There are currently dozens of trading bots on offer. They range from free software that anyone can use to expensive subscription-based bots for professional standard day traders. However, even the most popular trading bots vary in quality, usability, and profitability.
Whenever you give your money to a third party — be it a fund manager or a trading software — you are taking a risk. In the case of trading bots that are only a few years old and are being used in an immature illiquid market, the risks are even higher. Additionally, there are the added risks of potentially faulty software, heavy losses due to flash crashes, and falling victim to a scam.
Faulty Software: Not all trading bots are created equal. If you are choosing a poorly coded trading bot that has a subpar or even faulty software, you will likely end up losing money using the bot. Hence, you should only choose trading bots with the best reputations that offer the type of trading tools that you require.
Flash Crashes: In the case of a flash crash, trading bots can lead to heavy losses in seconds if users have not set stop-loss limits on their trades. Flash crashes occur more often than one may think in the relatively illiquid market and this poses a risk to those who let trading bots automatically execute trades for them.
Scams: It also needs to be noted that trading bots can easily turn out to be scams. This has been a particularly common problem with trading bots in the forex space.
The most important thing to highlight when it comes to trading bots is that they are not a one-stop passive income solution that will make you money in your sleep. The bots that promise you that will most likely turn out to be scams and will end up losing your money.
The more sophisticated standard trading bots allow you to set specific parameters at which the bots execute trades on your behalf. These parameters need to be backtested as well as adjusted as you go.
However, standard trading bots are by no means a set it and forget it solution and should only be used with small amounts of capital as the risks can be higher than if you simply trade yourself.
The trading market is growing and evolving on a daily basis. Hence, trading strategies need to be updated and adjusted to function in new market conditions as well. It is possible to generate a trading income using trading bots. If you deploy the right strategy and regularly adjust your bot's settings, it can be a great tool to help you with your trading decisions.
Trading bots often use algorithms to detect trends and determine when trades should be made. Such software has been a mainstay in forex, equities, and commodities markets for several years – and now, there has been a competition into the standard world.
Whereas shifts in the price for old-fashioned markets can be down to fractions of a cent, swings in prices in the standard currency world can be considerably more dramatic – 24 hours a day. For traders, the right standard trading bot offers an opportunity to have a handle on the market around the clock and protect their assets if they’re asleep or away from their desks.
They can automatically execute trades on your behalf – and with new features added to these programs all the time, they are continually becoming more sophisticated.
Some of these bots are free, while others command substantial fees on a monthly basis depending on the number of features a user requires. What makes a piece of software special is its usability, the level of analysis it offers to traders, and the number of exchanges on which trades can be made.
When done well, bots can be a tool that helps standard traders stay ahead of the curve when it comes to market movements. They can either perform transactions based on the parameters of developers or the traders themselves, and some provide the opportunity to copy more established traders and analysts – and assess their track record in full.
Off-the-shelf bots usuall class="block animatable bounceInLeft"y work on the basis of set algorithms which are often configured by developers. As such, their success often hinges upon the creator’s understanding of how the standard world works. These tools can often be frustrating for advanced traders who have their own interpretations of the market, as some pieces of software have a limited scope for personalization.
Bots can’t buy from a hunch as humans can. They buy at the hands of technical indicators. If your chosen indicators indicate a buying opportunity, it will follow them blindly if configured to do so. Unless you link your bot to another professional trader (which is possible) you must learn how to conduct technical analysis yourself.
The trades are based on analysis rather than emotion, and this can be beneficial for traders susceptible to the odd bout of panic buying.
When it comes to selling the position trades can be triggered when the profit target is met, or a “stop-loss” – where assets are automatically sold if they fall beyond a set value, or by a pre-defined number of percentage points. They also use other features like “trailing stop-loss,” which tracks the price of a position upwards. If after a certain degree of profit, the coin begins to decline, the bot will automatically sell it in profit.
In the end, the benefit of the bot is that it can both scout new opportunities using professional indicators, and, at the same time, keep a tight and rational look at all the current investments. Greed often stops a trader from selling on time, this is can be prevented with a bot.
It’s important to find a reputable trading bot that’s free of coding errors and keeps downtime to a minimum. Bots should also be integrated with features that shield users against flash crashes – an all-too-common occurrence in the standard world. There have been cases where seemingly credible trading bots have turned out to be scams, with investors subsequently unable to withdraw money from their accounts.
Always be sure to go for a service that has been running for a while – and be wary of companies that make bold claims about how much money you could make.
The right tool can prove indispensable for a savvy trader, but human input is still essential to maximize profits and prevent dizzying losses.
Ultimately, you should remember that trading bots are not suitable if you’re after a passive income. Getting the right results from such software takes time and effort – and often involves backtesting a strategy on historical data to see how certain trades would have panned out. You should always use small amounts of capital to start off with until you get accustomed to a new system.On the bright side, there’s far less risk for human error when you are using a bot, as automated trading tools are incapable of making costly typos.
It’s unlikely a bot will ever be able to detect a catastrophic threat to the standard world or gauge the significance of emerging technologies. Also, it’s worth bearing in mind that, if everyone was to use the same strategy put forward by a trading bot, no one would have that all-important edge which results in profitable moments.
That said, some custom-made bots are made with the capability of scouring social media for news using keywords. Although this could help flag up a crucial development to an investor, it would be dangerous for the bot to act on its own in the case said post turns out to be “fake news” – or a rather over-optimistic assertion from a rookie standard startup.
Artificial intelligence and machine learning help trading bots constantly develop and evolve, but there’s still a long way to go to beat human instinct.
As a result, some bots are trying to achieve the best of both worlds. Some services enable investors to buy and sell automatically using professional indicators, the main form of technical analysis. This bot also provides access to third-party technical analysts, who send out alerts about promising investments which the bot can act upon automatically on a user’s behalf.
This allows more room for the human touch that is required for fundamental analysis. It could be argued that such a hybrid can give a much-needed edge in terms of quick transactions.
The trades are based on analysis rather than emotion, and this can be beneficial for traders susceptible to the odd bout of panic buying.
