What type of trading bot is right for me?

People ask me this question a lot and there is no perfect answer that fits everyone but let me start first with the 1 question I get all the time.

Trading bots are useless…

Question: Why use trading bots, if they were good the developers wouldn’t sell subscriptions they’d run them themselves instead of selling them…wouldn’t they?

You have probably heard people say this. If you hear this sort of statement/question you can safely disregard anything this person has to say when it comes to trading and automated trading. Let me explain to you why you shouldn’t listen to that person.

Photo by Štefan Štefančík on Unsplash

They confuse “trading bot” with “strategy”, a trading bot is just a tool, just as a hammer is a tool so is a trading bot. Sure you can use a rock to drive that final nail into your mother-in-law’s coffin but a hammer is a better tool wouldn’t you agree? The trading bot just makes sure you don’t have to sit 24/7 behind your screen looking at different charts on 5 different monitors to make a few bucks. All this trading bot does is automate the placement of orders for you, buys & sells.

Photo by Chris Liverani on Unsplash

The strategy, however, is what you would do when you trade manually. If you watch RSI, MACD or other indicators to place a buy, you can set up the trading bot to follow your logic and make those buys for you. Another advantage is the trading bot isn’t driven by emotion, FOMO (fear of missing out) has no effect on the trading bot whatsoever.

The trading bot is just a trading tool to make life easier for us, not a risk-free way to get rich overnight. It just enables us to trade 24/7.

Picking the right trading bot

I identify a few types of trading bots (my classification) they are based on different principles.

1. The hodl bot

This is the type of bot that requires little configuration, is rather conservative (if set up right) and basically hodles your coins but will occasionally (depending on how you’ve set it up) try to make a trade taking advantage of the market swings, rather than just hodl the coin. It’s easy for beginners, it is less risky and slowly grows your portfolio over time.

2. The Signal bot

This type of bot relies on external signals to buy & sell coins. A signaller is a service that sells signals for a certain subscription fee. The signaller basically does the technical analysis for you. This results in coins that have some better risk/return ratio than a randomly picked coin at any given time. Based on technical indicators, volume, rumours, news … they identify coins that have that a higher probability of profit over randomly picked coins.

Zignaly

Crypto-PHP

Cryptohopper

There are also some bots that run on Telegram messenger that can process signals.

3. The DCA bot

This is a bot that basically buys small quantities and whenever the price drops buys some more until the trend reverses and sells the averaged down coin when the market goes back up

3Commas

3Commas has a lot of configuration options to fine-tune it to your liking but it also comes with a learning curve. You have to familiarise yourself with the documentation.

GSMG

GSMG does the configuration of the orders in the background. All you need to set is the aggressiveness (see article).

Cryptohopper can do some DCA but it’s more as an extra feature rather than built around this principle.

The Technical Analysis bot

These are bots that operate based on a set of instructions that relies on certain technical indicators.

Apex Trader

Cryptohopper

ProfitTrailer

GunBot

Haasbot

CryptoTrader

Arbitrage bot

This is a bot that takes advantage of price differences between exchanges or between trading pairs on 1 exchange.

Cryptohopper has the latter built-in into their Kangaroo hopper trading bot.

Conclusion

So depending on your trading profile you should use the bot that fits you best.

  • If you are very good at technical analysis you should definitely get a technical analysis bot.
  • If you are more of a hodler type that doesn’t know much about technical analysis and wants something hands-free, go for a hodl bot.
  • If you are currently already successfully trading based on external signals go for a Signal bot.
  • If you are already laddering your buys and averaging down as part of your trading strategy then a DCA bot would certainly be something for you.
  • Arbitrage is less risky but requires fast transactions across exchanges or within 1 exchange across trading pairs. It’s not so easy to take advantage of this as sending and receiving crypto across exchanges takes time and isn’t free. Opportunities for arbitrage are rare and difficult to take advantage of.