Developing Crypto Trading Bot in 2024: Step-by-Step Instructions

Dexola | Blockchain Solutions
Coinmonks
Published in
11 min readFeb 19, 2024

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Automated software has made things easier and more profitable across many areas, and crypto trading is one of them. The crypto market is now worth around $1.94T, and it doesn’t look like it’s going to become less popular anytime soon. The need for automated help in crypto trading and managing cryptocurrencies is only going to get bigger.

For people working in crypto, like entrepreneurs and traders, this help comes in the form of crypto trading bots. But to make the most out of these bots, you need to know how they work. Even though making bots is usually something professionals do, it’s good for anyone using them to understand the basics.

So, in this guide, we’re going to talk about how crypto trading bots work, what steps are involved in making them, and share some tips for anyone looking to get ahead with their own bot.

What’s a Bot for Crypto Trading?

A crypto trading bot is an automated tool designed to perform tasks typically carried out by professional traders, such as executing buy or sell orders based on predefined criteria.

The primary objective of a bot for crypto trading is to maximize profits through precise and simultaneous operations, leveraging technology to manage multiple tasks efficiently.

“It’s important to note that a trading bot is not a magic profit generator. It is a tool that requires clear direction from its users to fulfill its intended purpose,” reminds Oleksii, the Project Manager at Dexola.

How Do Crypto Trading Bots Operate?

These bots connect to relevant crypto market platforms, operating according to set market parameters like price, volume, and timing. Commonly used indicators include Bollinger Bands, the Relative Strength Index (RSI), moving averages, and the Moving Average Convergence Divergence. The bots monitor market conditions in real time and execute trades when these conditions match predefined indicators.

Let’s break down a typical scenario:

Imagine someone who wants a trading bot for the Bitcoin market that uses moving averages to decide when to buy or sell. The bot would use two moving averages: one slow, one fast. It makes trades based on these averages crossing over each other. If the fast average crosses above the slow one, the bot buys Bitcoin. If it crosses below, the bot sells.

Developers create a bot that continuously watches the market, calculates the moving averages, and automatically executes buy or sell orders based on those calculations.

But the potential of trading bots goes beyond just buying and selling. Thanks to advancements in technology, traders can customize their bots for various strategies and purposes, expanding their trading capabilities.

The Advantages of Trading Bots

Crypto trading bots offer several key benefits, including:

1. Future-Proofing Trading Strategies

Every trader follows a specific strategy tailored to their priorities and available data. However, these strategies can quickly become obsolete or fail due to unforeseen weaknesses and blind spots. Regularly reviewing and testing strategies against different scenarios is essential, but many traders lack the time for such diligence.

Crypto trading bots offer a solution by automating the evaluation of strategies through simulations. This process assesses the effectiveness of a strategy and highlights any potential issues, enabling traders to refine their approaches and better prepare for future market conditions.

2. Enhancing Trading Accuracy

Bots utilize pre-set parameters and indicators to navigate the volatile cryptocurrency market with precision. Their ability to monitor the market around the clock ensures they can capitalize on the optimal currency, timing, and conditions for profitable trades. Additionally, built-in risk management features prevent the execution of loss-making trades.

3. Boosting Productivity

Unlike humans, bots can efficiently manage multiple tasks and analyze various data sources simultaneously, significantly increasing productivity. Crypto traders can leverage bots to operate across different platforms and implement various strategies at the same time, boosting their profit potential while reducing risks.

4. Minimizing Human Error

Crypto trading bots eliminate emotional and human biases from the trading process, relying instead on data-driven decisions. This is particularly beneficial in crypto trading, where emotional decisions can lead to costly mistakes. By automating trading activities, bots help traders avoid stress and errors, leading to more consistent and profitable outcomes.

Given these advantages, bots are becoming indispensable tools for securing profitable trades in the fast-paced crypto market.

Exploring the Varieties of Crypto Trading Bots

Bots for crypto trading are not one-size-fits-all; each type has its unique features and areas of specialization. For those not deeply versed in technology, there are user-friendly, pre-configured bots that are easy to set up and start using. On the other hand, there are bots designed for more in-depth technical or fundamental analysis, featuring straightforward user interfaces. The range extends from AI-powered bots, a broad and varied category, to those that do not utilize AI.

This diversity means stakeholders must not only pinpoint the tasks and goals they want a bot to achieve but also understand the differences among the various types of crypto trading bots available.

