Automated trading tools are not instant money makers
While many believe that automation can be used to create a passive income stream without putting in any work, the reality cannot be further from this idea. Tools for crypto trading are created to elevate your investment game to the next level. They are not something that will make you money out of thin air. If it was the case, everyone would be using them and become rich beyond any comprehension.
It is important to remember that any automated trading system is an extension of your technical analysis strategy that must produce true positives consistently and allow bots to place orders that will be profitable.
Ultimately, you alone are responsible for the long-term success of any ATS. Here are key things to remember:
- You need a good technical analysis strategy. Since all crypto tokens are inherently speculative assets, the only reliable way to predict price action is by using various indicators and trading systems that produce signals. These signals are interpreted by bots and executed upon. If you do not have a good strategy, your automated trading systems will not generate profits.
- You have to come up with appropriate settings. The WunderTrading platform and many other automation vendors allow users to tinker with settings and create finely tuned crypto trading tools capable of generating profits consistently. It is your job to find the right combination of limitations and conditions to make bots profitable.
- You choose where and what to trade. Different centralized exchanges offer varying terms and conditions. Each token in the market has its own unique patterns and fundamentals. It is up to you which marketplace to work with and which tokens to trade.
Aiming at short-term goals
Another big mistake that many retail traders make when running automated trading systems is believing that bots must make profits immediately. Automated trading systems enhance technical analysis strategies that are designed to deliver consistent results. It means that they often generate relatively small profits and generate a plethora of signals. Many of them will inevitably turn out to be unprofitable.
You should try to create a strategy that generates more true positives than false ones. Then, you need to wait for a relatively long period until you are happy with results generated over time. While day trading tools exist and can be effective, the vast majority of automated trading systems are aimed at generating consistent returns in the long run instead of trying to squeeze as much profit as possible from separate trades.
If you want to run a successful automated trading system, you should focus on achieving consistency and stable performance. Thinking that a streak of bad trades is a sign of complete failure is not a good approach to building a good ATS. The contrary is also true. After making a couple of profitable trades, continue monitoring the performance and evaluate it over a long period.
Not taking risks associated with automation seriously
Many retail traders without any prior experience with the crypto market believe that this industry provides endless money-making opportunities without any risks. The problem is with the messaging from the crypto community that often exaggerates the future of crypto and the potential to make money.
Risks associated with using an automated crypto trading platform like WunderTrading are also underappreciated by many investors.
Here are some risks that you should consider:
- Safety risks. Since you will need to work with TradingView and an automation vendor, you will introduce two new vulnerabilities. Using strong passwords, staying vigilant online, and employing multi-factor authentication are great ways to reduce the chance of losing sensitive personal information or access to your accounts due to unforeseen cyber-attacks.
- Financial risks. Some retail traders do not take their time to adjust the settings and use the wide range of trading risk management tools offered by automation vendors. Without stop-loss and take-profit orders you will quickly lose money if even one trade goes south. Make sure to use all available risk mitigation features.
- Idiosyncratic risks. The automation industry is still relatively new and may not have experienced the whole range of possible issues and problems that may hinder its efficiency or even existence. Unforeseen risks associated with using automated trading systems on a large scale by millions of retail traders may affect your portfolio in the long run.
Not using the latest advances in automation
The industry has been rapidly evolving over the course of the last decade. While the continuous development of the automation sector brought many new staple features improving performance and convenience, some advancements were subtler. For example, many retail traders are still sleeping on artificial intelligence and its gradual integration in the world of finance.
Modern AI tools for crypto trading are not as good as they will be within the next decade, but they are already at a point where using them is a reasonable decision.
Here are some ways in which AI helps modern automated trading system perform better:
- Artificial intelligence can adjust the settings of bots according to the changes in the market and make suggestions based on the performance of automated systems in your portfolio. It is a great way to introduce micro-corrections to your strategy and achieve even higher level of consistency.
- AI-driven tools improve various bots using algorithmic trading. DCA or GRID bots powered by the AI perform better in the long run and deliver better results. It is possible that crypto arbitrage bots will be also improved by the introduction of AI assistance.
While many companies are still in the process of introducing advanced solutions based on using Artificial Intelligence, we already have interesting products that use AI to enhance automated trading systems. If you won’t use them as they are developed, you will fall behind the competition.
Ignoring diversification opportunities
Any investor knows that it is imperative to diversify and put your money in different asset classes. Many retail traders do not have the necessary capital to buy property and stocks. However, it is possible to successfully diversify within the automation industry by using various products that have different levels of risks and potential returns.
Here are some ideas on diversification using automation:
- Consider engaging in copy trading. Companies like WunderTrading offer unique opportunities for social trading. You can create bots that will copy actions of successful retail traders. Some of them are take on higher risks and work with leveraged positions. Some prefer conservative approaches to trading. By choosing different people to follow you will naturally diversify your investments.
- Use different strategies. Create bots that use aggressive trading patters like scalping and swing trading. Run them alongside automated trading systems that are designed to be as safe as possible (low take-profit and safe stop-loss limits).
- Add preset automation solutions. DCA and GRID bots with safe settings can be reliable money-makers and generate profits consistently. You can also use them to simply acquire digital assets at a pace that feels comfortable.
Not using backtesting capabilities to identify strong strategies
Some retail traders believe that they can snatch an interesting user-rated trading system from the TradingView forum or Reddit and launch a successful bot. The issue here is that even the most popular strategies work only in certain circumstances and may not be applicable to your portfolio.
Using crypto paper trading techniques to test your technical analysis strategy before placing real orders is a good idea. You can use a wide range of methods to verify the validity of any trading system:
- Use the strategy tester on TradingView. This charting tool is excellent for deploying various technical analysis strategies and generating alerts. It can also test your ideas against the market history and provide the much needed context to the success of any given strategy.
- The backtesting feature on WunderTrading. You can create a bot and test it against the history of price action to check if it works as intended. The backtesting instrument is slightly more reliable than “Strategy Tester” as it uses settings of the bot and your technical analysis strategy.
- Engage in “mock trading” or use demo accounts. Many centralized exchanges like Binance and OKX have “mock” accounts with fake money to test your ideas and the features of an exchange. We highly recommend using these accounts to test various technical analysis strategies.
The main takeaway
We believe that using cryptocurrency trading automation tools cleverly is quite important if you want to make money in the crypto market. Launching bots without testing them, adjusting settings in accordance to your risk style, or hoping that they will generate profits without any inputs from you is not a good idea.