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Crypto Trading Bots 101

We are on a mission to deliver a single point of control for Algo Bot Trading, investing, swapping, or yield farming. UpBots will very soon be the platform that rules them all!! In other words if UpBots were a ring, Frodo would be wearing it.

Now, while of course you will be able to make manual trades as and when you see fit, as well as stake capital in liquidity pools, farm yield and do a whole range of other aggregated DeFi coolness, one of the key area’s UpBots will be especially strong in is algorithmic crypto bot trading. Sounds exciting right?

Probably not if you don’t fully “get” algo trading! And if that is the case…well then my friend, there’s a great chance you don’t have the full, 4K HD picture of the opportunity a crypto trading bot can provide you with. And if that’s true, then this article was written for you.

So let’s dive in, and don’t worry I’ll try and keep this as non technical as possible (so I continue to understand what I’m saying!)

What is Algo Trading?

Algorithmic trading is a trading methodology where you use a computer program (bot) with a predefined set of rules to trade instead of you yourself making the decision about entry points etc.

The set of rules used for a bot can be basically anything — from something as simple as moving averages crossing to multiple complicated mathematical models using volatility. The algorithms can be also direction-neutral, which means that the algorithm is designed in a way to be insensitive to the direction of the market movement, and therefore be neither bullish nor bearish.

Permit me a moment to clarify a key point which often gets confused. Crypto Trading Bots or Algo Trading requires 3 parts to function:

  1. The algorithm you are going to use.
    In other words the set of rules that form the trading strategy, as we’ve just discussed.
  2. A crypto trading bot to execute your algorithm
  3. An exchange where the bot will monitor the price movement of the crypto currency pair you have chosen to trade, waiting for the rules to become true.

Trading manually can mean a rollercoaster of emotions that typically cause problems in real money trading. With algo trading, the bots use coded logic and so have the emotional range of a toaster.

Algo trading is similar to rule-based trading while manual is related to discretionary trading. Rule-based traders use setups they’re familiar with, and never break the rules. Whereas discretionary traders constantly make decisions about the market.

However there is another aspect to Algo Trading you may not as of yet be aware of: that’s a broad label that features a lot of different types. For example there are high-frequency algorithms used by trading firms to take advantage of their unmatched technology to gain profit from the markets.

There are momentum reversal algorithms that try to make profits when the market suddenly reverses direction. There are arbitrage algos that try to make riskless profit by using the market inefficiency and the mismatch in prices between exchanges (for example) to profit. And of course many others.

Why would you use bots?

If you are trading crypto, you know that the market is volatile and often very emotional, driven by fear and greed in equal proportions. Crypto markets also run 24/7, which means that you will miss at least 1/3rd of all the possible moves, or you won’t and eventually end up with massive black bags around your eyes that make you look like the love child of Green Day and a Racoon.

And even if never sleeping is your idea of a good time, and you have a genetic disorder that means you have no emotions, there are still a whole bunch of different opportunities that are very difficult to catch for us humans. For example: low wicks, liquidations, and many others.

It’s in this space the bots really come into their own.

Algorithm bots trade 24/7 and never sleep, never eat, never have one beer too many, or get distracted by their sexy senorita who just unexpectedly arrived over in a mini skirt with a bottle of tequila in her hand at 1am, presumably to disinfect the thoughts in her mind!

So, with an algorithm powered crypto trading bot, you can enjoy that “tequila & chill”, safe in the knowledge your bot will catch those opportunities when you are away from your computer.

The ruleset can be created in a way that the algorithms actively look for opportunities that are hard for you to catch manually, such as buying liquidation dips on futures markets, for example.

Besides all that, algos always operate within the ruleset that the creator provided. Therefore there is no chance of getting rekt due to an emotional mistake, or doubling down on the losing trade because of seeing red in the PnL column. And no revenge trades either!

That would be like if your toaster burnt your toast because it was upset about how you turned it on.

What are the risks involved in crypto bot trading?

The biggest risk is obviously that your algo bot will make a lot of money, decide it doesn’t like humans and then devise a way to use the money it’s created to enslave humanity.

Wait…no…no that’s not possible. Algo’s and AI’s are different things. I’d keep an eye on the AI’s if I were you though…

The biggest risk in algo trading is the risk that the algo itself is faulty. If the trading algo is inherently broken, it will continuously lose money until the holes have been patched.

Additionally on UpBots, the bot will operate perfectly but the strategy you are renting may be flawed in some way. It may perform better in some market conditions than others which is why making sure you do your own research to determine how well an algo has performed in back testing.

Also to continually educate yourself to ensure you can read market conditions and understand the limits of whatever algo’s you are using have.

Every good algo bot should have stop losses that limit the downside risk in case the strategy does not work out and this is a strong feature of UpBots. Not only stop losses but other safety mechanisms where you can make sure if a bot does X number of losing trades that it automatically stops trading to safeguard your capital.

Another risk in algo trading is the chance of falsely assuming that the strategy is profitable after initial testing. Then you deploy it on the market only to find out that the profitability of the strategy was due to the erroneous testing. We will explain this in more depth in our article about back testing algorithmic strategies.

I want to try out algo bot trading. What should I do?

Well you are in the right place compadre. Here at UpBots we are big believers in carefully executed algorithmic strategies and therefore we aim to provide the crypto markets (pretty much any market) with the best algo marketplace for you to pick and choose from lots of different algos. Those algo’s will be plugged into an UpBots bot, and you will be able to connect that bot to your centralized or decentralized exchange of choice.

So if you are interested in algo bot trading and reading this blog, you are already in the right place!

First of all, read our educational articles and get familiar with algo trading basics, what it is and how it works. We are going to publish a lot of articles about choosing the right bot for you, checking and testing the bot strategy and adjusting it to your own needs and risk preferences, so stay tuned!

The good news is that with UpBots you don’t need to know much to get started, and the rest you will be able to learn in our Learning Center.

Even better news if you want to start today, you can absolutely do that. Algo Bots are live on the platform. Depending on when you read this you may need to get a coupon to activate them, or change your subscription level.

Fear not. Just head over to the UpBots website and visit the UpBots platform from there.

Please make sure you understand the bot you are going to try out first. Understand how it works, what it will trade and what the risks are to your capital. If anything isn’t clear come chat to us on Telegram or on Discord.

And remember: always start small.

Let it run with a tiny fraction of your portfolio first to see how it is performing in the current market conditions.

Stay tuned for our next articles and happy botting!

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Neil Sisson

Neil Sisson

Former CMO of UpBots.com. Crypto Advocate. Coffee Addict. Carpe’ing my diem on the daily.