The crypto market is fast-paced, and crypto bots are the way to go unless you want to spend your time on the computer screen 24/7 monitoring the market. Before I started using robots to trade crypto, I was always exhausted. I’d spend hours on end monitoring the trade charts manually. My life changed when I discovered that I could use bots to trade and that there are some genuine bots out there. I started making more profits and had more time to do other things.
The use of crypto bots is not a new concept, as it began in 1949 with Richard Donchian, who formulated a set of rules to help him trade funds. Over the years, other investors have embraced the automation of trades.
Choosing the best crypto bot can be an uphill task, especially if you don’t understand the strategies they implement. We’ve tested a lot of cryptocurrency robots, and here is a roundup of some of the best crypto bot strategies in the market.
Table of Contents
The mean reversion strategy works on the premise that if the price of cryptocurrency shifts, it will eventually go back to its average price. The mean reversion strategy follows the laws of demand and supply because if, for example, a coin falls in price, people will buy in bulk which will then trigger the price to rise back to its original position.
Momentum trading strategies involve observing the waves in the crypto market. Momentum traders find entry points when prices are at their lowest and exit points when they are highest. Knowing the best entry and exit points is important to avoid losses because, after the momentum, the coin prices will drop.
Momentum trading is often observed when influencers make certain moves that lead to trade spikes. Due to fear of missing out, investors will buy a coin that temporarily sustains momentum before the prices stabilize to the average price.
Fragmentation of prices in different exchanges can lead to variances in the price of the same coin. Traders who apply arbitrage strategies look at the prices of cryptocurrencies in different exchanges and take advantage of the price differences. However, to utilize this strategy, you need to be quick to sell before the price fluctuates.
For instance, if coin A sells at $10 at exchange X and $10.02 at exchange Y, investors can buy from the lowest selling point and sell at the highest to earn profits. Some research will help you identify the best exchange to trade crypto.
Machine Learning/Naïve Bayes
Naïve Bayes crypto bot strategy utilizes machine learning to classify variables. Machine learning and artificial intelligence help determine an event’s probability. If you can predict the crypto market, you will feed your bot with the correct information to know the best entry and exit points for profit-making.
Machine learning is a popular crypto bot strategy because it utilizes small data sets and almost insignificant computational power. This strategy may not be ideal if you’re an investor looking to work with big data sets.
Natural Language Processing
Crowd psychology works in an interesting way to affect trades. People will react to news, articles, or influencers. Trading strategies involving natural language processing help investors feed their bots with the right keywords to make trades with certain triggers.
Machines don’t understand human language. Natural language processing clusters keywords into entities that a bot can decode. For instance, you can program your bot to react to words such as “buy”, “surge”, “boom”, and so on.
How to Choose a Trading Bot Strategy
Since there are many trading bot strategies, how do you choose one ideal for your needs? Here are the factors to consider when settling on a particular strategy.
● Backtest Your Strategy
The best way to determine if a bot is ideal for your particular trading needs is to backtest it. Think of it like taking a new car for a road test. Most bot providers have a demo account where you can test your strategy before casting your net too wide.
Backtesting uses historical data to help traders analyze the performance of the bot. When testing your bot, pay keen attention to averages, profitability, volatility, and risk-adjusted returns.
● Analyze the market conditions
Different trading bot strategies are suitable for different market conditions. Before picking a certain bot, it’s crucial to analyze the market conditions so that you only pick one that will thrive in the set conditions. A trading bot we recommend that is quite versatile and has a strategy for different market conditions is 3Commas. If you’re still unsure about whether to use it, here is a good 3Commas review to help you make an informed decision.
● Review your strategy
Now that you’ve already backtested and analyzed the market conditions, you aren’t done yet. You need to review your strategy to ensure it will be profitable in the long run.
When reviewing your strategy, always split your trades into groups of 10 or 20. Analyze how the strategy performs in groups. Does it give you more profits or losses? As a rule of thumb, don’t go for a strategy that does not give you desirable results when you trade in groups.
Crypto markets are perfect for testing out trading strategies. Market conditions are not static, some are more volatile than others. Similarly, one bot may work in certain situations rather than in others. Some of the best crypto bot strategies include mean reversion, momentum trading, machine learning, arbitrage, and natural language processing.
Author: Sviatoslav Pinchuk, COO of Tradecrypto.com is a crypto journalist who simply bought some BTC for domestic needs in 2014 and then forgot about it till 2017. He got Etherium in 2017 by misclick and sold it in 2018 “just to try”. After losing 1 Florida house on XEM in 2018, Sviatoslav finally decided to trade reasonably. He is one of the most analytical and data-driven traders in the crypto industry.
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