9 hours ago
Understanding trading bots is difficult. Setting up a bot and consistently closing deals in the plus is even more difficult. But I have seen in practice that it is possible.
I am not advertising anything and I do not encourage using bots. Not many will be able to automate a strategy and achieve the optimal ratio of profitability and risk. More often, you come across people with comments: “let's part ways, bots do not trade in plus” or “only their creators make money on bots”. These opinions did not appear out of nowhere, there are grounds for them. Where there is money, there are scammers. The information in this article will help you separate the wheat from the chaff.
I will try to explain it simply and clearly, but the topic is not for everyone.
What to do:
1. Understand the language we will speak
2. Find out what trading bots are
3. See what they are
4. Understand that there are no fully automated public strategies
Just as there are no strategies that trade in plus both in bear and bull markets. If you are offered a bot with promises of stable profit - carefully read all the conditions, reviews on forums and study the strategy (90% are built on one indicator - it's like a vocabulary of 10 words). Such offers always hide reservations, conditions "with an asterisk" or it is just a classic Ponzi scheme.
No strategy based on 1-2 indicators will bring stable profit, not to mention the fact that you can suddenly go into the minus. And the lack of insurance and DCA will not allow you to somehow bring your positions to zero.
5. Learn basic technical analysis
It is impossible to evaluate the effectiveness of the TA bot strategy without understanding the principles of the indicators. The exception is arbitrage bots, market makers, trading on signals:
Arbitrage. The more similar bots with one strategy, the worse it works. That's why normal arbitrage bots are not sold for $5.
Market makers. An option for whales, they earn only on large volumes.
Trading on signals. Very risky, often pump/dump schemes are hidden behind signals.
Let's conditionally divide indicators into 2 types: lagging and leading.
Lagging indicators, or trend indicators, allow you to determine the direction of price movement, that is, they follow the trend in the market. These include all types of MA, Bollinger Bands, Ichimoku, Parabolic SAR and others.
Leading (usually represented by oscillators) - their algorithm includes a small forward shift, which allows predicting trend reversals, identifying overbought and oversold zones. Classic examples of oscillators are RSI, Stochastic, Stochastic RSI, MACD, OBV, Momentum and others.
It is better to combine several types of indicators in the strategy. Do not forget to look at what indicators the bot strategy is built on, whether it is possible to change the settings or replace the indicators.
6. Understand how the strategy works to understand how to set it up
As a rule, all strategies in bots are pre-configured, that is, they include a set of indicators with specified settings and timeframe. But at the same time, you can change any setting (there may be restrictions from the developer, and the settings can be edited partially): for example, you can change the timeframe from 1 hour to 6 hours, change the RSI period from 14 to 8, add a trailing stop, and so on.
Accordingly, if the strategy is pre-configured, you need to understand which bot settings can be adjusted and what this affects. The first thing you need to be prepared for when trading on the crypto market is sharp drawdowns or a change in trend to bearish. There are no particular difficulties in the bull market: you can enter any coin or buy 1% below SMA and earn - almost any bot trades in plus. In the bear market, everything is different.
Conclusion: the bot strategy should protect the deposit and positions in the event of any changes in the market.
Before choosing a bot, make sure you understand :
principles of strategy;
what settings will you change and why;
availability of DCA mechanisms, trailing stops, stop losses, shorts;
backtests, paper trading;
restrictions on trading pairs, exchanges, deposits;
what insurance the bot has. For example, SOM (Sell Only Mode) - when under certain conditions the bot no longer buys coins, but only sells. These can be triggers for a change in the price of bitcoin (a 5% decrease over the last 24 hours), or closing several positions in a row by stop loss (i.e. with a loss), or buying several positions in a row without a single sale. Insurance can also be a hold of a certain percentage of the traded deposit in case of a sharp drawdown (for example, 30%) and other settings.
7. Test the strategy on backtests and paper before you start trading with real money
Some bots have a limited demo version with the ability to test the strategy. If you are a beginner trader, this is your option.
