All this leaves many enthusiasts and crypto investors in doubt in regards to altcoins. Can these assets work as a viable inclusion in a portfolio? Should you try speculating on the prices and make money right now? Is it possible to use various trading techniques like copy trading and automated investing? These are important questions that make us all restless at nights.
Let’s focus our attention on the biggest trend in the world of fintech — automation. According to multiple market surveys, over 65% of all individual human traders are using automation to at least some degree while the share of fully automated trades in a typical portfolio of an investment institution is close to 95%. We also see a strong shift toward implementing more AI-driven solutions. An ai trading bot is an advanced tool that leverages artificial intelligence and machine learning to make trading decisions, optimize strategies, and execute trades automatically.
Using Altcoin trading bots seems to be a no-brainer for thousands of courageous investors who do not want to lag behind the competition. For many, starting with trading bots marks the beginning of their crypto journey, helping them navigate the complexities of the market with greater confidence. Many platforms offer a free plan or free trial, often with no credit card required, making it easy for anyone to try out automated trading without commitment. However, newcomers to the crypto market without any prior experience with advanced trading tools may feel intimidated by the very idea of automation despite it being quite simple when you get a hang of it. Many platforms now provide advanced features such as automation, customizability, and enhanced security to improve the overall trading experience.
A positive trading experience depends on choosing platforms with robust features, strong security, and reliable support, which can help newcomers feel more comfortable and successful as they start out.
Introduction to Crypto Trading Bots
Crypto trading bots are powerful automated tools designed to help traders navigate the fast-paced world of crypto trading. By leveraging advanced algorithms and, in some cases, machine learning, these bots can analyze vast amounts of market data, identify trends, and execute trades with precision—often much faster than any human could. Whether you’re interested in market making, grid trading, or dollar cost averaging, a crypto trading bot can automate various trading strategies to suit your investment style.
One of the biggest advantages of using trading bots is their ability to operate 24/7, ensuring you never miss a trading opportunity, even when you’re away from your screen. By removing emotional decision-making from the equation, trading bots help traders stick to their chosen strategies and make data-driven decisions. This not only minimizes human error but also maximizes the potential for profits in the ever-changing crypto market. With the right tools, traders can automate crypto trading, streamline their workflow, and focus on refining their strategies for long-term success.
Types of Trading Bots
The world of trading bots is diverse, offering a range of solutions tailored to different trading strategies and market conditions. Grid trading bots, for example, are popular for their ability to execute trades at predefined price intervals, making them ideal for volatile markets where price swings are frequent. AI trading bots take things a step further by using machine learning algorithms to analyze historical data and predict future market movements, giving traders an edge in anticipating trends.
Arbitrage bots are another powerful tool, designed to exploit price differences across multiple exchanges by buying low on one platform and selling high on another. For those interested in more complex instruments, options bots can automate the trading of options contracts, allowing for sophisticated strategies that go beyond simple buy and sell orders. By understanding the strengths of each type of trading bot, traders can select the best fit for their investment goals and automate their chosen strategies for maximum efficiency and profit.
Setting Up Your Trading Bot
Getting started with a trading bot is easier than ever, thanks to user-friendly platforms that guide you through each step. The first step is to connect your exchange account to the trading bot, usually via secure API keys. Once connected, you’ll choose your preferred trading strategy—whether it’s a simple trend-following approach or a more advanced method like grid trading or arbitrage.
Next, you’ll configure the bot’s settings to match your risk tolerance and investment objectives. This includes setting stop loss and take profit levels, defining position sizes, and selecting other risk management parameters. Many platforms allow you to fine-tune these settings, giving you full control over how your bot operates. By carefully adjusting your trading bot’s configuration, you can optimize its performance, protect your capital, and work towards your profit targets with confidence.
Is altcoin bot trading profitable?
Automated trading systems can be very efficient and help you improve the outcomes of your investment activities. However, it is important to use bots smartly and search for adequate sources of trading signals to achieve good results. Another important thing to remember is that your investments in automation are a long game. The key word here is “consistency”. While chasing huge profits is not a bad thing in general, bots are best used as trading tools capable of producing smaller profits reliably to produce positive outcomes in the long run. Market volatility can significantly impact the profitability of automated trading, so understanding how market fluctuations affect your strategies is crucial for long-term success.
Some may argue that altcoin investment strategies cannot be long-term since many DeFi projects and alternative blockchain networks usually fail or underdeliver on their promises making it hard to take them seriously for more than a couple of years. It is true that the blockchain industry stands on a several big coins like Bitcoin, Ethereum, and Ripple. Nevertheless, some altcoins are viable targets for automated trading software and can be considered good long-term investments. Additionally, some bots allow users to take short positions as well as long, providing flexibility to adapt to different market conditions.
Picking the right target asset and selecting the right analytical approach are two key areas on which an investor should focus when contemplating whether they want to put their capital in automated altcoin trading.