Here they are:

  • Dollar Cost Averaging (DCA) Bots: These bots adhere to the DCA strategy, executing purchases at regular intervals and in smaller quantities, regardless of price fluctuations, with preset parameters for investment frequency and amounts.
  • Arbitrage Bots: They capitalize on price differences across exchanges, executing trades to profit from these discrepancies.
  • Scalping Bots: These bots take advantage of short-term market volatility by making quick trades to capture small price gaps.
  • Mean Reversion Bots: These bots operate on the principle that prices will revert to their average over time, making trades based on deviations from this average price to buy low and sell high.
  • News-Based Bots: These bots analyze news and event data to gauge market sentiment and make trades influenced by current events.

Choosing the right bot involves more than just understanding different types; it requires insight into who will be using the bot, their technological proficiency, specific needs, preferred strategies, and the market dynamics at play.

“Choosing the right approach always comes down to individual preferences and requirements. Before diving into the construction of a crypto trading bot, managers of Dexola gather detailed information from our clients. We need to understand who will be using the bot, their level of familiarity with the technology, specific usability expectations, the strategies they prefer, market conditions they’ll be navigating, and many other factors. This foundational knowledge ensures the bot we develop is perfectly tailored to meet their unique needs,” explains Mykola, the Team Lead at Dexola.

How to Construct a Crypto Trading Bot

Clients usually assume the development team will take care of setting up the bot entirely by themselves. However, we at Dexola think that having some understanding of the process allows you as a crypto professional to guide the development effectively and meet your unique trading requirements.

So, let’s break down the key steps to create a bot for crypto trading.

1. Discovery Session

This is the first and most important step. Here, you tell the team what you want your bot to do. It’s all about sharing your ideas, like what strategies the bot should use, which cryptocurrencies it should trade, and how it should operate. The clearer you can be about what you want, the easier it will be for the team to make it happen.

During this phase, we ask the client to share their vision, covering several key areas:

  • Algorithms: The client should outline how they anticipate the bot will generate profits, the specific cryptocurrencies it will trade, the networks and platforms it will operate on (such as Coinbase or Binance), and whether it will utilize stablecoins.
  • Purpose: The intended use of the bot, the target market, and the underlying strategy are defined.
  • Sources: Information on where the bot will get its market data from, whether these sources are free or paid, and how relevant they are for what the client is trying to achieve.

In a discovery session, it’s essential to double-check and review everything. The fewer mistakes or oversights we have, the better the outcome will be.

2. Shaping the Architecture

Once the client outlines their needs and shares all the details about the bot’s workflow, strategy, and components, the team dives deep into the task.

The team leader, focusing on the objectives and details of the bot, outlines the overall structure and pinpoints the necessary development phases and milestones. This phase typically sets the project’s timeline and expected completion date.

3. Designing UX/UI

In our experience, creating a detailed UX/UI for an automated crypto trading bot isn’t as complex as it is for other types of custom software. Typically, a simple user interface suffices for internal purposes and meets the end user’s needs effectively. Therefore, this step is often the quickest and least complicated.

For the user interface of an automated or AI-powered crypto trading bot, ensuring real-time sync with the bot’s operations and capabilities is crucial. The layout’s primary goal is to present data clearly and provide users with comprehensive insights into the bot’s performance. It’s important to keep the design straightforward, user-friendly, and free of unnecessary clutter.

“Typically, clients intend to be the final users of crypto bots, meaning there’s often no need to simplify them for beginners or those with less experience. While some may request a more user-friendly design, the majority prioritizes efficiency over ease of use,” comments Oleksii, the Project Manager at Dexola.

4. Coding the Bot: Making Decisions

The first step in developing a crypto trading bot’s functionality involves setting up its decision-making protocols. During this phase, the team links the bot with the data sources and platforms it will use.

At this point, the bot is programmed with the necessary indicators and parameters to make decisions according to the selected strategy and type of bot.

5. Coding the Bot: Executing Decisions

Once the decision-making parameters are in place, the team moves on to develop the algorithms for the crypto trading bot.

The backend team then integrates the bot with APIs and tools, enabling it to interact with selected networks, execute sell or buy orders, and react to specific triggers.

My tip for crypto enthusiasts looking to build the ultimate trading bot is to hire skilled backend developers after you’ve meticulously planned your strategy. They’ll make sure every feature you’ve envisioned works exactly as you intended, recommends Mykola, the Team Lead at Dexola.

6. Testing code

The testing phase is the most costly part of developing a bot for crypto trading, and rightly so. This is when QA specialists rigorously test each part of the bot to assess its functionality and ensure it meets the client’s specifications.

