Updated: Jan 24
What are Trading bots
Trading financial products have been an activity that has been around for a while, benefiting wealthy individuals and experts, but only recently has it become available to normal individuals, with exchanges and platforms obtaining licenses to allow individuals to trade. However, these markets are often really complicated and run 24 hours a day, 7 days a week, 365 days a year, and make it hard for individuals to keep up with them. That’s where automation comes into play, with different companies offering the opportunity to create and customize your own bot.
A trading bot is an automated program that operates on a trading platform or exchange that, based on certain predetermined parameters, allows for an automated task to be repeated, removing human error and making the whole process more efficient. In essence, a trader determines to buy and sell points, which are usually based on a percentage increase/decrease, and the program executes these transactions when the price of the assets reaches the predetermined level.
These bots can be tailored to a trader's needs and customized to achieve different objectives, from accumulating a certain amount of an asset, to increasing capital with low risk, to selling a large amount of an asset slowly, avoiding price drops.
How do they work and are bots worth it?
Trading bots are set up by connecting the platform to an exchange using API keys (Application Program Interface), allowing the bot to perform the tasks remotely on the exchange. Once this has been done, the bot will send a signal to the exchange and execute automatically buy and sell orders based on how it has been set up. Generally, bots function in four different stages:
Data analysis - this first stage involves the bot collecting, identifying and analyzing huge amounts of data, this can be done faster and more efficiently. Based on the analysis, different strategies could be implemented. For example, if the data collected shows low volatility, the bot might suggest lower trade percentages, in order to maximize its outcome.
Signal Generation - after the initial analysis has been completed, the program will generate signals, by making predictions and identifying possible trades based on market data and technical indicators.
Risk Allocation - after the first two steps, based on the data collected and the analysis made, the bot will distribute risk according to a specific set of parameters and rules chosen by the trader. This usually involves the amount of capital to be allocated to each trade, the risk level (stop loss) set at every trade, and the take profit level, where tol close the trades.
Execution - at this stage based on how it has been set up, the program will buy and sell based on the signals generated by the pre-configured trading system. The signals generated will be sent to the exchange via APIs and executed.
So the question that arises is the following: is it worth it to use automation when trading?
The answer is yes! It’s estimated that over 80% of traders executed on the stock market have been dove via some sort of automation. With an increase in automation, now even simple tasks can be done more efficiently, removing the human error element and allowing for better planning and execution. Some of the advantages of using automation are the following:
Emotionless trades - most traders when executing manually let their emotions interfere and that can cause errors in judgment, and irrational decisions. Removing this factor can make any trade more efficient, ensuring a non-emotional, systematic approach to investing.
Higher trade speed - with markets often being volatile, quick and 24/7, it can be hard for traders to catch certain prices and manually execute trades. Often trades can occur in a fraction of a second, and having automation will allow traders to execute accordingly and not miss opportunities.
Consistency and discipline - usually most traders that lose money are not following a specific strategy, and might make money off one trade but lose it over another. That’s where discipline is key. Automated bots allow you to pre-plan a strategy and be consistent and disciplined when executing it.
Backtesting - some bots allow for backtesting, meaning that when a strategy has been developed, traders can trial it and test it, without using actual money. This will analyze the outcome and predict if the strategy will be useful or not.
Risk diversification - relating to discipline, automation also allows for risk diversification, where different bots can be run for different goals, minimizing risk and exposing the trader to different opportunities through diversification.
Bmybit automated trading
Bmybit is a non-custodial automated trading platform that allows you to create and customize bots by simply connecting your wallet via Metamask, and APIs on Binance and OKX, and start your automated strategy.
The platform is really intuitive and allows users to quickly create a strategy based on their preferences.
The platform offers an intuitive interface that, with a few parameters, allows you to automate your trades. All you will have to do is choose your asset and coin pair, establish its volatility, and set the parameters accordingly. You will then have a bot that will execute as you wish and make your trading more efficient and profitable. Join us on Twitter and Discord to talk about crypto trading.