Whether you are familiar with trading or not, we can all agree that the use of tools to make a job easier, any job, can be a great thing. Any skilled professional uses tools to streamline their job, expand their efficiency, produce better and more consistent outcomes, or save time.
We live in an age where computers have come to the forefront of almost everything we do, personal or business. Trading is a skill-based profession. It can start as a hobby and stay as a hobby, but even the hobbyists or the casual traders will use whatever tools they can to gain any type of edge in the markets.
Traders use scanners, heatmaps, charting platforms, indicators like RSI, MACD, and Moving Averages, and analytical websites that offer infinite data points.
Professional traders spend the least time trading because they have dialed in the tools and strategies they need to be consistently profitable. One of those tools that professional traders utilize is a technology called automation.
If we think about automation through the lens of a trader, then we immediately think about trading bots. A trading bot is a piece of code or software that will execute trades on your behalf once given the instructions and parameters it needs. A trading bot will use automation to buy and sell assets without human intervention. The time, energy, and emotional stress a trading bot can save a trader from are unmeasurable.
To understand what a trading bot can bring to the table, one must first understand the entire process of executing a trade. Pressing the “BUY” button is only 1% of any trader’s actual trade. A trader needs to develop a strategy. This involves, but is not limited to, a few mandatory items. We will discuss the process of taking a LONG trade: we are looking to buy low and sell high.
1: Entry — Where will you buy the asset?
2: Exit — Where will you sell the asset for a profit?
3: Stop-Loss — Where will you sell the asset to avoid a further loss?
Let’s say you have found an asset you want to trade. For any one of a million reasons, you decide that at $1.00, you want to buy the asset. Your thesis is that it will reach $1.25 in a reasonably short period. Therefore, you are willing to see the asset drop to $0.90 before you close the trade and take the loss. Now that you have this information, you must go to the exchange and set up the trade.
This means you need to:
- Log in to your account,
- Find the pair that you are looking to trade, and
- Set a limit order to buy “x” amount at $1.00.
Unfortunately, now you need to wait for your order to be filled. Once your order has been filled, you can set up a sell order for $1.25 and, depending on your exchange, a Stop-Market/Limit order for $0.90 to sell at a loss. This is a relatively simple process, but what if your strategy was to buy a retest of a moving average, trendline, or something that changes with every passing second of the day?
Those traders sit in front of their trading platform and charting platform all day and night. But, of course, this is not ideal, nor even close to what professional traders do. So instead, these traders make use of trading bots.
A bot can be designed in many ways, and the best part is once it is set up, it requires little to no maintenance. The bot will execute your buy order. The bot will place the sell orders for both your stop-loss and take profit. You can even have your bot create the position size for your entry based on the rules you dictate.
If, for example, you want an entry using 10% of your available capital for every trade, the bot will calculate the amount and place the order on your behalf — no logging in, no calculations, no placing orders, etc. The bot will automatically handle your Take-Profit and Stop-Loss based on your instructions. You can now effectively trade the market 24 hours a day and never be in front of a computer or phone.
A side effect of using a trading bot is that your sanity stays intact. Trading can be very emotional at times. Unfortunately, those emotions also run the gambit from the highest highs to the lowest lows. The beauty of a trading bot is that you are now taking trades based on your thesis, your strategy, and your logic, and never on your emotions. This maintains a healthy relationship between you and your capital.
Fear not if you are telling yourself that the issue is the strategy or the logic. Hundreds of online resources offer some of the most straightforward strategies ever realized. These have pros and cons, but they are a reasonably good place to start. There are also trading bot communities where some users share their strategies and code with other traders. Some paid services allow you to copy/paste or follow other traders’ trades and automatically send the trade date to your bot.
Consider this a high-level overview of trading bots to better understand what they are and what benefits they can provide you. Felix.com has integration with multiple trading bots, including Hummingbot and CryptoHero. It is encouraged to explore those opportunities and resources if you are interested in trading.
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