Additionally, this phase is crucial for identifying vulnerabilities that could potentially lead to hacker attacks and financial losses. By uncovering and addressing these security risks, the testing ensures the bot is not only efficient but also secure against external threats, safeguarding users’ investments.

“This is another reason we always encourage our clients to share a comprehensive overview of the bot’s algorithm with us. If it’s missing details, we’ll work together to flesh it out during the discovery sessions. Since bots automate tasks and save time, especially with financial transactions, it’s crucial to remember they can’t be blamed if something goes wrong because of an overlooked issue. It’s much better to ask additional questions upfront than to deal with extensive troubleshooting after a problematic launch,” explains Oleksii, the Project Manager at Dexola.

7. Final Release

Once the bot receives approval from the QA team, it’s handed over to the client for further use.

But that doesn’t mean our work together is done. A team responsible for the bot development remains on standby to monitor performance, collect feedback, make any needed adjustments, or answer any questions the client might have.

“In fact, not every issue can be caught or avoided during testing. Depending on what the AI crypto trading bot is used for, various challenges or obstacles might arise while it’s in operation. Generally, a well-designed bot will have the ability to navigate these issues, but having a support team available for assistance is always beneficial,” remarks Mykola, the Team Lead at Dexola.

Essential Features of Crypto Trading Bot

The effectiveness of a crypto trading bot greatly relies on the trader’s objectives and priorities. Success isn’t guaranteed by a universal guide; it’s determined by the trader’s understanding of how the bot fits into their strategy and the market environment, as well as their knowledge of the bot’s features and capabilities, which influences their overall experience and satisfaction.

Knowing these attributes in advance is crucial for designing a reliable tool. Let’s take a closer look at the key specifications:

Exchange Integration: A good crypto trading bot needs to work with major cryptocurrency exchanges that align with the trader’s market focus and strategies. This aspect is typically covered in the initial planning phase.

Backtesting: Strategies might become outdated over time. The most effective bots can test a strategy against historical data to assess its future viability, helping traders refine their approaches and maintain profitability without interruption.

Strategy Customization: As market conditions and objectives change, a bot must offer the flexibility to adjust strategies accordingly.

Risk Management: Whether it’s an AI bot or a simpler automated tool, understanding when to buy, sell, or halt transactions is critical. Features like portfolio management, take-profit, and stop-loss functions are essential for a dependable bot.

Real-time Market Research: Decision-making requires up-to-date market insights, from charts to order book details and key indicators, all of which should be easily accessible to the user through effective data presentation.

Regulatory Compliance: With the ever-changing regulations in cryptocurrency trading, bots equipped with compliance monitoring can protect traders from legal and financial pitfalls.

Security: Traders need to trust in the protection of their data, assets, and accounts. Thus, a comprehensive security plan, including identity verification and robust data safeguards such as two-factor authentication, is indispensable. Additional security layers may be added based on the development team’s expertise.

Insights before Commitment

Although bots have significantly improved the trading routine, offering the chance for superior profits, doubts and concerns still remain.

The explanation is straightforward: like any tool, a machine-learning crypto trading bot’s effectiveness depends on how well it’s designed. No tool is flawless or without limitations, and this includes automated crypto trading bots, which face their own set of challenges:

  • Challenges with Historical Data

Compared to traditional markets, the cryptocurrency market lacks extensive historical data since it’s a relatively new asset still making its mark. This scarcity of data can hinder crypto trading bots from developing accurate algorithms or running effective simulations, ultimately affecting their ability to assess strategies properly.

  • Intense Market Competition

The crypto market is fiercely competitive, with every trader aiming to outperform the others. This intense rivalry makes it difficult to spot opportunities and follow trends. Even though crypto trading bots are relentless in their monitoring, they must constantly evolve to adapt to new market movements and patterns.

  • Regulatory Uncertainties

The regulatory framework for Decentralized Finance (DeFi) and cryptocurrencies is still under development. Although they will play a significant role in the future financial system, current regulations and guidelines are unclear and subject to change, potentially causing unexpected legal challenges. This uncertainty can make strategies unviable, and crypto trading bots may not be able to adapt quickly enough to these changes.

Ready to collaborate?

If you’re in the process of developing your crypto trading bot idea and searching for experts to perfectly align it with your strategies, let’s talk!

At Dexola, we boast extensive experience across numerous DeFi projects and tools. With a track record of developing and launching multiple automated crypto trading bots, our skilled team is ready to assist you in crafting a comprehensive strategy that maximizes your operations’ profitability while ensuring no detail is overlooked.

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Dexola | Blockchain Solutions
Coinmonks

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