Important principles :
Backtesting and paper trading do not always give a clean result. I had an experience when the same strategy, launched simultaneously on live and paper, gave different entry points with a difference of 3 hours. For the crypto market, such gaps can be critical and will not allow you to correctly evaluate the strategy. After testing, we launch the strategy on a small deposit (in my case, it is $200-$500).
Test the strategy for at least 2-3 months before drawing conclusions. The shorter the test period, the higher the risks. “Surprises” appear constantly, even if the bot worked without failures at first. Depending on the capabilities of the bot and the principles of ordering, the same strategy on a different deposit can give different results.
For example, the bot may not cope with an order higher than $2000-$3000, although everything could be fine on paper. Therefore, gradually increase the deposit volume and monitor the results. There is no need to rush.
8. Diversify, diversify and diversify again
Pay attention to how many pairs the bot trades:
on one
on several (let's say up to 10)
in unlimited quantities
The second and third options are preferable. If you run a bot on one coin, it is not recommended to connect other bots to this account due to the possibility of conflict.
Please note that with equal value, one bot can trade on one coin, and another on ten. At the same time, the efficiency of the latter is much higher.
9. Learn to unload bags
"Bags" are positions in drawdown with a large volume. For each person, the concept of "large volume" will be different: for someone, a position of $1,000 with a drawdown of -15% will already be a bag, and for a more experienced trader, even $30,000 in drawdown will not be a problem. In any case, the appearance of positions in drawdown is a common practice for a trader.
There are at least four ways to work with bags:
Waiting for a rebound is not very interesting, especially if you bought in January 2018
close the loss - with the right strategy, this is a more effective approach, since you can start trading on the remaining deposit, gradually increasing the volumes
study the DCA mechanism, which, with correct averaging, can not only reduce losses, but also bring the position into the black. Of course, an additional deposit is needed here (see the point with bot insurance)
start shorting the position, if possible with careful use of leverage on the exchange.
I have been developing Pyton trading bots for a long time and am currently testing a rather profitable strategy on one of the trading platforms. If you are interested, please write to me in a private message.
I am not advertising anything and I do not encourage using bots. Not many will be able to automate a strategy and achieve the optimal ratio of profitability and risk. More often, you come across people with comments: “let's part ways, bots do not trade in plus” or “only their creators make money on bots”. These opinions did not appear out of nowhere, there are grounds for them. Where there is money, there are scammers. The information in this article will help you separate the wheat from the chaff.
I will try to explain it simply and clearly, but the topic is not for everyone.
What to do:
1. Understand the language we will speak
2. Find out what trading bots are
3. See what they are
4. Understand that there are no fully automated public strategies
Just as there are no strategies that trade in plus both in bear and bull markets. If you are offered a bot with promises of stable profit - carefully read all the conditions, reviews on forums and study the strategy (90% are built on one indicator - it's like a vocabulary of 10 words). Such offers always hide reservations, conditions "with an asterisk" or it is just a classic Ponzi scheme.
No strategy based on 1-2 indicators will bring stable profit, not to mention the fact that you can suddenly go into the minus. And the lack of insurance and DCA will not allow you to somehow bring your positions to zero.
5. Learn basic technical analysis
It is impossible to evaluate the effectiveness of the TA bot strategy without understanding the principles of the indicators. The exception is arbitrage bots, market makers, trading on signals:
Arbitrage. The more similar bots with one strategy, the worse it works. That's why normal arbitrage bots are not sold for $5.
Market makers. An option for whales, they earn only on large volumes.
Trading on signals. Very risky, often pump/dump schemes are hidden behind signals.
Let's conditionally divide indicators into 2 types: lagging and leading.
Lagging indicators, or trend indicators, allow you to determine the direction of price movement, that is, they follow the trend in the market. These include all types of MA, Bollinger Bands, Ichimoku, Parabolic SAR and others.
Leading (usually represented by oscillators) - their algorithm includes a small forward shift, which allows predicting trend reversals, identifying overbought and oversold zones. Classic examples of oscillators are RSI, Stochastic, Stochastic RSI, MACD, OBV, Momentum and others.
