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<p>Crypto trading has become quite popular over the years. However, as a trader, you can easily be overwhelmed by the amount of data you need to consume to make informed trading decisions. On top of that, the decisions need to be super-fast to take advantage of the quick movements in the <a href="https://www.bitget.com/price/bitcoin" data-wpel-link="exclude" rel="noopener noreferrer nofollow">BTC price</a>.</p>
<p>These two challenges have paved the way for automation. Algorithms can help make the work easier and even eliminate some human weaknesses such as emotional trading. Still, there’s still a lot of mystery surrounding automated trading.&nbsp;</p>
<p>In this guide, we’ll look at it in more detail. We’ll also take you through the pros and cons.</p>
<h2 class="wp-block-heading" id="strong-what-is-automated-trading-in-crypto-strong"><strong>What is Automated Trading in Crypto?</strong></h2>
<p>Automated trading is also known as algorithmic trading. Generally, it refers to the use of computer programs and algorithms to carry out various trading activities. This type of trading goes beyond crypto to include all <a href="https://www.cryptointelligence.co.uk/investiva-pioneering-excellence-in-cfd-trading-with-innovation-and-expertise/" data-wpel-link="internal" rel="noopener noreferrer nofollow">speculative trading</a>, and it actually drives the most activity on Wall Street.</p>
<p>In crypto, automated trading is simply referred to as the use of trading bots. These are programs designed and trained to analyse the market and then execute actions on behalf of the user. The main goal here is to take advantage of the bot’s ability to analyse data and execute automatically. It helps avoid human limitations such as working hours and emotions.</p>
<h2 class="wp-block-heading" id="strong-how-does-automated-trading-work-strong"><strong>How Does Automated Trading Work?</strong></h2>
<p>Crypto trading bots are software created by third parties and sold to traders. Some newer ones use smart contracts to operate directly on the blockchain, but most of them are still <a href="https://www.ibm.com/topics/api" data-wpel-link="external" target="_blank" rel="noopener noreferrer nofollow">Application Programming Interfaces (APIs)</a>.</p>
<p>This means that you need to connect them to your trading platform with your account. Once you set it up, you can then assign parameters that it will operate with. These can range from simple to complex, depending on how experienced you are and the capabilities of the bot. Some of the most used parameters are trading strategy, price (entry and exit conditions), order volume, time frame, order type, and risk levels.</p>
<p>For example, you could set a bot to buy Bitcoin when the price drops to $60,000 and sell it at $65,000, with a position of $500. You won’t need to intervene further, as the bot will execute it for you when the market conditions are met. You can also set it to do a more complicated market analysis to determine the best entry point.</p>
<h2 class="wp-block-heading" id="strong-pros-cons-of-automated-crypto-trading-strong"><strong>Pros &amp; Cons of Automated Crypto Trading</strong></h2>
<h3 class="wp-block-heading" id="strong-pros-strong"><strong>Pros</strong></h3>
<ul class="wp-block-list">
 <li><strong>Improved Decision-Making</strong>: While we can only process limited information, these trading systems can analyse huge chunks of market data. They can then use it to create insights and execute more informed decisions.</li>
 <li><strong>Efficiency and Speed in Execution:</strong> AI bots can monitor the market 24/7. If an opportunity arises, the bot can trade for you in real-time. This means that you can take advantage of more opportunities and you can execute your trades much faster.</li>
 <li><strong>Emotion-Free Trading</strong>: We tend to make decisions based on emotions, especially when we have had a bad trading patch. Bots help eliminate the bad decisions caused by emotions as they only execute based on set parameters. If the market reaches your stop-loss or take-profit levels, the bot exits you from the market.</li>
 <li><strong>Diversifying trading</strong>: You can use bots to trade assets that otherwise you wouldn’t trade for lack of information.</li>
</ul>
<h3 class="wp-block-heading" id="strong-cons-strong"><strong>Cons</strong></h3>
<ul class="wp-block-list">
 <li><strong>Data Overfitting</strong>: A bot can perform well during the testing phase as it uses historical data. However, this may not be the case when analysing new, unseen data.&nbsp;</li>
 <li><strong>Technical Failures</strong>: Since they are programs like any other, bots can encounter issues such as bugs, glitches, and connectivity issues. These can lead to losses.</li>
 <li><strong>Security Concerns</strong>: Trading bots are connected to user accounts. If cybercriminals take advantage of their code, users of that bot can incur huge losses.</li>
 <li><strong>Lack of Human Judgment:</strong> While bots are quite good at executing trades, they don’t have the intuition that humans possess. This means that they can’t take advantage of unforeseen market events or changes in market sentiment.</li>
</ul>
<p>Automated crypto trading is a great addition for every trader, and you can use it to push your activities to a higher level. However, ensure that you select the right trading bot to maximise profit and avoid security failures.</p>

Automated Crypto Trading: What it is, Pros & Cons

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Alte articole publicate pe 30 iul. 2024

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