While digital assets do not carry the same degree of risk, they still can lead to unbearable losses. Capital holders have to resort to a wide range of tricks and instruments to achieve consistent returns. Automated market analysis is one of them. You can use various approaches to build a powerful algorithmic trading bot or make decisions based on information produced by reliable systems.
The difference between market signal bots and trading bots
Despite not sharing the exact same name, these two products are still essentially the same. More precisely, the former are representatives of the latter. Contemporary retail traders have to engage with incredibly diverse and complex markets that often feature thousands of assets. Navigating through this chaos can be difficult even for professionals.
One of the problems that many beginners encounter at the start of their journeys is that many assets are quite hard to evaluate using fundamental approaches. Since the vast majority of digital assets are speculative, they are incredibly volatile and do not have the same metrics associated with them as real estate or stocks.
In many cases, it is simply easier to launch one of the reliable automated trading strategies (ATS) and enjoy consistent returns. For instance, a market-making bot can deliver an excellent performance when used on centralized exchanges that need additional liquidity. You can also deploy them on decentralized platforms (depending on the software and target blockchain).
People who are interested in something more elegant and sophisticated may look into custom robots and advanced products offered by leading vendors in the sector. A good example is a new product in the arsenal of WunderTrading, a company spearheading research in the automation field. The statistical arbitrage system powered by artificial intelligence is exploring an uncharted territory and has been great at it so far.
When it comes to innovation, it is important to experiment with such “toys” offered by reliable vendors. These can be the earliest prototypes of products that will redefine the idea of financial management and capital allocation. Note that an AI trading bot falls in line with the topic of this very article and can be used to increase the efficiency of your efforts to build wealth.
How do trading signal bots work?
Understanding the inner workings of these wonderful systems is crucial for any investor who wants to make informed decisions. It is possible to build a balanced portfolio without ever using any ATS, but it will be difficult in a digital market dominated by them. Instead, you should learn how to utilize and implement them in long-term financial plans.
Contemporary systems are built on the foundation established decades ago. Just like in many other areas, we are standing on the shoulders of giants. For instance, any modern ATS consists of three distinct components:
- A trigger for action. It can be manual input or an alert from TradingView. Some users prefer buying signals from reliable vendors. The trigger is used to put in motion the algorithm.
- The algorithm and software. A robot will receive a trigger and place orders on your behalf. Usually, it is connected to a CEX or a brokerage service via API.
- The trading platform. The magic happens here. Robots connect to the platform, enter positions, and monitor price action to exit at an opportune moment.
Despite technological progress, all ATS are still the same. Those powered by artificial intelligence are exceptions, but also use the same general architecture where alert procurement is replaced with autonomous market trend analysis by bots and algorithms.
When it comes to generating signals for your trading bot and general strategy, there are options to make it autonomous. Some systems utilize proprietary analytical methods. However, the vast majority simply use the TradingView platform.
Here are different types of analysis that these systems may engage in:
● Social sentiment identification is a relatively recent invention. The advancements in LLMs (large language models) and neural networks have made it possible for machines to understand and process natural language. Now, they can simply access social media, read posts, and generate summaries.
● Fundamental analysis can be used by many modern systems thanks to the implementation of expert AI agents. However, the quality of data here plays a huge role. Additionally, they perform well only in “fair” markets where manipulation and information concealment are absent. In other environments, they produce poor outputs.
● Technical indicators in trading bots are the most reliable and popular sources of actionable analytical outputs. These robots can utilize many methodologies and approaches that have been in development for more than a century. By applying time-tested strategies to market history, these machines can identify patterns that may slip away from even a trained human eye.
When it comes to evaluating these ATS designs, it is important to keep in mind the fact that many use cases of market signal bots are complementary. They should not form the foundation of your general capital allocation plan. Instead, they enhance the performance by relieving you from mundane tasks and making money passively.
Typical alert generation methods
Many retail traders heavily rely on price action analysis by trading bots. While it is possible to do everything without ever allowing a machine to touch your assets, the vast majority (over 65%, by some estimates) of individual capital hodlers prefer automating at least some of their in-market operations.