It is better to combine several types of indicators in the strategy. Do not forget to look at what indicators the bot strategy is built on, whether it is possible to change the settings or replace the indicators.
6. Understand how the strategy works to understand how to set it up
As a rule, all strategies in bots are pre-configured, that is, they include a set of indicators with specified settings and timeframe. But at the same time, you can change any setting (there may be restrictions from the developer, and the settings can be edited partially): for example, you can change the timeframe from 1 hour to 6 hours, change the RSI period from 14 to 8, add a trailing stop, and so on.
Accordingly, if the strategy is pre-configured, you need to understand which bot settings can be adjusted and what this affects. The first thing you need to be prepared for when trading on the crypto market is sharp drawdowns or a change in trend to bearish. There are no particular difficulties in the bull market: you can enter any coin or buy 1% below SMA and earn - almost any bot trades in plus. In the bear market, everything is different.
Conclusion: the bot strategy should protect the deposit and positions in the event of any changes in the market.
Before choosing a bot, make sure you understand :
principles of strategy;
what settings will you change and why;
availability of DCA mechanisms, trailing stops, stop losses, shorts;
backtests, paper trading;
restrictions on trading pairs, exchanges, deposits;
what insurance the bot has. For example, SOM (Sell Only Mode) - when under certain conditions the bot no longer buys coins, but only sells. These can be triggers for a change in the price of bitcoin (a 5% decrease over the last 24 hours), or closing several positions in a row by stop loss (i.e. with a loss), or buying several positions in a row without a single sale. Insurance can also be a hold of a certain percentage of the traded deposit in case of a sharp drawdown (for example, 30%) and other settings.
7. Test the strategy on backtests and paper before you start trading with real money
Some bots have a limited demo version with the ability to test the strategy. If you are a beginner trader, this is your option.
Important principles :
Backtesting and paper trading do not always give a clean result. I had an experience when the same strategy, launched simultaneously on live and paper, gave different entry points with a difference of 3 hours. For the crypto market, such gaps can be critical and will not allow you to correctly evaluate the strategy. After testing, we launch the strategy on a small deposit (in my case, it is $200-$500).
Test the strategy for at least 2-3 months before drawing conclusions. The shorter the test period, the higher the risks. “Surprises” appear constantly, even if the bot worked without failures at first. Depending on the capabilities of the bot and the principles of ordering, the same strategy on a different deposit can give different results.
For example, the bot may not cope with an order higher than $2000-$3000, although everything could be fine on paper. Therefore, gradually increase the deposit volume and monitor the results. There is no need to rush.
8. Diversify, diversify and diversify again
Pay attention to how many pairs the bot trades:
on one
on several (let's say up to 10)
in unlimited quantities
The second and third options are preferable. If you run a bot on one coin, it is not recommended to connect other bots to this account due to the possibility of conflict.
Please note that with equal value, one bot can trade on one coin, and another on ten. At the same time, the efficiency of the latter is much higher.
9. Learn to unload bags
"Bags" are positions in drawdown with a large volume. For each person, the concept of "large volume" will be different: for someone, a position of $1,000 with a drawdown of -15% will already be a bag, and for a more experienced trader, even $30,000 in drawdown will not be a problem. In any case, the appearance of positions in drawdown is a common practice for a trader.
There are at least four ways to work with bags:
Waiting for a rebound is not very interesting, especially if you bought in January 2018
close the loss - with the right strategy, this is a more effective approach, since you can start trading on the remaining deposit, gradually increasing the volumes
study the DCA mechanism, which, with correct averaging, can not only reduce losses, but also bring the position into the black. Of course, an additional deposit is needed here (see the point with bot insurance)
start shorting the position, if possible with careful use of leverage on the exchange.
I have been developing Pyton trading bots for a long time and am currently testing a rather profitable strategy on one of the trading platforms. If you are interested, please write to me in a private message.
