The Different Types of Crypto Trading Bots

As the saying goes, variety is the spice of life and the same is true in the world of crypto investing. Just as there are many different types of traders with many different investment goals, there are many different approaches to trading crypto.

Cryptocurrency trading can be an exciting and lucrative approach to investing, but it can also be a daunting task. The crypto market is highly volatile and constantly changing, making it challenging to predict whether the market will move up, down, or sideways at any given time. But with the rise of automated trading bots, investors now have a powerful tool at their disposal to help them navigate the market’s fickleness.

In this article, we will explore the benefits of using automated crypto trading bots and how they can help you improve your trading strategies, increase your profitability, and, ultimately, achieve your financial goals. We will delve into the various types of bots available on the market, including bots specifically for Binance, and point you in the right direction in terms of where you can rent some of the best bots available.

If you're looking to streamline your crypto trading, then read on to discover how automated trading bots can help you achieve your goal.

What Are Crypto Trading Bots?

First things first: a brief refresher. What are crypto trading bots?

Quite simply, crypto trading bots are computer programs designed to automate trading on your behalf based on certain predefined conditions. These bots gather and interpret market data such as market prices, volatility levels, and potential risks and then execute trades, making the trading process much easier.

Given crypto’s notorious volatility and the fact that the crypto market is open 24/7/365, it is physically impossible for a trader to monitor coin prices at all times. If you’re still manually trading crypto (yes, we’re talking to you), then you should re-evaluate your trading strategy (and fast). It’s one of the reasons why Wall Street has been using automated trading systems for decades—they’re faster, more efficient, and more profitable.

However, that’s not to say that the crypto trading bots are an easy path to riches. They still require a human touch with experience, expertise, and a bit of trial and error. That’s the art of trading.

But crypto trading bots should be the starting point for any individual trader. Without them, it’s like trading with a blindfold. You might as well guess.

What Are the Benefits of Crypto Trading Bots?

Rather than taking an ad hoc approach to trading crypto by doing it manually, it’s far more sensible (read: profitable) to undertake a strategic approach with the insights of the latest research in artificial intelligence and machine learning.

Faster and more efficient

There’s no way of getting around it. A crypto trading bot is simply faster and more efficient than a human trader. Full stop. In the time it takes you to read this sentence (or for me to write it), a crypto trading bot could have executed hundreds, if not thousands, of trades.

Emotionless trading

When markets are surging, it can be easy to get swept up in the euphoria. And, conversely, when markets are in the doldrums, there is a tendency for fear to take over. Generally speaking, emotions are good. It’s what makes us, well, human. But emotions are often a liability when it comes to crypto trading. Research has shown that 80% of traders lose money due to poor trading psychology.

24-hour trading

Crypto is like the New York City of financial markets. It’s the market that never sleeps. Unlike other financial markets, the crypto market operates around the clock. And crypto bots can do what we as individual traders cannot do: monitor the market day and night. No more missed trades or missed opportunities.

Different Types of Crypto Trading Bots

Now that we know what crypto bots are and the many advantages that they confer over manual trading, let’s look at a number of different crypto trading bots.

Arbitrage bots

Arbitrage involves buying from one platform and selling on another to make a profit. The main aim of arbitrage is to take advantage of the price imbalance across multiple platforms when placing a trade.

While arbitrage can yield profits, often these profits are minimal and require large numbers of trades to turn small gains into larger ones. With arbitrage crypto trading bots, traders should be aware of the different types of arbitrage (e.g., triangular arbitrage, latency arbitrage, and spatial arbitrage) as well as how the type of crypto exchange can determine the extent to which you are profitable. Arbitrage on a centralized exchange such as Binance will differ from arbitrage on a decentralized exchange without KYC (know your customer) requirements.

Coin lending bots

One way to profit from cryptocurrency trading is to lend coins to margin traders, with the understanding that they will pay back the loan with an additional percentage. Certain crypto exchange platforms offer users this option, although it can be very tedious to manually set the parameters for payments and new loan requests.

