Understanding
TRADING BOTS
THE BENEFITS.
Trading algorithms, or trading bots, bring numerous passive investing benefits to investors.
Through proper design, execution and timely maintenance, unemotional bots can be leveraged to outperform human traders with less risk.
Trading bots can drive strong, consistent returns while protecting investors from downside risk exposure.
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AUTOMATED INVESTING OPTIONS
It can be passive once you have tested a bot.
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And if you have a specific plan, you can build out a software solution to automate that investing plan.
HUMAN MONITORING VS. EXECUTION
While a talented human trader can out-perform a trading bot, over time a bot will be able to reduce risk and maximize similar returns as a bot lacks the emotional baggage that comes from being human.
No matter how skilled you are as a human trader, headlines, family, your environment all impact your decision making abilities. Couple that with taking vacations and sleeping... a bot can accomplish similar goals without the capital risk that a human has to take.
FASTER AND MORE EFFICIENT
Manually trying to compete with other computers can lead to lots of frustration, a trading bot can not only efficiently acquire assets but at a faster rate.
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Having a bot does not require hours of time in front of trading charts every day. And it has more time in the market: 24/7/365.
HUMAN VS. BOT TRADING
Bots don’t have the emotional highs and lows that humans have. Plus, they work 24/7/365 and never need a day off. You don’t have to worry about them fleeing the country with your money either! Bots don’t have heart attacks because of stress and Bots do what they are told.
THE DRAWBACKS.
Along with the good must come the bad.
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Trading bots, when poorly designed, executed or maintained can bring pitfalls that may not even be recognized for weeks or even months.
With a deficiency of knowledge on how to design trading bots, there’s also the whole world of responsibly adjusting bots for market pattern changes.
Some of the worst experiences an investor might have with a bot is early success that builds confidence just before an impending disaster.
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LACK OF MAINTENANCE
Trading bots aren’t a “set-it-and-forget-it” solution to cryptocurrency trading.
The cryptocurrency market is volatile, and trading bots can result in losses during periods of high volatility.
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Most trading bots can produce a short term result in the current market condition but when the markets shift, a trading bots settings and parameters must be updated for the new market conditions in order to remain profitable in the long term.
If you don’t have the skills or knowledge to monitor the market, and adjust the bots for that market condition, a trading bot may not be the best choice for you.
DEFICIENT PRIOR KNOWLEDGE
While many off-the-shelf trading bots come with some predefined settings and some with customizable templates, you’ll need to know how to set these templates and when each template will need to be executed.
You will also need to have a base level understanding of trading and reading charts in order to better understand how to adjust your settings or templates.
If this is your first time trading cryptocurrencies, changing the settings on your trading bot can result in fast losses.
LACK OF CONSISTENT DAILY RETURNS
When most people think of bots, they think of a very consistent return. Like “this bot makes me $1,000 a day”... but markets are just not that linear and can not produce a consistent daily response. Bots still abide by the risk management approach to make sure your capital is protected.
While you can expand the time horizon and say “over a year this bot made me $1,000 a day on average”, you can see how those are different.
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If you are looking for a machine that will generate the same result every day in the short term without failure, regardless of market conditions, trading bots are not the best choice for you.
QUICK CASH... THEN CRASH
Since the primary goal of consistent trading bots is “risk management + growth”, trading bots are not good for quick gains.
A good trading bot is designed to consistently lower your risk over time, which means limiting your exposure to market conditions without sacrificing on market opportunity.
This is the key to capital preservation and the key to building long-term wealth.
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If you are looking for a way to make cash quickly and also keep your risk low, trading bots may not be a good solution for you.
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