The Ultimate Guide to Altcoin Trading Bots: Conquer the Market



Blackrock and Fidelity Investments envision a world where cryptocurrency are staples in any portfolio. With the introduction of ETFs, some of the biggest financial institutions are dipping their fingers in the crypto market and focus on introducing new exciting assets to their clients. The market for Bitcoin and Ethereum is doing quite well with a promise to do even better in years to come.

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.

Using Altcoin trading bots seems to be a no-brainer for thousands of courageous investors who do not want to lag behind the competition. 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.

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 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.

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.

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:

  • 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.
  • 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.
  • 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.
  • 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.

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.

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.

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.

Here are some ideas that you can test:

  • 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.
  • 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.
  • 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. 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:

  • 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.
  • 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.
  • 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.

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:

  • 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.
  • 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.
  • 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.

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.

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!


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