Cryptotrader’s happiness or how I found an alternative for trading bots
We received an interesting letter from our reader, cryptopanda, who is a beginning trader disappointed in trading bots.
This person has been pretty good at identifying the shortcomings of these bots, and he is sharing with us the alternative that he had good luck finding.
We are posting it with the author’s consent. It seems that both beginning and seasoned traders can benefit from reading the experience-based analysis like this.
Cryptotrader’s happiness or how I found an alternative for trading bots
I want to share my lengthy experience of using trading bots on crypto exchanges.
Many people want to make money on cryptocurrencies, but very few of them have skills to do so. Although the main principle of gaining on cryptocurrencies is easy, namely buy when it’s cheap, and sell when it’s high, the tactic is time-consuming and requires constant focus.
Sooner or later, any trader finds out about trading robots (or just bots as they called). I was no exception. I decided to try them out.
I’m not going into details, because I assume that if you’re reading the article, you know about them enough. Shortly, a trading bot is a piece of software or a script executing set tasks for specific conditions. In this case, the conditions are as follows: buy a particular cryptocurrency when its price is low and sell it when the rate is high.
The majority of bots use the algorithm:
- The rules are being established.
- The strategy is being designed.
- The code is being written.
- The software is being connected to an exchange account, and the money is supposed to flaw into your pocket. Kind of.
It’s not that easy with the last point.
After a year and a half of messing with the bots, I’ve understood what’s wrong with the bots. Before I start, it’s just my opinion, and I don’t claim to be in possession of the absolute truth.
Shortcomings of the bots
- It’s clear that only a human can perform an in-depth analysis. Software fallows an algorithm. It has no intuition, and cannot adjust its actions. A human being is more flexible. Analysis of a particular situation is uploaded into the software while a human can take information from the outside.
- A trading bot doesn’t know what to do when something unusual is happening. We’ve mentioned something of the kind above. It’s worth taking into consideration that an unusual situation can work in your favor or against you, even if your analysis was right. Only a human is to decide on which action shall be exercised.
- Instability of programming code. Sometimes trading bots can freeze, lag, black out, etc. No one is safe from this danger. Therefore, you have to monitor the bot at all times.
- Scam robots. Yes, there are such bots on the Internet too. They can steel personal data, transfer your assets to hackers and many more illegal stuff.
First of all, it’s important to understand an obvious fact. The market is changing. It’s more and more people seeing the efficiency you’re making money with the number of people seeing the efficiency of your trading is increasing more and more, which makes it less profitable. That’s why any strategy and bot are becoming useless over time. Generally, in 80% of cases, it happens starting with a long zero- profit period, which gradually turns into a period of constant losses. The other 20% of bots might surprise you with a sudden dip exceeding all the limits you’ve set. The profitability is also restrained by the disturbing range of risks associated with different types of bots.
Let’s take bots for scalping as an example.
Scalper bots implies a couple of serious risks:
It’s not a rare occasion when a trader driven by greed is increasing a position until it’s too big for the bot. As a result, the bot gets useless. Unfortunately, it’s one of the most widespread bot-related mistakes traders make.
Moreover, since scalping can be seen as a high-speed race run by traders, your bot is vulnerable to the competitors that are faster (for example, if they use a better connection). As soon as you’re outpaced, no strategy is working properly, and you lose again.
There are also indicator operating bots. They use historic patterns (price actions and
I used to work with them too. What’s wrong with them?
Irrational actions on the market
The keyword and the main danger here is past. The time is not your best adviser here. As soon as the dynamics of assets change, a time-proven correlation vanishes. In this case, you’re still trying to get a regular profit but sustain losses instead. It happens on extremums often since they are a general sign of upcoming changes.
The same is accurate for indicators that become useless after the slightest change in a price action pattern. The logic of the software can be easily broken, making it useless. As you know, frequent changes are typical in the world of crypto. Thus, how can we rely on the bots in the long run? The market is changing fast. It is a matter of hours for a black swan to come and go, for assets to appear and die. So, the bots aren’t long-lasting at all.
Another type of bots is trend trading bots. It’s a type of working with trends. At least they are efficient, aren’t they?
No, they not. Here are just the most obvious problems.
Wrong/Inappropriate market conditions
First of all, you can stack in the long-time dip, since the bot isn’t suited for trading on the sideways. Thus, you will be sustaining losses until a trend comes. Can you? And you don’t know when it comes. The only option is to wait and hope for a breakout to happen before you run out of money because as John Maynard Keynes once said: "Markets can stay irrational longer than you can stay solvent." Ask yourself, 'Am I ready to lose money, say, half a year straight?'
Secondly, being in a long-term sideways drift, you might lose the moment when the market conditions change so much that the algorithms of your bot are no longer valid. Or, again, you will never know whether your situation is natural or it’s just something wrong with your bot.
Not to mention technical risks implying that a minor codding error immediately kills any strategy, which means that your trading turns into a cash handout – a true traders’ happiness indeed, nothing less.
All these issues had led me to a question – what shall I do? I have no time, energy, and, to be honest, desire to trade by my own means. All I want is a source of passive income and not to care about these risks and issues.
And it seems like I’ve found a proper option. Most of you know about it already or even use it. I’m talking about copy trading, of course.
Let me tell you about a service that I came across on my twitter timeline. Coinmatics.
It’s a platform where Binance traders go to with a profitable strategy, add their API keys, and make these strategies publicly visible. And form the moment on, everyone can come and see whether a particular trader knows the craft well or not.
Why do they need that for?
First of all, it’s a way to get a valid audit of one’s trading activities. Strangely, cryptocurrency exchanges are reluctant to add a function providing their customers with a display of their trading efficiency. But you can see how much money you make if you visit Coinmatics. Some traders got disillusioned at this point, but profitable traders can show their statistics to investors. It’s a nice proof of efficiency, I think.
The main thing why it is handy for a man like me, a man who can’t trade, has no faith in bots anymore, but still wants a nice steady income from cryptocurrency trading is as follow: the service enables one simple function.
Anyone can come, add their API keys, choose a top trader with the highest profits, and start copying the deals after this user in real-time AUTOMATICALLY. It’s not fiduciary management. Your assets remain on your Binance account (register if you still haven’t got one).
That is, I start earning like a top trader, doing nothing. I just hook up to a successful strategy. That’s it. But of course, you shall not join a trader right away, it’s dangerous. That’s when a clear ranking of trader’s efficiency by Coinmatics comes into play. It illustrates whose trading is profitable and who has no profits at all. All a person like me has to do is just open the ranking, choose a trader who has proventhe efficiency, and subscribe to the trader of your choice. All you have to pay for it is a small fee charged for profitable deals only. Then, from time to time, come and see how much money is being added to your Binance account. What else do we need?
From this point, I don’t care much about whether the trader I’m following is trading 24/7, having good luck, use those notorious bots, or all at once. The thing is that I can enjoy a 60% return by just using a piece of modern IT technology. And that’s what I’ve been doing for the past several months.
That’s how I found a decent alternative for trading bots. And I recommend that you pay due attention to it because it’s available for anyone wishing.