The advantages of a typical crypto algo trading system are apparent to any experienced investor. Manually opening positions and setting up the necessary parameters while trying to secure a certain entry price can be quite challenging even for veterans. Newbies often make mistakes during this process and miss out on promising opportunities due to slow reaction time and unfamiliarity with centralized and brokerage platforms or various analytical tools.
Many successful crypto trading strategies are wholly based on using complex analytical systems that dramatically differ from many techniques of fundamental analysis taught in business schools or applied to stocks and bonds. The speculative nature of the market makes it quite challenging to navigate without having immense experience and in-depth knowledge of advanced technical analysis methods.
What are crypto trading strategies?
A typical automated trading system (ATS) is comprised of several distinct components each playing its own significant role in the overall operation. You can imagine it is a modular architecture where many elements can be swapped without affecting the overall flow of processes. Understanding this framework is hugely important for investors interested in creating a solid methodology capable of producing adequate results.
Here are three main parts of a typical ATS:
- A signal source. All algorithms work by receiving a trigger from a source. You can initiate it manually but it can lead to errors and generally increases the time from the acquisition of a signal and execution of the algorithm defeating the purpose of using fully automated systems to gain a competitive advantage. Some automation designs are not suited for manual inputting. Signals can come from all sorts of platforms including Telegram bots, specialized websites, terminals, and multi-purpose websites like TradingView.
- An algorithm. It can be deployed in the cloud and operated as a SaaS product by third-party developers such as WunderTrading. Some technically savvy users prefer installing and tinkering with local software which can be quite challenging and less effective in the long run due to potential problems with connectivity, hardware, and other factors including badly setting up the system in the first place. Some centralized exchanges and brokerage service providers have limited automation products baked directly into their platforms.
- An exchange. All contemporary CEXes have an API solution that allows external applications to connect to them and perform all activities that a user would do directly. User interfaces are designed to be convenient and intuitive but they can never beat two software programs talking to each other without any intermediaries. The speed of execution, given the general stability of a CEX platform, is lightning-fast allowing investors to engage in sophisticated strategies and even employ approaches like statistical arbitrage alone!
The best thing about contemporary ATS designs is that these components are interchangeable. You can use any type of signal provider and all other parts will work just fine without any issues. Many automation vendors support a variety of CEXes. It is quite hard to find a company that does not integrate with some of the largest players in the industry like Binance, Coinbase, and others.
Some of the best crypto trading tactics are based on the ability to efficiently conduct large-scale operations and quickly trade assets without any delays. It is possible only on the largest CEXes with sufficient liquidity and well-maintained APIs.
However, one of the most important components of an ATS is the automation vendor that supplies and runs algorithms. The selection process can be time-consuming for a newcomer. Some studies indicate that up to 65% of all retail traders use automation for strategies like DCA, Grid, or arbitrage. It is a massive audience targeted by several dozen companies strongly focused on delivering effective tools for ATS.
New crypto trading strategies in 2024
Modern investors have access to a rich selection of tools many of which have never been seen or imagined before. The flexibility of contemporary methods allows even novices without any prior exposure to the industry to quickly get started and invest with an impressive rate of success. While many of the techniques commonly used are designed with the loss aversion mindset, they can still be better at producing value for investors compared to high-yield bank deposits.
For example, a typical HY deposit gives you around 5% with US treasury bonds having close to 4.11% in 2024. An ATS must beat these numbers by a small margin to make sense for a typical investor. Returns from using bots can range from zero to a thousand percent. The outcome depends on the quality of signals, speed of execution, and other factors that are all under user control.
Let’s talk about some of the leading crypto trading methods available to investors in 2024:
- DCA and GRID bots. Distributed cost average is an excellent, time-tested technique of asset acquisition that works by splitting a large position into a series of smaller orders preferably made over a period of temporary price depreciation. While it is useful to catch retracements, the approach works even without any specific improvements. With enough time passed, the distributed cost average reduces the total price of asset acquisition. Grid bots are using the same approach. However, instead of setting a single exit point, they place take profit and stop loss orders for each position.
