are the one choosing the assets.

The bot will buy or sell funds between different assets to keep the same percentage you have set initially whether you set an equal distribution, MarketCap based or AI.

In equal distribution all assets start with the same dollar amount in each, while in AI and MarketCap the allocation is different for each one of them.

But you can set the rebalancing period to be a treshold in percentage (1%, 5%, 15% etc) or a time period such a 1 Day, 1 Week or others.

A great low-moderate risk approach would be to choose top 10 coins by market cap, apply an equal distribution and use a rebalancing period of 1 Week or 1 Month.

Rebalancing usually outperforms holding strategies beacuse the bot will sell part of the best performing assets to buy underperforming assets and therefore makes profits once those rise again.

Two great implementations of rebalancing bots are KuCoin Smart Rebalance and Shrimpy.

What bot to use

Choosing any particular bot always depends on how much risk you are willing to take for a certain profit percentage, your knowledge about cryptocurrency and even personal preferences.

Sometimes to achieve your goals you might want to combine different bots or automations strategies to get benefits from bot short term and long term strategies.

A very good example would be to use a Grid Bot (short term/ higher risk) and then allocate part of the profits to a Rebalance Bot (long term/ lower risk).

You have to be aware that different software also may operate differently even tho the core strategies are still the same.

A good starting pont is to look at a list of the very best ones and pick those you apply best to your level or experience, budget and specific strategies yo uwant to use.

Tips and Reminders for Crypto Bots

Backtesting results are not always accurate

Backtesting results provide an estimated profit for a certain pair using the grid bot strategy based on previous price data before even starting any bot.

But they are not flawless, sometimes you will find that running bots based of backtesting (aka AI Settings) will give you worst results than your own settings!

For that reason they should be used as a baseline and not as is. It does depend on the tool you are using, as some like bitsgap allow you to test all your settings prior to starting and see which would pontentially be more profitable.

Price movements are unpredictable

It’s quite hard to predict what’s going to happen to the price of Bitcoin, Ethereum or any other coins.

That’s why grid bots are very good automation tools to use on the crypto market! You get to make profits even from tiny price movements if you really want to no matter if the price is going up or down.

Investment Allocation & Risk Management

Grid bots are a great tool, but at the end of the day it’s just a piece of software. You are the one in control and therefore your approach will determine how the bots perform.

That is why having a solid strategy is essential, not just to run bots but also to invest on any other financial instrument or asset.

An easy way to make profits and not take massive amounts of losse is to know before hand all the steps you will take if something happens.

So let’s say that you keep 80% funds to run bots and 20% as a reserve. If your bot get’s unprofitable you can double down and open a new one with your reserve, plus the existing capital to recover faster from that price decrease!

Consistent Results

Getting consistent result also goes back to having a Grid Bot Plan to follow up with no matter what, instead of taking irrational decisions or making market predictions.

A Plan might follow a “If this, than this approach where you already know before hand what you need to do prior to opening any type of bot. It can be just a sheet where you layout all the steps and values you may want to use on your bot.

I can’t stress this enought! Understand how the bots work first, build a plan, execute and track your results.

Might not be the answer you were expecting but this priciples will set you for life in investing, marketing and other fields of expertise.

Resources for Crypto Tradding Bots

But before you go! consider checking out the following resources for additional information on the topics mentions on this post:

Closing

Most tools, referred in this post, have some type of back testing functionality and that’s a great way to test or look at average expected returns for a combination of strategy, parameters, and coins.

Nothing beats real experimentation and its ultimately how traders grow and learn how to optimize bots for profit and less monitoring so that they can go on with their lives.

Once you figure out what settings work for you it will feel like you have found a golden goose but don’t get blinded by it! You will still need to tweak your profit-making machines overtime.