Many people want to begin automated trading because of how popular and profitable it has become. The benefits it offers— insane speed and round-the-clock trading, among others— are definitely alluring. But it doesn’t come without risks.
In 2022, 3Commas, a popular trading bot provider, got hacked. Due to the ensuing API leak, over $22 million in crypto was stolen from compromised 3Commas. What’s worse is that it happened again just last year. Sadly, this is just one kind of risk associated with bot trading, as there are a couple more things to look out for.
That’s why, in this article, we’ll share top tips and best practices for automated trading that will help you mitigate risks like this while making steady profits.
What is Automated Trading in Crypto?
Automated trading, sometimes called algorithmic trading, refers to using trading tools like AI trading bots to generate trading signals and execute buy and sell orders. It involves incorporating tools that computerize manual processes such as technical analysis, market research, and order placing.
Trading bots are a vital component of automated trading as they help execute trades in the crypto market without manual supervision. Signal bots, too, play an essential role in automated trading as they send alerts for profitable trading opportunities.
The main advantage of these tools is that they are fast and efficient, saving you expensive time, which is an important factor in crypto trading. Furthermore, they eliminate human sentiments like greed, fear, and overconfidence, which limit and ruin trading decisions.
And they can run 24 hours a day, enabling you to divide your time with other demanding activities and rest without missing out on any trades.
However, it’s not all sunshine and roses with automated trading, as there are certain things you must consider before you switch over to an algorithmic system. Further down this article, we’ll be talking about them.
Top 10 Things You Should Know About Automated Crypto Trading
As automated trading experts, here are ten solid pieces of advice we believe you should consider before you begin automated crypto trading.
- Set Realistic Expectations
- Stick to one third-party provider
- Stay within your budget
- Do your own research
- Diversify your investment strategy
- Avoid scams; security first
- Don’t over-adjust a setup
- Server-hosted bots vs personal software
- Programming knowledge and customization
- Size your position properly
1. Set Realistic Expectations
Many people begin using AI trading bots because they seem to believe they’d magically start raking in millions in profit. While that’s possible, you must be ready to lose a lot of money. And even that is unwise.
So, just because a bot’s strategy seems perfect doesn’t mean every trade will follow through. Even manual trading has risks, too.
Generally, the riskier the trade, the more profit it will likely bring. However, you could also lose a lot of money using a risky strategy (trades with anything higher than a 2:1 risk-reward ratio).
Thus, it’s best to set your trading bot’s risk settings to a more conservative one if you want to make profits, no matter how little. Over time, these wins compound to decent profits.
2. Stick to one third-party provider
Using only one automated trading bot provider will save you a lot of stress and keep your exchange wallets potentially more secure. When using multiple trading bots from different providers, you’ll have to connect them to your exchange wallet every time using specific API keys.
Eventually, you may mistakenly use the wrong API keys, which gives the trading bot withdrawal access and puts your wallet at risk of being drained. So, stick to one quality bot provider if you must deploy multiple bots, as the wallet-linking process will be the same each time.
Furthermore, look out for providers like Crypticorn with multiple quality automated trading tools. This will save you the stress of looking for AI signals or AI indicators if need be.
3. Stay within your budget
Automated trading can be costly. Some trading bot providers charge up to $100 monthly for access to their trading bots and accompanying features. While a higher price usually indicates good quality, there will definitely be cheaper alternatives for you to try out.
Just make sure to choose a subscription plan that provides the best value. And if you’re new to automated trading, starting small is never a bad idea.
4. Do your own research
Not all trading bots can respond to black swan events or unforeseen conditions. So, it’s best to keep an eye out for trending news that could affect your trades.
For instance, if your bot has entered a long position for a SOL/USDT pair and negative information about the layer1 blockchain suddenly goes viral, causing massive FUD, you have to close that trade immediately to avoid losing funds.
5. Diversify your investment strategy
It’s best to spread your capital across several automated trading bots (from the same provider) to increase your chances of making profits. When doing this, make sure that you use a lower position with bots with higher-risk settings. This way, you’re taking better-calculated risks.
Also, don’t overly depend on automated trading for profits. Think of them as a passive income source. So, don’t stop trading manually just because you use an automated system. Doing this will help you diversify your trading portfolio.
6. Avoid scams; security first
It goes without saying that there are a lot of trading bot scams online. Make sure to avoid any bot that seems too good to be true. And by this, we mean bots that make outlandish claims like 99% accuracy and insane ROIs. In addition, make sure to guard your API keys well and regularly disconnect your trading bot from your exchange wallet when you don’t plan to use them for extended periods.
7. Don’t over-adjust a setup
While it’s not bad to monitor your bot while it trades, allow the bot to do its job from time to time. Unless there’s a very good reason to adjust your strategy, leave the bot to continue executing the trade. When you interfere in these trades, you indirectly influence the trade with human sentiment and emotions.
8. Server-hosted bots vs personal software
Consider using a server-hosted bot for the advantages. Typically, a trading bot should run continuously even when you’re not monitoring the trade. But they can suddenly stop working when your PC goes off, or your internet connection is disrupted. This happens when the trading bot isn’t server-hosted.
Server-hosted bots do come with some risks, but their benefits far outweigh the cons.
9. Programming knowledge and customization
Not all bots have beginner-friendly interfaces. This makes customizing them a hassle. So, either go for an easily customizable bot or acquire a decent amount of programming experience to customize it yourself.
10. Size your position properly
Always use a small percentage of your position when using trading bots. This reduces risk and allows you to trade more frequently. No trade should ever take more than 10% of your capital regardless of how profitable it may seem.
As experts in this field, these are our top ten tips on automated trading. We’ve explored strategies to make the most from them and how to mitigate risks that arise as well.
If implemented well, you can begin making profits from automated trading bots, no matter how little.
Does automated trading work?
Yes, automated trading works. You can diversify your trading portfolio and make passive income using quality AI algorithmic systems like Crypticorn’s suite of AI trading tools.
Is automated trading legal?
Yes, automated trading is legal. Regardless, there are rules against market manipulation using crypto trading bots.
Is automated trading profitable?
Yes, automated trading can be profitable if your trades don’t involve too much risk and you use a well-defined trading strategy.