Using a holistic approach to crypto investing
The biggest risk factor when using this particular approach is that the whole sector may go under. The level of economic uncertainty in the crypto industry is quite high. Investors have to consider the possibility of losing everything due to some unforeseen issues that will plague the whole blockchain domain and bring the crypto ecosystem down.
During the last decade, Bitcoin and Ethereum in particular have shown that cryptocurrencies can be robust in the face of tumultuousness in the world of finance and withstand some of the harshest challenges. With the current global economic environment warming up to the concept of decentralized finance and using Bitcoin as an alternative type of asset, we are entering a new era of investing.
An average retail trader has many distinctively different methods of investing in the crypto industry:
- Buying assets and holding them until they appreciate. This particular strategy proved to be very effective for people who invested in mainstream coins as early adopters. Those who acquired Bitcoin and Ethereum in the 2010s saw immense returns on their investments. On the other hand, tokens like Terra Luna turned out to be massive disappoints.
- Staking tokens or yield farming. Many investors found passive allocation of capital fruitful. Staking tokens like Ethereum is a sound financial plan due to the potential appreciation of ETH in the future. All rewards for staking are in tokens. You may look at them as typical fixed income assets that bring in some profits annually. Staking tokens is quite expensive and may be out of reach for some newcomers.
- Automating reliable trading strategies. The crypto market is uniquely suited for automation. It is heavily digitized, works around the clock, and can be accessed in any place with a stable internet connection. Since many automation companies started offering their services, the latter became irrelevant as you only need to set up a bot and check its performance regularly.
Using different types of bot for the purposes of crypto portfolio diversification can be very useful in the long run for many retail traders. The automation industry has a lot to offer and can help you build passive income sources that perform consistently.
Examples of the best crypto bots for diversification
Retail traders interested in allocating their assets smartly should look into various crypto portfolio diversification techniques. To achieve balance, you need to use high-risk market positions for high rewards alongside safer investments that produce small returns reliably. Offsetting risks with safe capital allocation helps you avoid losses. At the same time, it is a good idea to invest in different types of assets so that risky positions and your hedging positions could be profitable simultaneously.
Here are some examples of trading bots that you can use to build a balanced portfolio:
- DCA buying. This product can be found in any automation catalog. Companies like WunderTrading or Cryptohopper offer DCA bots to clients interested in either active safe trading or asset acquisition. The distributed cost average method allows you to reduce the price of acquiring coins for your portfolio. Trading bots can also place exit orders to liquidate your positions at a profit.
- Grid bots. Many experts believe that grid trading is one of the best techniques created in the automation industry. These bots use the same DCA-focused approach to create buy orders, but also place sell orders for each position. It is a safe and reliable method of trading. You should not expect high returns, but the consistency is quite impressive. Use grid bots to offset risks associated with holding riskier positions.
- AI-powered crypto portfolio management. One of the recent trends in the world of trading automation is using expert AI systems created by advanced machine learning algorithms to produce advanced automated investment systems. One of such products is AI-assisted statistical arbitrage from WunderTrading. It is an excellent bot that runs a massive portfolio and determines the best method of asset allocation. When necessary, the bot engages in rebalancing the composition of tokens to keep everything balanced.
With the current level of product saturation in the trading automation sector, it is possible to find a unique solution and achieve higher consistency. Advanced automation vendors like WunderTrading offer preset solutions (DCA, GRID or statistical arbitrage) alongside other offerings like copy trading, high-frequency trading, custom bots, and more.
It is important to understand which additions to the portfolio will make the most sense given your risk style and investment preferences.
Short-term strategies with automated trading systems
When overall risk profile matters less than potential returns, many retail traders prefer engaging in riskier strategies which can also be automated. Some individual investors believe that using long-term strategies in highly speculative markets such as the one for cryptocurrency is not a valid approach to investing. Others may think that making money right now is more important than hoping that your holdings will appreciate by the year 2030.
Thankfully, the automation industry has many interesting solutions for people interested in high-frequency trading and approaches like aggressive day trading and scalping. However, you should be aware of the fact that using such techniques is quite dangerous and many risk management methods do not work well.
A good idea is to offset these risks by splitting your portfolio and allocating some assets for aggressive trading while putting another portion into something safe like DCA or grid trading. It can be quite safe and profitable in the long run.
Risk management methods in the world of automation
You can use various products for traders to mitigate different types of risks and dangers. Risk reduction is an important skill and usually takes years to master. Thankfully, many automation vendors already have all the necessary tool to help you identify the best way to avoid unwanted losses and secure profits consistently.
Here are some great ways to set profitability goals and avoid the dangers of the market:
- Use delayed orders. It can be quite tedious to place delayed orders for each market position. If you plan to open several at once, you can make mistakes or forget to set them up. Bots will place stop loss and take profit orders automatically according to their instructions. You only need to set them once. Choose these parameters wisely to create a system with a risk profile that you require to build a balanced portfolio.
- Limiting position sizes. It is hugely important to prioritize certain investments over others. Use position size limits to achieve good balance. You can instruct bots to choose the size of a position based on a specified percentage of your total account balance or in absolute value (i.e., exactly $10). Use different orders to properly hedge against risks.
- Assess risks profiles. Depending on the parameters of bots you are using, the overall risk profile your portfolio will change. You must understand which automated trading systems are riskier than others. Target assets also play a huge role. For example, a grid bot with high target profitability goals trading something like Dogecoin will have a higher risk profile than a triangular arbitrage bot that tracks prices to find a moment for a 100% profitable trade that will generate a small return.
Use various types of automation products to build a balanced portfolio that can perform under any circumstances. If you want to run a risky scalping bot for Ethereum, add Bitcoin DCA buying bots to ensure the longevity of your investments.