It is difficult to estimate potential profits or even identify the number of ATS users who lose money or make a profit. However, experienced users report good results. How can a machine deliver them so reliably? In short, by using time-tested approaches and excellent technical indicators.
Here are some of them:
● Relative Strength Index (RSI) has been a bottom-line-saving tool for many financiers in the past. It is still more than relevant for any market. It relies on analyzing volumes and price action to deliver an assessment of the current situation. It can tell you whether assets are overbought or oversold. It is used to predict trend reversals.
● Moving Average Convergence/Divergence (MACD) is another hugely popular instrument. Some robots may not use this particular indicator, but some variation of multiple moving averages. The vast majority of systems employ them to seek strong trends, relatively calm periods, and opportunities for long-term entries.
● Stochastic has a strong fan base within the crypto community. It is a very simple yet powerful tool capable of predicting reversals. It can also be used to confirm trends and identify when volatility goes up or down. Some experts argue that it is superior to RSI, but modern charting instruments like MT5 or TradingView allow users to deploy multiple indicators at once. You can use all of them together.
Many systems use custom systems that rely on research conducted by economists in the past. By combining different tools and allowing artificial intelligence to search for obscure patterns, contemporary ATS can deliver great results and produce alerts that human analysts would have missed.
Market signal bots in action
You can go to several platforms to launch these robots. We will give you several examples where you can deploy an effective signal bot and enjoy consistent returns.
● WunderTrading is a great destination for users interested in building balanced portfolios around ATS. A massive catalog of innovative tools exists in harmony with a wide range of industry staples. The social marketplace is an excellent place to look for lead traders to follow if you want to engage in copy trading. The selection of custom robots is quite diverse, allowing you to create sophisticated strategies. For instance, users are offered AI-enhanced ATS, pump screeners, DCA systems, GRID robots, and more.
● Cryptohopper is a solid choice for investors focused on ready-made ATS solutions. While it lacks in social aspects, Cryptohopper has been innovating in other areas. For example, the recent addition of smart grid robots that use AI agents to improve returns and adjust positions in real time has been met with approval from the community. On the other hand, the platform can be somewhat difficult to learn for newcomers, and the absence of some staples may disappoint veterans.
● 3Commas is a name many crypto enthusiasts know quite well. The platform is community-oriented. It pushes social products more than anything else. The marketplace here is a place for power users and third-party providers to sell fintech solutions, signals, and methods of enhancing trading decisions with signal bots, alerts, and smarter analytics. Pricing may seem steep, but it is still a hugely popular destination for users seeking advice and interested in copy trading or other similar products.
These are great service providers that can be used by investors who want to put their money into automation. Note that achieving success in any market is close to impossible without personal input. Yes, these systems can alleviate some of the pressures and make it easier to deal with mundane tasks. However, they cannot see the bigger picture and often become victims of restrictive programming.
A great advantage of these platforms is the ability to reduce risks by employing standard tools. Delayed orders, trailing stops, position sizing, and many other features allow users to carefully tune their strategies and achieve consistency. Algorithmic approaches also work well for people who are not confident in their own ability to make decisions on the spot. For instance, DCA is a good choice for people who doubt analysis and cannot make a move quickly.
The main takeaway
It is futile to discuss the benefits of automated market analysis. Some experts believe that it is the future of the fintech sector, while others completely ignore the progress and preach the necessity to rely on your personal judgement and experience. Entering these discussions is pointless, as investors naturally find one side or the other more comfortable.
However, it is important to avoid being close-minded. Modern tools may be inferior or less efficient, but they may still provide value. Simultaneously, another potential future is the one where autonomous agents rule the market, leaving humans in the dust. Experimenting with innovative instruments is incredibly important for the long-term prospects of any capital allocation endeavor.
Some industry staples have been significantly improved by progressive innovations. For instance, you can run a statistical arbitrage bot at WunderTrading and make it faster with AI. While it cannot be the backbone of your whole portfolio, it is a good complementary tool that may improve the overall performance of assets held for the short term.