A coin lending bot allows you to automate the process, reducing (or even obviating) the time needed to set interest rates manually, thereby exploiting potential opportunities. In addition, lenders consider margin loans a low-risk return on investment (ROI) since they are on the exchange platform. In other words, a borrower cannot transfer funds to a different wallet, making coin lending safe for lenders. You can configure a coin lending bot to align with your lending strategy by defining the currency, the interest rates, and the due date for the loan.

Margin trading bots

Margin trading refers to borrowing funds from an exchange to execute a trade larger than the equity of the trader's account. It involves leveraging on third-party capital to execute a trade. In margin trading, traders can execute a buy if they believe that the price of a coin will go up and also take a sell when there's a drawdown.

Leverage bots can capitalize on these borrowed funds to execute trades beyond your capital. However, there is a catch: leverage can go both ways. Obviously, a good prediction will result in a massive profit, but it can result in a huge loss if not applied strategically.

Market making bots

First, we need to understand the term “market making.” This refers to buying and selling an asset to take advantage of the difference between the bid and ask prices, which is known as the spread. A market making bot is one that is used to provide liquidity and, as a result, establishes a certain level of trust within the crypto ecosystem.

Market making trading bots monitor the market all day to find markets with a bigger spread in order to make a profit for investors. For example, if an asset trades at $100 mid-price, a market making bot could buy at $99.90 and sell at $200.10 for 20,000 or more shares. Now, when the price moves down, the bot will make a profit of $4,000 ($0.2 x 20,000) for a purchase of 20,000 shares. An investor can build a good ROI as a result. You can customize your market-making bot for a particular asset and take advantage of the ask and bid prices.

Technical trading bots

Technical trading bots are the most frequently used bots on the market today. Employing predefined technical indicators, these trading bots predict future price movements of a coin using predefined indicators and signals, which are then used to make a profit. Most technical trading bots incorporate signal and social trading, allowing you to copy successful traders' trades, and reliable and trustworthy ones can be found on the best marketplaces.

Now that you know what they are, why they are used, and the many types available, how can you go about finding the best crypto trading bots? After all, choosing the right trading bot is almost as difficult as choosing the right cryptocurrencies in which to invest your money.

The age-old advice still applies: do your own research. This has become especially important since the number and sophistication of crypto malware and crypto-related scams seems to be on the rise. What you shouldn’t do is put your trust and money into anonymous bots being offered by questionable trading platforms.

The best crypto trading bots platforms will typically be the ones that allow you to “try before you buy.” In other words, once you’ve identified a platform of interest, explore whether they have a free trial offer during which time you can “test drive” the platform’s crypto trading bots to see if it’s the right fit for you.

At Trality, we empower traders with simple, easy-to-use solutions based on the latest advanced research in AI and machine learning. Whether you’re a complete beginner or a coding expert, we have a trading bot for you.

Reversion strategies

By trading the relative value with the expectation that the prices will return to a long-term average, reversion strategies profit from market noise. Bots within this category should have a smooth PnL when traded under the right conditions.

A dynamic cost-averaging bot, it trades SAND/USDT and uses multiple strategies to better average the asset price. It uses ATR, RSI, MACD, Stochastic RSI and different EMAS to detect the trend type and strength. Positions are built with multiple re-buys to profit from dips in price. It also uses a dynamic stop-loss on a relatively high peak in case the average price position is much higher than the asset price and the trend continues in a bearish direction.

This bot performs best during bear or sideways markets.

Trend-following strategies

Trend-following strategies are designed to work well in directional markets with low noise.

Let’s take the bot “Slow and Steady” as an example. If you’re looking for a bot with margin capabilities that will protect your downside, this bot attempts to have the best of both worlds, which is to say the ability to go long as well as short the BTC-USDT pair. It only trades on a daily interval, lowering the overall fees associated with frequent trading, and it uses a highly-tuned QQE technical strategy dipping in and out of positions.

While the return may be relatively smaller than a pure buy-and-hold strategy in an uptrend, the advantage is that your downside is covered when the market goes south. The bot itself was tested on an array of market conditions, everything from extreme uptrends and downtrends to a sideways market. If you want to get your toes wet with the gains to be found in trading cryptocurrencies, but don't have the stomach for its usual volatility, then this may be the bot for you.

Multi-strategy bots

Multi-strategy bots utilize different trading styles depending on the market conditions. However, they can be considered a multi-tool rather than bots that specifically require certain market conditions.