- AI-assisted ATS. A great example of this particular product is WunderTrading’s arbitrage system which focuses on using artificial intelligence in analyzing portfolio composition and making adjustments according to the circumstances in the market. The field of AI is an uncharted territory with many companies mostly experimenting with novel concepts instead of implementing them outright. It is possible to find interesting propositions from leading companies like the aforementioned WunderTrading, Cryptohopper, and others. Using these advanced ATS can be profitable but requires vigorous testing and analysis on the part of an investor.
- Users can create custom algorithms by tinkering with settings and employing signals from reliable sources. By choosing different parameters, retail traders can create any type of ATS and tailor it to fit their requirements and preferences. Note that a crypto signal bot works in tandem with a source of alerts. You can try setting up an automated technical analysis system on TradingView. This terminal is integrated with a variety of vendors including automation providers. Use technical indicators and their combinations suggested by experts and experienced investors.
Automation can be applied to a multitude of contemporary investment methods including passive income generation approaches like liquid staking. Some DeFi protocols offer compounding interest rates and investors benefit from the inclusion of fully autonomous solutions like Beefy Finance or Yearn Finance in their portfolios. These platforms collect rewards and reinvest them without the need for any oversight.
Modern investors can create sophisticated market positions by using autonomous investment instruments such as DCA bots, auto-compounding platforms, AI-assisted ATS, and more. It is important, however, to consider risks!
The dangers of using automated crypto trading strategies
Despite having notable advantages and significantly reducing mental and physical loads experienced by retail traders, automation can also be quite risky. Modern investors have to constantly think about potential issues with their investments managed by autonomous systems.
Whenever you think of using robots, consider the following:
- Technological risks. It is possible for hardware to fail and bots to have errors in their code. Such problems can dramatically reduce the potential effectiveness of capital allocation or even lead to significant losses. Unfortunately, this particular issue is outside of the user’s control. The only thing you can do is pick a vendor that has excellent digital and physical infrastructure.
- The loss of control. Robots simply follow instructions from users and do not have any free will. If volatility suddenly throws a wrench in the orderly fashion with which robots perform their tasks, the outcome can be catastrophic. In some scenarios, users simply do not have access to their dashboards to stop the chaos in time. Using risk aversion tactics like stop losses and smart position sizing can somewhat mitigate this danger.
- Economic uncertainty. This issue is plaguing all types of investments in the world of blockchain where many DeFi protocols are untested or do not offer the necessary level of utility and returns to justify their existence often supported by overextension from investors. The inability to predict what will happen even in the short term makes it quite hard to estimate potential profits and losses.
- Many contemporary investors also have to think about the implementation of novel technologies like AI. On one hand, some companies are just using the new buzzword that tends to excite users and stakeholders without actually integrating something ground-breaking. On the other hand, existing approaches still need testing and have their own niche risks like hallucinations, poor data quality, and more.
Even the best crypto trading strategies in 2024 do not account for many of the risks faced by investors looking into ways to improve their positions and implement advanced technology in portfolios. It is important to fully understand the dangers of using autonomous robots. The lack of risk management measures can be devastating. A retail trader must have extensive knowledge of various methods to prevent losses like hedging, delayed orders, limiting position sizes, etc.
Avoiding risks with effective crypto trading strategies
Designing an ATS that works well and does not increase the exposure of a portfolio can be extremely challenging even for experienced investors who know all the ins and outs of the blockchain industry. The DeFi ecosystem has so many digital assets to choose from that creating a composition of holdings protected from all angles is simply impossible. You have to focus on mitigating risks and reducing losses instead of searching for a perfect combination of positions.
Here are some tips for people interested in risk mitigation:
- Always pick reliable platforms to work with. From signal providers and automation vendors to centralized exchanges and brokers, you have to be confident in your choices. We generally recommend avoiding free signals from Telegram channels and Discord communities since these are often coin tosses and do not give you any specifics. Avoiding questionable exchanges and automation vendors with a lack of product catalogs is also a good idea.