How to choose a good altcoin to trade
Building profitable altcoin bots is not an easy task. While you can create automated trading systems that won’t product any losses by adjusting your risk style to be as safe as possible, running bots that barely make any profit is not something to brag about. Maximizing profitability and performing on par with good human traders should be your goals.
It all starts with picking the right target asset to work with. There are several important metrics to focus on when selecting a good financial instrument for automation:
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Liquidity. Since many retail traders engage in automated trading and require high trading volumes with instant execution of orders, a target asset must have high liquidity and enjoy attention from as many market participants as possible. Some altcoins have really impressive market caps and daily trading volumes on top of having a large liquidity pool. These should be on your priority list.
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CEX support. Centralized cryptocurrency exchanges approach the listing process quite differently and may have varying demands for coins before they can be even considered for listing. You will find big coins like Bitcoin and Ethereum on most CEX platforms but some obscure tokens may not be present. The absence of these coins on all exchanges can harm their metrics in the long run. Managing multiple exchange accounts can be streamlined by using platforms that integrate with various exchanges, making it easier to access and control your assets.
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Hype. Remember that all coins are speculative assets despite what many crypto enthusiasts may try to tell you. An altcoin without any public support or heated discussions on forums do not have the same future as tokens that bath in popularity. Focusing on tokens that regularly receive the spotlight and drive user engagement on social media platforms is generally a good idea. A large and active community of users also plays a crucial role in driving the popularity and credibility of an altcoin.
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Long-term vs. short term. Some tokens are better suited for holding. Bitcoin enthusiasts do not want to sell off their assets and usually sit on them for extended periods of time. Volatility can be predicted in most cases and price movements are slower in comparison with some altcoins. Depending on which technical analysis strategy you plan to use, picking the right type of assets is quite important.
Some trading platforms allow traders to manage all their assets and trades across multiple exchanges through one interface, greatly simplifying the trading process.
Guide to altcoin technical analysis for bots
The best altcoin bot strategies are based on robust and reliable technical analysis strategies. While it is possible to receive trading signals from dedicated providers, many experienced investors rightfully believe that trusting signals that come from untested sources without understanding their analytical methods is very dangerous. Learning basic principles of technical analysis to employ various trading indicators to build a unique analytical system is often the most effective approach. Additionally, traders can set specific rules for their bots, allowing them to automate and customize their trading strategies based on predefined guidelines and market conditions.
How can you make bots work efficiently and consistently produce good signals? When it comes to automated investing and running all sorts of portfolio management systems, the answer is usually in using a technical analysis strategy that produces more true positives than false ones. With vigorous backtesting using paper trading features, it is possible to build a system that produces a sufficient number of good signals in the long term.
Many experienced retail traders prefer experimenting on the TradingView platform. It is the best trading terminal for working with charts and building complex strategies involving multiple trading bots. The website also has a thriving community that produces and tests many analytical ideas which is great for people who do not have any prior experience to financial markets. Traders can implement their own strategies or use pre-defined ones, depending on their experience and goals.
There are many strategies that can be used by novices to produce good results if you start with some standard technical indicators and employ various testing features to find a strategy that works well for you. You also have the flexibility to test and implement various strategies to discover what best fits your trading style and objectives.
Here are some ideas that you can test:
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On-Balance Volume (OBV) is a good indicator when you want to measure the strength of any current trend. The formula behind it is quite simple as it simply shows the difference between up and down volumes to show when the market is more dedicated to support a certain price direction. When OBV rises, it means that retail traders sell or buy intensely. If you run safer systems that benefit from trading within trends (for example, GRID bots from WunderTrading), OBV can be used to confirm that a strong sentiment is forming in the market right now.
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Relative Strength Index (RSI) is shows whether an asset is oversold or overbought using trading volumes for its calculations. The indicator is an oscillating moving average that bounces between 0 and 100 with the highest value representing overbuying and the lowest value — overselling. Usually, when you see the value of RSI reaching close to 75 or higher, it means that there will be a price retracement or a change of price action course in the downward direction. On the contrary, when it reaches 25 and below, you should prepare for a bullish movement.
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Average Directional Index (ADX) is a great tool for people who are looking for confirmed trends based on their strength and momentum. When the value of the indicator goes above 40, it means that the current trend is quite strong and can be expected to last for a while. When it goes below 20, the trend is weakening. Two additional lines represent the direction of the price. When these lines cross each other frequently, it means that the current trend is very weak with price direction changing rapidly. You may use this tool to identify moments when you should abstain from trading to avoid high volatility.
Backtesting altcoin trading bot strategies
Current advancements in the fintech industry include futuristic stuff like AI trading and machine learning trading. An automated trading bot can help streamline the trading process and improve efficiency. Contemporary automated trading systems are quite different from what they used to be just a couple of years ago. However, using some untested systems if you plan to build an altcoin bot is not recommended until you have tested them personally.
It is strongly recommended to use a variety of techniques to iterate and search a good combination of technical analysis approaches and bot settings.