For example, the “Multiple Algo 4H long/short” bot is a multiple algorithm bot to catch different candle patterns for all sorts of market conditions. It has four internal and separate built-in algorithms with trade reversal detection. Among its algorithms are the classic trend- following algorithm with MACD, QQE, RSI, and EMA. It also has an extremely aggressive bullish/bearish detection pattern, and the bot has been designed in the 4 hour timeframe to cancel some of the noise in lower timeframes and to catch bigger swings.

A maximum of four concurrent positions are divided by the current available margin balance. If multiple positions are opened on the same interval, then risk is divided between tokens based on their individual Profit Factor to give extra risk amount to the tokens that are performing better (or even discard the worst performing tokens if more than four entries occur simultaneously). Stop-loss and risk management strategies are placed according to a combination of percentage, ATR, Fibonacci retracement, and SAR (depending on the algorithm and market conditions).

Intraday bots

Intraday bots are designed to require more hands-on management. They perform well in the right conditions, but require the requisite knowledge in order to apply them properly (and therefore profitably).

Let’s have a look at the “Rebalancer Strategy.” Starting with 1000USDT, the bot will allocate your position in a 1:1 ratio. In other words, the bot will buy 500USDT of BTC and keep 500USDT of balance. The bot will monitor every 1 hour and adjust the position according to the BTC/USDT pricing, ensuring that the position ratio is always kept at 1:1. When the BTC value rises and the BTC balance is at 600USDT, the balancing bot will sell 50USDT of BTC to keep the position ratio at 1:1. In this case, your BTC position is 550USDT and USDT is 550USDT. When the BTC value drops and the BTC balance is at 500USDT, the balancing bot will buy 25USDT of BTC to keep the position ratio at 1:1. And so your BTC position is 525USDT and USDT is 525USDT.

The minimum investment is 1000USDT, but 5000USDT is recommended for best performance.

Index-tracking bots

Trality's automated index tracking portfolios are diversified baskets of crypto-assets that re-balance automatically and provide you with a simple, reliable, and maintenance-free way to gain exposure to the crypto market.

We’re all familiar with the crypto market’s notorious volatility. Since it can be uncomfortably high at times, Trality has created the “BTC/PAXG Smart Beta Index” bot, which tracks an equal weighted index of bitcoin and gold (via PAXG), thereby significantly reducing the volatility of the total index. As the price of bitcoin rises some of the profits are allocated to PAXG, reducing the overall volatility of the portfolio. When there is a drop in the price of bitcoin, some of the funds invested in PAXG will be used to buy bitcoin at a lower price.

The strategy uses a momentum signal that prevents the bot from buying assets when they are dropping and selling assets prematurely when they are rising. This “smart beta” approach improves the performance of the bot over a simple weighted index.

Due to minimum trade sizes on your exchange, we recommend a minimum investment of at least USDT 500 to ensure the ability for active rebalancing. If you believe in the future of crypto but would like to have lower daily volatility, then this is the bot for you!

Final Thoughts

If you’re trading crypto manually, then you’re losing money and wasting your time. The question is not whether to use automated trading, but which automated trading strategy is right for you based on your individual investment goals and level(s) of risk tolerance.

Automated crypto trading bots offer a range of benefits for investors looking to maximize their returns in the cryptocurrency market. By leveraging sophisticated algorithms and advanced trading strategies, these bots can quickly analyze market trends and execute trades with precision and speed, even when the market is volatile.

Some of the key benefits of using crypto trading bots include 24/7 trading, increased efficiency, reduced emotions, and improved risk management. However, it's important to note that automated trading bots are not a silver bullet for the crypto market, and they should be used as part of a larger trading strategy that takes into account your risk tolerance, investment goals, and market analysis.

When selecting a trading bot, it's vital to do your due diligence and choose bots with a proven track record of success. Additionally, it's important to constantly monitor your bot's performance and adjust your trading strategies as needed.

Overall, automated crypto trading bots can be a powerful tool for investors looking to stay ahead of the curve in the fast-moving cryptocurrency market. By taking advantage of the latest technology and trading strategies, these bots can help you maximize your returns while minimizing risk and effort.