Top Crypto Bot Strategies 2022
Mar 04, 20226 min read
Traders are using crypto bots even more often due to a comparatively new opportunity to get a passive income. If you’re not a complete newbie, then maybe you’re thinking about getting started to use one of those bots to earn crypto in a way they haven’t done yet.
To learn more about the strategies you can have a look at, let’s review some of them here.
What is a trading bot?
A cryptocurrency trading bot is a type of automation that helps make transactions to gain profit for its executor. All the bot’s decisions are based on specific parameters. These programs may connect to the exchanges you’re already using and carry out definite trading methods on your behalf to make profits by making use of an Application Programming Interface.
Depending on how it’s adapted, the program may use a wide number of algorithms to generate income for you. All trading bots can be configured
This strategy works not only in cryptocurrency but in other markets, too. The mean reversion happens when a coin’s price goes slightly up or down from its usual price, it will return to the average price. This strategy is based on market psychology. Basically, let’s say a coin’s average price is $2. When the price goes up to $2.25, traders will start selling their coins until the price goes back to $2. If the price falls down to $1.75, then the market understands this as a bottom line and accumulates until the price goes back up to $2.
In a momentum strategy, a trader holds short-term assets and sells them at their highest price, right before it crashes. The strategy is mainly based on the hypothesis that prices will continue to go up the average price and fall back down from time to time. The essential factor here is to understand (or to feel, if you want) when to catch the entry timing and the exit timing on time. This strategy will help your bot to recognize the high rise and sell your assets at the momentum before prices fall down.
Arbitrage strategy is one of the most common among traders. It's interesting to note that an asset can have two prices at the same time. This happens because of the price fragmentation in marketplaces. Let’s imagine a coin’s price is $1.05 in Exchange A and $1.07 in Exchange B. if you apply the arbitrage strategy to your trading bot, it will surely buy the coin at Exchange A and sell it at Exchange B right away. By doing this, you make $0.02 per coin without any fuss. The crypto trading bot has multiple strategies and features, but this one is maybe the simplest for you and your trading bot.
The Naïve Bayes strategy is a kind of ML (Machine Learning) technology working with the probability of an event occurring due to classification variables. For instance, if a coin's price has been going down (the classification) gradually for several days (prior probability), what is the chance that the asset's price will continue to drop today (posterior probability)? If the bot tells you that the chance of the price going down is 70%, then it is high time to sell your assets.
Natural Language Processing (NLP)
As the cryptocurrency market is heavily affected by news, events, and media, your bot can be adjusted due to such nuances, as well. With the NLP strategy, you can program your trading bot to react to the news with certain keywords. NLP programming gives your bot the possibility to analyze loads of articles and tweets with given keywords and make a decision on whether it is time to buy or sell assets according to the latest news and hottest trends.
Types of Crypto Bots
- arbitrage bots
This bot uses the arbitrage concept. Arbitrage is a trade that utilizes an imbalance between the price in different markets or different forms. Simultaneous buying and selling an asset can profit from the existing imbalance with ease.
Arbitrage crypto bots are adapted to keep track of the difference between the coin’s prices in various markets. Why? To later buy the coin where the price is lower and to sell where it is higher.
- coin lending bots
A trader can lend coins to margin traders who will later return the loan with a percentage.
Coin lending bots help to automate the process, so a trader spends less time looking for the right interest rate and makes use of the possible gaps in lending options.
While setting up such a bot, you can configure your strategy, conceal lending until the current interest rate reaches a certain bar, choose a currency and a date you want your coins back.
- margin trading or leverage bots
The bot is based on the grid bot. The margin bot holds your assets and does not invest them. This bot is especially helpful for users who want to short or long the market. The bot is based on the grid bot.
A trader can set a price corridor that consists of upper and lower price bars. Within these bars, the price can be different, and if the price is low, the bot buys a portion, and if it’s high, it sells a definite amount of assets. This kind of bot helps to avoid emotional reactions such as selling low and buying high with the result of losing money. Be aware if the price runs out of the bar, you might have sold low within the range.
- market maker bots
Market maker bot can utilize order book spreads to bring you profit.
If an asset is traded actively, the spread will be wider, and the more profits market maker bots can return. The main thing here is to sell to investors for a higher price than a selling price and do it as often as possible.
The market maker bot places an order with a price that differs from the market price and, by doing this, earns money for its owner.
It scans the markets widely and does it 24/7, giving a trader an advantage of time, volume, and price.
Why do you need one?
So, you’re a crypto trader but why do you need a bot if you can do everything on your own?
That’s the fact that computers and machines can run real-time at one time much faster than humans. without error indicates how effective trading bots can be when used as tools.
Also, trading bots have a larger memory capacity and calculate speeds, which influence the trading results.
- Human Factor
Being emotional and acting impulsively is something in human nature and can’t be totally removed. On the contrary, a bot won’t be emotional or irrational. It’s under a trader’s command.
Trading bots will obey your orders, strategies, and inputs. They will only do steps within particular parameters. Such bots are pre-programmed to accept and carry out the commands that are given to them. It is crucial to remember that the existing automated solutions for the crypto market can’t provide the full range of speculative potential. This means a trader has to be there too and give data and commands to the trading bot software.
- Simultaneous Operations
These automated tools are pretty helpful because crypto trading bots perform various tasks at once. A trader could not be a market maker and a scalper in different markets while trading numerous cryptocurrencies across various exchanges.
Furthermore, a trading bot would learn about the markets, participate in them, and continue to function as long as the conditions were favorable for each of the methods.
- Different strategies
Scalping is a trading strategy popular among crypto trading bots that focuses on profiting from small price changes. It is a popular trading method among traders. It can be time-consuming because of the great number of transactions required to turn a profit.
Trading bots are surely helpful since they automate the whole process and make it way faster. A trader allows the bot to trade for their part whenever the right circumstances are met without a trader needing to be there. There is an opportunity to earn money without having to spend much time in front of a computer and do it more efficiently using all those strategies we’ve mentioned above.
The cryptocurrency trading bots are just tools, and even the best of them can’t guarantee you crazy profits out of nothing because the market is volatile. It is crucial to understand that they are not a simple way to make money without doing research and putting efforts on your behalf. But once you are prepared to contribute your time to learn how they function, what drawbacks and advantages they have, what strategies can be applied, you can surely get a decent profit.