Crypto Market Analysis: Using Bots to Stay Ahead of Market Trends



Over 65% of all retail traders used automated trading system in 2021 yet they still represent a small fraction of the market with the lion share of bots ran by institutional and long-term investors, according to Acumen Research and Consulting. The number of people using various types of automated trading systems is growing every year with some experts predicting that the value of the industry may quadruple by 2030.

The rapid growth of automation can be attributed to the overall digitization of the financial world. Finding a tradfi or a centralized crypto exchange that does not offer any ways for third party developers to connect seamlessly to the platform is close to impossible. Modern automated trading bots work surprisingly well and deliver consistent results with many preset systems easily outperforming average traders.

Many believe that the best systems are custom-made. Using unique analytical approaches can be quite effective in a market where thousands of retail traders utilize the same techniques. However, the crypto market analysis learning curve is quite steep and requires a lot of effort and time on the part of a student.

How to use bots for crypto market analysis

Trading automation is quite versatile in terms of applications. Modern investors can use various types of bots for different purposes. While the “traditional” sense of the word is still a script that performs and algorithm usually including some operations on your chosen brokerage platform or centralized exchange, one can easily say that advanced analytical systems deployed on some terminals are very close to fully automated systems.

Another important staple feature in the world of trading automation is backtesting. For example, companies like WunderTrading allow their clients to run bots retrospectively and check their performance against the market history revealing insights that help you modify analytical systems or completely redesign it depending on the results of backtesting.

Automation is hugely important for contemporary retail traders. With competition toughening and more players entering the market, speculative active traders must become even more inventive and proactive to continue making money reliably. Trading robots can help them achieve incredible results and reach profitability goals, but it takes dedication and confidence from investors.

Combining bots with human analysis

One of the issues with the crypto ecosystem is that assets are purely speculative with nothing behind them. It means that traditional fundamental analysis does not work. You cannot evaluate tokens based on the number of developers employed or how much real estate is owned by them. Extrapolating market trends based on this information is always a bad move by an investor. Instead, we have to rely on technical analysis.

This method is based on pattern recognition and sentiment analysis. Many conclusions are derived from analyzing only two metrics: price action and trading volume. Recently, advancements in machine learning revealed that some expert AI systems are capable of recognizing patterns that humans simply cannot see. However, an experienced retail trader still must make the final decision after analyzing options presented by an artificial intelligence system.

Right now, most bots are relatively simple algorithms that do not have any capabilities of artificial intelligence. However, AI-powered crypto analysis is already used in some products available to the masses. For example, WunderTrading has a powerful tool — AI-assisted statistical arbitrage with bots making adjustments to a portfolio based on analytical methods created by machine learning algorithms.

Using bots to make some predictive work and laying out potential forecasts is the best way for a human trader to make mid-term investment decisions. At the same time, short-term analysis should be left to automation and long-term analysis to experienced humans.

Here are some benefits to using automated analytical systems:

  • Bots compensate for the lack of mental stability in humans. Many retail traders do not have the required level of discipline and emotion control to make investment decisions quickly. Robots will follow instructions without any hesitation and perform indifferently regardless of the market conditions.
  • Humans have to rest and sleep to do well in the market. One of the best things about automation is that it works all the time. The crypto market never stops functioning creating great trading opportunities around the clock. Bots will be active even when you sleep or take a pause for a quick snack.
  • Automation is quite easy to use thanks to many advancements in UX/UI. Contemporary automation platforms are intuitive and can be used without any issues even by people without any technical knowhow.

To top it all off, automated trading systems are cheap. You don’t have to pay thousands of dollars to run a successful trading robot. We strongly believe that by the end of this decade, 100% of all trades conducted by individual and institutional investors will be done with at least some assistance from fully automated trading systems.

Using bots for technical analysis

TradingView is one of the most popular analytical platforms for crypto enthusiasts. Thousands of users engage in passionate discussions about various approaches to inspect the market and identifying trading opportunities. At the same time, using TradingView automated trading is also quite effective for users who vigorously test analytical strategies and employ common risk management practices.

Some of the best crypto bots for analysis work with alerts from this platform. You don’t need to have a computer science degree to start using the Pine Editor at TradingView and write unique scripts that produce reliable alerts. However, it takes some time and effort to learn the basics and understand the syntax and write proper code.

When it comes to Bitcoin market analysis, you should learn more about TradingView because it has unique indicators that help many investors identify the best time to buy. For example, you may have a bot that will be triggered by the Hash Ribbons indicator that uses the data from the market and combines it with the information on the current computational power employed by miners to see when the market starts going up.

Unfortunately, similar indicators do not exist for Ethereum market analysis systems since this network moved to the PoS (proof-of-stake) validation mechanism. Nevertheless, some power users devised interesting analytical strategies that target ETH. If you are interested in using them, consider deploying some of the suggested strategies and test them with the “Strategy Tester” tool available at TradingView to all registered users.

Various automated systems can be used to analyze a wide range of different assets including some lesser known tokens. Altcoin market analysis is challenging due to issues with liquidity or gaps in trading volumes for some of obscure coins, but you can still find interesting approaches to analyze them.

How to build safe and reliable trading bots

While it may seem that using automation is simple, do not get too confident in your skills before testing them in real market conditions. Using bots and automated technical analysis feels intuitive and straightforward. Many retail traders fall victim to their overreliance on fully automated systems and lose money.

You can protect your investments with some risk mitigation techniques that should be employed by all retail traders interested in making good cryptocurrency market predictions.

Here are some ways to prevent financial losses and achieving your profitability goals:

  • It is important to test everything multiple times. The TradingView platform has its Strategy Tester while many automation vendors such as WunderTrading offer backtesting functionality to their users. It is important to check how your analytical systems work in conjunction with trading bots to avoid launching an automated trading system that performs inadequately.
  • Iterate until perfection. Testing once is not enough. You should run multiple iterations of an analytical strategy to find something that produces more true positive signals than false ones. It takes a lot of trial and error until you create a system that delivers a consistent performance, but investing time and effort often pays off greatly!
  • Use delayed orders. Some retail traders do not like using stop loss and take profit orders to secure profits and prevent excessive losses. They believe that it is better to watch your market positions closely and react to the market based on intuition. However, humans often make mistakes due to emotions, stress, or low reaction speed. We strongly recommend automating the placement of delayed orders.
  • Use analytical systems approved by the community. Two heads are better than one. Go to Reddit or TradingView forums to find people who tested strategy that you like. Often, users will give valuable feedback, share their experience, and give tips on how to use some approaches efficiently. We strongly recommend joining some communities and work with other retail traders to find methods that work well.

Should you use automated crypto market analysis?

Some experts argue that it is impossible to make short-term forecasts without employing various forms of automation. It is also hard to work with multiple assets at once. A crypto trading bot solves these issues and allows you to quickly identify good entry points while providing invaluable insights into the inner workings of the crypto market.


Next page