AI Trading Guide: Everything You Need To Know About AI Crypto Trading

What Is AI Crypto Trading?

AI crypto trading is the use of artificial intelligence, machine learning, and predictive algorithms to analyze the historical crypto market, automatically buy and sell cryptocurrencies, build crypto portfolios, and get investment ideas.

How Does AI Crypto Trading Work?

AI crypto traders use different AI tools to understand the crypto market, perform trades and sales, identify what caused price volatility, use available data to calculate and predict price changes, and monitor the market.

Here are the 5 types of AI crypto trading:

Algorithmic Crypto Trading (algo-trading)

When crypto traders use algorithms to complete trades based on historical data, it’s called algo-trading (algorithmic crypto trading). The algorithms use deep learning and machine learning to analyze financial news and recent market changes before making small trades. Sometimes algo-trading is also called quant trading.

Automated Crypto Trading (AI trading)

Automated crypto trading is similar to algo-trading but on a more basic level. In AI trading, crypto investors can execute trades with preset instructions.

Arbitrage Crypto Trading

AI tools can overlook multiple CEXs and DEXs simultaneously and find varying prices across markets. This allows traders to exploit market differences where they buy a cryptocurrency in one market, and sell it for a higher price in another market. These market inefficiencies and varying values allow traders to make small (but worthwhile) profits.

High-Frequency Crypto Trading

This is a high-level strategy where traders can buy and sell large amounts of cryptocurrencies. For this type of trading, high-powered computers are required that can execute millions of trades in a few seconds, while analyzing multiple markets. This gives traders a massive competitive advantage.

What Are AI Crypto Trading Techniques?

AI trading techniques use machine learning and artificial intelligence algorithms to analyze crypto markets, complete trades, and forecast trends. Here are most of them.

Real-Time Analysis

Real-time analysis happens the moment data is produced. AI crypto trading tools can process large amounts of real-time data and provide traders with actionable insights. This allows traders to gain an advantage, make faster traders, and understand the market in real time.

Sentiment Analysis

Sentiment analysis goes one level above real-time insights and analyzes all crypto-related activities including online spaces, community forums, news platforms, and social media discussions. Think of influencers, celebrities, or projects posting on X before official news gets released.

Data Mining

Data mining is the process of gathering massive amounts of data and trying to find patterns and insights from it. In the context of cryptocurrencies, AI can gather information from how the market behaved previously and predict future behavior. These insights then get used by traders to make smarter and better decisions.

Predictive Modeling

AI has the capability to process billions of transactions and use that data to predict the future of the crypto market based on previous examples. That encapsulates predictive modeling. It’s the process of collecting data from the past to predict the future. Traders can use the knowledge from predictive modeling to make profits from volatile markets.

Risk Modeling

Risk modeling falls into the same category as predictive modeling. In this case, the AI calculates the possibilities of events happening based on previous data. This gives traders an estimate to know how risky an investment is, when a black swan event can happen, and thus adjust their portfolio for common trading pitfalls.

Backtesting

Backtesting is the process of trying out trading/ investment strategies on historical data before using the strategy in the real world. With an AI tool, investors can make demo trades on past periods, and see the performance of their virtual capital. By making small tweaks, traders eventually give the AI tool the freedom to access the market.

Stress Testing

Stress testing is similar to backtesting. In stress testing, investors run simulations of their strategy under different circumstances. Then, they can detect flaws in their strategies to see how they can make their financial standing better. Thus, they get a better way to overlook risk management.

Benchmarking

AI tools can help in benchmarking by comparing trading and investment strategies to an index or a stock market benchmark. This contextualizes investor’s financial standings and helps them decide whether they need to make their strategy better.

What Are AI Trading Tools?

AI trading tools are an umbrella of software applications designed to help traders make more informed decisions based on vast amounts of data, along with the computational power of artificial intelligence. AI can identify patterns and opportunities that are not apparent to human traders. Here are some of the tools that crypto traders have at their disposal.

Trading Bots

Trading bots (or trading robots) are software tools that complete trades based on predetermined rules. Usually, that means completing if-then logic, where the bot completes trades only if certain conditions are met. Once a crypto investor installs the trading bot, they can let it run autonomously.

Example actions that a trading bot can answer/ complete:

• What are your open positions?
• Show the current market trend for Bitcoin
• What is the trading volume for $PEPE?
• Buy 10 SOL
• Place a limit order to buy AVAX at $27

Portfolio Managers

AI portfolio managers can create a portfolio, monitor it, and balance it as needed. Traders can seek advice based on their risk tolerance and financial goals while making informed decisions.

Example actions that a portfolio manager can answer/ complete:

• Rebalance a portfolio to maintain an 80/20 ratio of ETH to memecoins
• Sell underperforming assets
• Increase your holdings in memecoins by 20%

Signals

AI signals are tools that send notifications and automated alerts when a cryptocurrency meets a specific requirement. They’re similar to trading bots, where they just notify the trader, without executing the trade. Once the trader receives the signal, they decide whether to buy, sell, or do nothing.

Example actions that a signaling bot can answer/ complete:

• Do you have any buy/sell signals for my portfolio?
• Provide the latest short-selling and swing-trading signals
• Give you MACD signals for IMX
• Create signals using your breakout strategy

Strategy Builders

AI strategy builders can be trained to follow rules. Traders create a strategy and backtest it into historical market conditions. The AI can simulate the strategies in actions using virtual capital. This way, the strategy can be refined and fine-tuned before getting released into the real crypto market.

Example actions that a strategy builder bot can answer/ complete:

• Include MACD and Bollinger Bands in the strategy
• Run a Monte Carlo simulation on your current trading strategy
• Use a 20-day lookback period for trend analysis
• Update your RSI strategy to trigger at 30 and 70 levels
• Create a new day trading strategy for memecoins

Why All These Trading Tools Suck

The truth about most trading tools is that they suck and most people can’t use them. The barrier to entry is super high because they’re hard to use, which is why most retail traders stick to using one tool, or none at all.

Armor Wallet plans to change the entire scope of crypto trading by combining all these tools in one place and making them available to everyone. The best way to do that is to add an AI layer of operation above all those tools, which humans can understand and use naturally — a chat-based system using prompts.

So users, instead of learning how to use a strategy builder, or a signaling bot, can write a prompt into Armor and talk to it similarly to how they do with ChatGPT. But the thing that differentiates Armor from ChatGPT, trading bots, and other wallets is the capability to go out and complete actions for you thanks to AI Agents.

AI Agents

AI Agents can perform dynamic and complex tasks that use decision-making, adaptability, and real-time analysis. Agents can constantly monitor the crypto market, and make sense of data from historical markets, news articles, and social media posts. AI agents have the capability to process this information fast, find immediate opportunities for traders, and give insight to traders and investors. When trading, AI agents can surpass humans by executing trades with precision, accuracy, and speed. Agents can react to changes in the market instantly and continuously, which makes them ideal trading companions in the crypto market. Think of them as digital workers — but in the crypto world.

Example actions that an AI Agent can answer/ complete:

• Sell all of my crypto and convert my portfolio into stablecoins — now
• DCA 2 ETH into Solana over the next 20 days, only if the price doesn’t go above 6%
• Find all the tokens launched on Base that have the name AI in them and have a market cap between 50k and 300k and invest $100 into each, and exit when you do a 4x

Armor Wallet is an AI-powered web3 wallet that helps take the emotion out of crypto investing. A non-custodial wallet using AI agents to trade across multiple blockchains and execute complex trades quickly and easily. A new generation web3 tool powered by AI capable of learning from users and processes enormous amounts of data from market to insights and provide tailored recommendations and insights for investing.