The landscape of the crypto market is quite uneven and features many pitfalls that a newcomer may easily fall into. It is possible to useautomatic trading software to learn more about the industry before committing to fully investing in it. We believe that it is possible to use tools provided by automation vendors such as WunderTrading to deepen your knowledge of the crypto industry, its digital assets, and analytical approaches that work well for trading cryptocurrencies.
Advantages of using a crypto trading bot
There are many ways to implement automation in your investment plan. However, novices that do not have any prior exposure to the blockchain industry and the crypto market may never find the optimal combination of different tools to build a balanced portfolio. First and foremost, one must study the blockchain ecosystem to identify profitable assets and find good investing strategies.
There are several ways to utilize bots when you are trying to learn more about the market. Here are some advantages of using this method of studying:
- Bots are excellent for high-frequency trading strategies with moderate to low risk profiles. You can use them to invest in the market without overexposing your portfolio to the dangers of market volatility and economic uncertainty. With strategically placed stop loss and take profit orders, you can easily earn money while observing how the market behaves during certain periods.
- Automation is comparatively cheap. Just a couple of decades ago, using bots was a privilege that only large investors could afford. In 2023, you can pay a couple of hundred bucks for an advanced automation platform that will grant you the necessary tools to build an automated trading system of any complexity. It is much cheaper than paying a professional advisor who will likely perform worse than a preset GRID bot.
- Testing and iterating is much easier with automation. A modern automatic crypto trading bot is usually powered by trading signals obtained from the TradingView platform. The latter is a powerful charting tool that allows users to build and test various technical analysis strategies. By using both TradingView and WunderTrading or a similar vendor, one can easily test a multitude of strategies and fine-tune them over hundreds of iterations until they achieve the desired level of consistency and potential profitability.
- Bots are great at testing the limits of your risk style. Automation allows you to build a microtrading system that will use very small market positions frequently. You may experiment with delayed orders (stop loss and take profit) to find the best ratio of SL to TP that works for a particular strategy. It is a good way to identify the most appropriate way of reducing risks.
These are benefits, but what about practical applications of various automated trading systems for educational purposes? Several useful methods of using bots to learn more about the market can be successfully used by newcomers to the industry.
Copy trading bot for crypto
Social trading is the child of social networks and brokerage services of the 2000s. The idea of bringing some concepts of web 2.0 to the financial sector seemed out of place at first but quickly gained traction as many novice investors saw many opportunities in following experienced peers and long-time financial experts.
Many companies offering automation services to contemporary retail crypto traders bring the idea of social trading to the next level by offering access to multiple trading platforms and unbiased selection of managers to work with. Many Forex brokers often forced their clients to follow preselected traders creating a conflict of interest, but modern automation platforms work differently.
For example, you can go to the WunderTrading’s marketplace and select multiple retail traders working with different centralized exchanges, various levels of risks, and performance levels. Some of these people charge a small fee, some take a cut of your profits, and some simply do it for fun.
Here are several benefits of using copy trading:
- You can learn from the best by simply following them and reducing the position size to the minimum. This way, you will see how experienced retail traders react to various events in the blockchain industry, protect their positions, and select optimal moments to enter the market.
- Using several traders as references, you may compare various approaches to trading and see the results without speculating which method works better. It is worth noting that you can select traders with wildly different risk styles and portfolios profiles to make the comparison even more informative.
- Some traders may use unconventional systems that provide insights into the market if you observe them in real time. Watching some retail traders in action may give you a new perspective on the inner workings of the crypto industry.
Learning on your mistakes without risking anything
The best thing about automation is that it allows you to use the price history to test your investment ideas. This approach works best when it is applied to an asset that has been around for a while and can provide you insights into the behavior of traders during certain periods in the market history. However, even without a lengthy lifespan, some assets can still be analyzed using the information about how prices changed previously.
Here is how you can do it:
- Get an account at TradingView. You will need a paid account if you plan to test a complicated strategy with multiple indicators.
- Create an account at an automation vendor. WunderTrading is an excellent place to start and it has a strong back-testing feature.
- Deploy a strategy that you want to test against the price history and launch an automatic crypto trading software on the WunderTrading platform with it.
- Run the test and observe the results. Check where the strategy worked well and where it failed to deliver a true positive signal.
- Make adjustments to correct mistakes and run the test again. Repeat the process as many times as needed to reach a good ratio between true and false positives.
Note that you don’t need a perfect strategy that delivers true positives 100% of the time. First of all, it is impossible to make a system like that. Secondly, the rate of true positives should be enough to provide you with enough profitable deals for certain SL/TP ratios.
For example, if you are using 1:3 SL/TP ratio which is common for long-term market positions, you need to “win” only 35% — 40% of true positives to break even over hundreds of market orders. The lower the ratio of stop loss to take profit, the higher number of true positives must be achieved by your strategy.
Iterating many times until you find a good strategy is the best way of using automation to learn about the market and most profitable analytical approaches.
Use preset bots to learn how various time-tested systems work
Distributed Cost Average and Arbitrage are two relatively safe trading strategies often offered as preset solutions by automation vendors. These systems can be hard to master for newcomers. However, you can simply find a DCA bot and launch it using any type of appropriate signal to trigger it. Observing how these bots operate will teach you how to do it properly if you plan to use the DCA approach manually (for example, for P2P trading).
The same can be done for arbitrage bots. Simply use instructions from the automation platform to launch a basic arbitrage bot to get a grasp on how it is supposed to work. While it can be easy to learn how to arbitrage cryptocurrencies, doing it without any prior experience or practice is not a simple task.
Also Read: Traderup.com Review For Maximizing Your Overall Trading Experience
