March 17, 2022

Crypto Trading Bots – Tips for Beginners 


  • 1 How Crypto Trading Bots Work
  • 2 5 Useful Tips for Beginners
    • 2.1 #1 Start Small
    • 2.2 #2 Never Give Withdrawal Access to Bots
    • 2.3 #3 Understand Trading Algorithms
    • 2.4 #4 Do Due Diligence on Crypto Trading Bots
    • 2.5 #5 Understand the Technical Analysis
    • 2.6 #6 Balance with Manual Trades
  • 3 Wrapping Up

Gone are the days when cryptocurrencies were ambiguous or alien concepts to people. As of 2021, the confidence in cryptocurrency was found to be 100%.

So, if you are eager to try your luck in crypto trading — I don’t blame you!

But wait, before you get busy looking for the perfect crypto trading tools to start your investing journey, evaluate all the options that you have at hand. Today, there are over 4000 cryptocurrencies for you to choose from. But remember, the most experienced crypto traders have lost a lot of money in transactions.

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Using such bots, many investors successfully automate their trading decisions and turn profits. Let us take a look at how crypto trading bots work, and then a few additional tips to use them effectively.

How Crypto Trading Bots Work

Crypto trading bots are automated programs that can complement your trading strategy, and take decisions to buy and sell cryptocurrencies at the right time, for generating a profit. These bots will take decisions on your behalf when specific trading conditions are met.

Needless to say, some of the biggest benefits that traders can expect from crypto trading bots are higher efficiency, accuracy, and decisions that are devoid of emotions. Most crypto trading bots offer features such as:

  • Data Analysis
  • Buying and Selling Cryptocurrencies
  • Risk Prediction
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Cryptocurrency trading can be quite complicated even for the most seasoned investors, and bots can help in automating some of the processes that go into investing. Most crypto trading bots have three primary parts — Signal Generator, Risk Allocation, and Execution.

The signal generator takes into account the trading data and generates buy or sell signals. Based on the signal, the risk prediction happens, which determines how much cryptocurrency to buy or sell. Based on these decisions, the trading bot then executes the actual trade.

While choosing a crypto trading bot, ensure that it has the right features to cover all these functions.

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5 Useful Tips for Beginners

#1 Start Small

When you are still an amateur crypto investor, it can be tempting to play the high-stakes game and make a big profit. But the smart thing to do is to actually start by investing smaller amounts.

Give yourself the time to digest the many things that come with crypto trading — even if you have a bot helping you out. Even if you were a seasoned investor, it is highly recommended that you invest only a small portion of the funds available to you.

It is easy to get impatient with this, but remember that you always have the option of replicating a very solid move by your bot in one of your other trading decisions.

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#2 Never Give Withdrawal Access to Bots

Crypto trading bots are super reliable — for the most part.

Once you set your bot to follow a trading strategy, the rest of your trading gets taken care of seamlessly. But when you are dealing with investments, it is good to retain some control over your funds. With that said, never let your bots deal with the fund withdrawals.

Moreover, granting such access to your bots is completely unnecessary. Grant that kind of access only if you plan to arbitrage between different exchanges. But trust me, it is not a process that you want to mess with till you have a good grasp on crypto trading.

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#3 Understand Trading Algorithms

No no — definitely not asking you to bombard yourself with all the jargon-laden information that is available out there when you look for crypto trading algorithms.

But having a basic understanding of how it works can be beneficial, right?

Every trading strategy out there follows two primary principles that you should absolutely have knowledge of. Equipped with this knowledge, you will be able to start making trading decisions that will benefit you — at least as a beginner.

The first principle is momentum. Here, if the crypto is doing well, and is likely to perform well in the foreseeable future, you buy, or vice versa.

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The second principle that you should remember is Mean-Reversion. Here, if the crypto prices are up now, but are due for a pull-back then you should sell, or vice versa.

#4 Do Due Diligence on Crypto Trading Bots

Sure, Crypto Trading Bots are cool, highly accurate, intelligent — all of that and more. But there are many different kinds of bots for varied functions and many companies that offer their version of the crypto trading bot.

The question is: how to pick the right crypto bot?

First, decide which kind of function do you want your crypto trading bot to fulfill? You can choose from:

  • Arbitrage Bots
  • Coin Lending Bots
  • Trend Trading Bots
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Once you know the type of crypto trading bot that you want to go with, ask yourself these questions while selecting the company:

  • What kind of experience does the senior leadership of this company possess?
  • What kind of offerings do I get in case my trade ends in a loss?
  • Are the algorithms by this company popular and credible?

Getting answers to these questions will help you choose a crypto trading bot that will work best for your trading journey.

#5 Understand the Technical Analysis

It is understandable if you do not want to get into the technical aspects of crypto trading because you are unable to. However, understanding the basic technical analysis part of crypto trading is important before you get into it.

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So, even if you do not create your bot and use a pre-built or hosted one, you would need to understand the mechanisms that it follows to take your trading decisions. For instance, your bot used Ichimoku clouds, but you have no idea what that is.

How do you think you could assess the worth of a trading decision in this situation?

To get the most out of bot trading, ensure to get a basic understanding of technical analyses so that you can effectively navigate the process.

#6 Balance with Manual Trades

Crypto trading bots do impart you with the feeling that the investing process is super easy. But by now, we already know that the truth is far from that — especially if you are just starting.

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But it is important to consider these trading bots as a helper and not a decision-maker who can replace you in the process. In some cases, you want to hedge potential losses by starting another trade manually. You may also want more control over when you want to open or close a position.

Plus, you can hedge the risks associated with a trade being managed by a bot, with the help of another manual trade.

Wrapping Up

Crypto trading bots can help investors and traders in making and executing effective trading decisions. Sure, the high returns associated with crypto trades make them a lucrative offering — but even the experienced sometimes can use the extra help.

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Crypto trading bots are algorithmically programmed to carry out highly effective trading decisions on your behalf, but you still need to develop the technical skills to carry out the transactions. Even if you are equipped with the most advanced trading bot, ensure that you have the necessary knowledge to make profitable crypto trading decisions.

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