Pros and Cons of Crypto Trading Bots

The internet is offering many opportunities to earn passive income. The commonest ways in which people earn income in the crypto space include yield farming, liquidity provision, bounty and airdrop programmes, crypto mining and trading.

However, trading seems to be a lucrative way of earning large sums of money over a small period. The greatest disadvantage with crypto trading is that many people have limited knowledge on that. In the end some interested individuals hire others to trade on their behalf.

Another trending way of trading is copy trading. This is where newbies copy trading strategies of professional and experienced traders. As a result, individual traders benefit from the knowledge which other people already have, which can be obviously very risky considering the speed with which the cryptocurrency market moves.

Relying on someone else’s investment without having the necessary knowledge is crazy, you will most likely crash, considering that your own experience is your parachute.

Another way in which inexperienced traders benefit is through using crypto trading bots.

What are trading bots?

A trading bot is a computer software connected to various exchanges which trade on behalf of individuals. Bots collect information from different crypto exchanges and execute trades. For example, they access different time frames, highs, lows or volume of a pair. As a consequence, the bot makes trades using the collated data.

In order to trade, each bot is programmed in a certain way, through inputting certain commands. The coded information includes trading strategies and technical indicators. Therefore, when certain pre-set criteria are met the bot executes a trade.

How to use trading bots?

Traders who do not want to spend most of their time watching price movements may resort to using trading bots. As a result, they automate their trades using bots. One advantage of trading bots is that they can make thousands of trades within a second, thereby revolutionizing the trading business.

The sad thing is that some people do not really understand the function of trading bots. Unfortunately, trading bots are not magical tools which people can use to compete with professional and experienced traders. Even though some trading bots use artificial intelligence, they are not always accurate in predicting market sentiments.

Also, the bot does not think on behalf of traders. It does not figure out the best strategy on its own nor does it configure itself in order to perform winning trades. In the end, trading bots do not replace you as a trader as you should do the thinking and planning.

Advantages of trading bots

• After detecting a trend, a bot can execute a trade immediately, enhancing the chance of making a profit.

• Bots quickly scan the market thereby reacting instantly to favourable or unfavourable changes in the market.

Disadvantages

• The bot can only execute winning trades when using adequately tested strategies.

• The performance of the bot is affected by several factors such as internet connectivity and the configuration of the hardware.

As noted, we have just explored key pros and cons of using trading bots. What is important is for each individual trader to carry out a thorough research.