Here are some tips for people who want to build an altcoin trading bot for Binance, Coinbase, or any other centralized crypto exchanges:
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Start with consistent strategies. Instead of testing methods like swing trading or scalping, focus on arbitrage and DCA. These systems produce more consistent results than other riskier approaches and allow you to reiterate multiple times and slowly search for the most optimal combination of settings. Newcomers are strongly encouraged to experiment with time-tested automated trading systems like DCA or GRID before moving on to something more sophisticated. A dca bot and a grid trading bot are popular choices for automating these strategies. Many platforms also offer more bots for different strategies, allowing traders to diversify their approach.
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Use all testing tools available to you. When deploying a strategy on the TradingView platform, you can use the “Strategy Tester” instrument that will compare the performance of your analytical strategies against the market history. Additionally, you should run it after connecting to algorithmic trading bots and use tools like “backtesting” at WunderTrading to test the overall results of your bots using the strategy and particular settings. Features like trailing stop loss are important for risk management during backtesting.
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Test with demo accounts and paper trading. The best altcoin bot strategies are created with vigorous practicing. While using any untested or unreliable system in real market conditions can be quite dangerous, you can always use demo accounts offered by centralized crypto exchanges or paper trading features on automation platforms. Whether you are using high-frequency GRID systems or rely on conservative position trading, it is important to first test ideas with practice tools. Automated trading bots can be tested in these environments to ensure they execute trades as intended before going live.
A well-configured bot executes trades automatically based on the chosen strategy and settings, helping traders optimize their performance and manage risk efficiently.
How to manage risk when using altcoin bots
Whether you use automation, day trading can be quite dangerous if you do not employ risk management techniques. You may generate signals manualy, rely on Signals Telegram groups or build advanced technical analysis strategies, but they will be ineffective without managing risks properly.
Here are some tips to manage risks:
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Always use delayed orders. Stop loss (SL) and Take Profit (TP) are orders that protect your market positions from unexpected price movements. The former is used to reduce potential losses while the latter should be used to secure profits and avoid overexposing a market position to undesired risks due to overholding. SL/TP orders should accompany each and every position opened by your bots. It is important to test various combinations and ratios to figure out the best settings for your particular investment style.
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Do not use a large portion of your portfolio. The altcoin market may look like a very lucrative destination for your investment activities. However, you should always remember that obscure financial assets that are not exposed to the general public carry a high risk. In addition to adjusting position sizes for each trade, you should also reduce the size of the capital dedicated to altcoins. Setting up a separate trading account with limited funds and automating it with bots is a good idea.
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Diversify investments. The automation industry is very flexible and has tools for all sorts of risk styles and preferences. If you do not want to spread your capital across multiple asset classes, it is a good idea to at least use multiple types of automation to create a balanced portfolio. Copying actions of good retail traders can be a hedge against riskier custom ATS. AI-assisted statistical arbitrage or GRID are good hedging mechanisms against risks associated with aggressive day trading. Upgrading to a pro plan can provide access to advanced risk management features and premium tools for more effective diversification. Some platforms also offer a marketplace where you can find, share, or purchase risk management strategies developed by other traders.
Remember that managing risks is a huge part of building a good automated trading system for altcoins. You should focus on avoiding danger while slowly and meticulously testing ideas that work well to produce a bot that will generate profits consistently in the long run. Additionally, joining an affiliate program can help you earn commissions by referring others, providing an extra way to offset trading risks.
Trading Bot Security
Security is paramount when it comes to using a trading bot, as these tools require access to your exchange account and funds. To safeguard your assets, always choose a reputable platform that implements robust security measures, such as secure API connections and two-factor authentication. These features help prevent unauthorized access and ensure that only you can control your trading activities.
It’s also important to keep your trading bot’s software up to date and regularly monitor your account for any unusual activity. By staying vigilant and following best practices, you can protect your funds and enjoy the benefits of automated trading without compromising on security. Remember, a secure trading environment is the foundation of a successful crypto trading journey.
Troubleshooting Common Issues
Even the best trading bots can encounter occasional hiccups, from technical glitches to connectivity issues or strategy misconfigurations. When problems arise, start by consulting the bot’s documentation, FAQs, and user forums—these resources often contain solutions to common challenges. If you need further assistance, reach out to the platform’s support team or seek expert insights from experienced traders and developers.
To minimize risk and optimize your bot’s performance, take advantage of paper trading features. This allows you to test new strategies and fine-tune your bot’s settings in a simulated market environment before committing real funds. By proactively troubleshooting and continuously refining your approach, you can ensure your trading bot remains a reliable tool for achieving your investment goals.
Should you trade altcoins?
The future of decentralized finance seems to be bright. With the current push toward regulating the crypto industry in the US and other western countries, we are seeing that Bitcoin and Ethereum are getting the necessary level of exposure to prop up other tokens to new heights. It is impossible to promise that an L2 token from the Cardano network will explode in popularity, but the industry still has a lot to offer and many up-and-coming tokens do deserve your attention!