- Learn how to use delayed orders. Stop loss and take profit are hugely important commands helping investors secure gains and avoid excess damage to their holdings. Some vendors like WunderTrading offer sophisticated instruments like trailing stops (SL levels move with the price allowing you to secure bigger profits in favorable scenarios). Tricks like using ratios for SL/TP can help retail traders operate with higher efficiency.
- Avoid overexposure. It is quite easy to open market positions that are larger than necessary. Position sizing is an extremely important skill that allows smart investors to create consistently performing ATS and open multiple positions at once to bring balance to the composition of holdings. Avoiding digital assets with highly volatile price action can be a good idea too.
- Hedge important, concentrated positions. If you decide to buy and hold a massive quantity of Ethereum and use the DCA method to acquire tokens, short-selling them using derivatives like perpetual futures can be good insurance against sudden price fluctuations. Achieving true delta neutrality in a portfolio is often very challenging, but it can be a viable approach to designing an ATS.
Any investor should be aware of various risk mitigation techniques to ensure that their activities lead to adequate results in the long run. However, the problem for those using automation is the unpreparedness for risks that are usually not associated with investing in other asset classes. Understanding the dangers of using fully autonomous systems and the responsibility that comes with them is imperative for achieving exceptional portfolio performance.
How to use the best tools for automated crypto trading
With the richness and diversity of instruments available to contemporary retail traders, finding the right combination can be hard. However, some of the platforms frequently used by investors in this industry are staples. For example, it is hard to find someone who does not use TradingView automated trading systems to generate alerts for their ATS. This platform has an excellent toolkit for the job. The community is also incredibly helpful.
Despite the oversaturation of the market, only a handful of automation vendors offer product lineups that have all the necessary instruments interesting to a contemporary investor. For example, WunderTrading offers social elements with its marketplace where you can copy actions of successful retail traders on top of custom bot building, DCA, Grid, arbitrage, and even systems powered by artificial intelligence.
The process of setting up these platforms is quite simple. Follow the steps below to quickly launch your first ATS:
- Go to the WunderTrading platform and create an account if you don’t have one.
- Choose a subscription plan that corresponds with your requirements and preferences.
- After being prompted by the platform, connect an account on a CEX website using an API key.
- Go to the dashboard on WunderTrading and switch to the bots menu.
- Choose which type of bot you want to launch and follow the instructions to connect to TradingView.
- Deploy a technical analysis system that you like and make your bot follow alerts from it.
If you are using an alternative signal provider, make sure to pick the signal bot and establish a connection. Many suppliers are fully integrated with WunderTrading and can send their alerts directly to the algorithm allowing it to act quickly and without any issues.
Note that it is hugely beneficial to get a paid subscription for all services including TradingView. While it seems that free accounts save you some money, in the long run, you will definitely feel the advantages of working without hands tied behind your back. It is also easier to test, reiterate, experiment, and manage bots if you have a paid subscription plan.
Tips and tricks for beginners
We strongly suggest using the backtesting functionality of the platform to test your investment ideas before fully committing. It is a good way to experiment with different settings and parameters until you find a setup that seems to be producing the best outcomes. Testing can be done in several stages. For example, you can use similar instruments on TradingView and only after finding a reliable system test your ATS using the backtesting feature.
When selecting a source of signals, always test several of them before using them as a part of your ATS. The best way to do it is to set up your bots, give them the smallest position-sizing limits possible, and run them for a long period to identify the win rate of alerts. If it is below 50%, you should never use the source. It is important to find a supplier that has a high win rate to offset uneven returns if you plan to secure gains with take-profit orders.
Continuously improve your skills and knowledge. Automation is quite useful and can help newcomers find their footing in the market. However, experienced veterans can utilize bots with much higher efficiency and achieve better outcomes by simply running multiple ATS setups and focusing on advanced methods like statistical arbitrage, AI-assisted Grid bots, and more. It is hugely important to dedicate some time and effort to improving one's ability to use bots effectively.