Understanding Crypto Trading Bots
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If only you had a system that could invest on your behalf at lower prices when the market is dipping and sell off the risk when the market is experiencing a boom…well, you can!
This is where crypto trading bots come in. They take those actions on your behalf, especially as cryptocurrencies are very volatile.
Trading with bots in the cryptocurrency market is legal.
Crypto trading bots are automated software programs that carry out crypto trading functions using artificial intelligence that is based on preset conditions.
They liaise with crypto exchanges and buy and sell various cryptocurrencies at the right time, based on your preset conditions with the goal of generating profit for you.
All you have to do is create and run a set of algorithms and, voilà!, you can automatically buy, sell or hold (hodl, for my crypto geeks) assets in a prompt, well organized and automatic manner wherever you are, whenever the time.
Also read, Signs to spot Fake Crypto Trading Bots
Crypto trading bots can only trade on your behalf on crypto exchanges if you allow them access to your account through Application Program Interface (API ) keys, with you having the power to grant or deny them access at any time.
Because they offer emotionless trading, crypto trading bots make fewer errors than humans and they are efficient and fast.
How do crypto trading bots operate?
Crypto trading bots function in three (3) key stages:
- Generating signal
- Allocating risk
This is the stage when the crypto trading bot does what traders would do — identify possible trades and make predictions based on technological audit signals and market data.
At this stage, the crypto trading bot allocates risk based on specific sets of rules and conditions that you set, eg. amount of capital you want to invest for trading and how you want to trade.
This final stage is where the crypto trading bot buys and sells cryptocurrencies based on the signals generated by the present trading system.
These signals are changed to API key requests for the crypto exchange to recognize and process.
Crypto trading bots are automated, not automatic. So, for the sake of trading profitably, you must understand that the process of creating good bots takes knowledge, clear goals, patience and trust.
This is why you must be weary of bots from unknown sources and fake crypto trading bots that promise unrealistic features and returns on investment.
However, it is important to note that not all crypto trading bots are profitable, neither are they an instant means to success.
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