Tech and Tools

Can trading bots make you a Crypto billionaire?

Crypto Trading

The headline of this article is a little clickbaity. For that, we apologize, but as long as you’re here, might as well sit down and read a spell. We’ll keep it interesting. As to the question of whether a cryptocurrency trading bot can make you a billionaire – yes, it can. Will it? The odds of becoming a billionaire by ANY means are 1 in 578,000. So there’s that.

Let’s lower our sights a bit. Can you learn to become a profitable cryptocurrency trader using bots? That’s more doable if you also study the market, develop appropriate trading skills, and don’t blow out your account with revenge trading (more about that later).

For now, we’ll address a few burning questions: What is a trading bot? How do they work? Can you get rich with them?

What is a Crypto Trading Bot?

Let’s get dead simple. A crypto trading bot is a computer program that automatically buys and sells cryptocurrencies for you with the goal of making a profit. Why do you need a trading bot? You don’t actually NEED one, but the cryptocurrency market is open for business around the clock every single day of the year. Some of the best trade setups will likely occur when you’re not paying attention.

Unless you plan to never sleep – not good for your physical or mental health – a bot can act as a trading assistant of sorts.

One of the first things you’ll notice as you begin the trading bot search is that the market is flooded with options. Yeah, sorry to break the bad news to you but there is more than one. To further complicate matters, not all of them are profitable. In fact, the vast majority aren’t. It’s no mean feat for a software developer to hit on the right combination of code that works well in prevailing market conditions. It’s been shown more than a few times that a trading bot tends to leave you in no better shape than if you just bought and held cryptocurrency over that same period of time.

The Moving Parts of a Crypto Trading Bot 

Looking behind the curtain, there are three parts of a bot that you should be aware of.

Signal Generator: This is what makes the trading bot scream “Buy!” or “Sell!” or “What the heck are you doing trading currency? Have you gone mental?” Okay, it’s not quite that severe. The program takes in price action data and looks for situations that match predetermined market conditions. When it finds one, the signal generator sends out an order to take action.

Risk Allocation: Here’s a question. Once the bot generates a buy signal, should it throw every bit of money in your trading account into the position? That’s a hard no. If your trading bot has an all-or-none risk strategy, your trading career will be short-lived. Risk allocation helps the program decide how to size the position depending on your risk tolerance.

Execution: This is the part of the algorithm that takes the buy or sell signal and converts it into actual market activity. The best idea is to have the bot move into a market position over time. There might be thousands of people running the same bot. If all the orders trigger at the same time, there will be a surge in demand. This drives the price up, and you’ll end up paying more than you have to. It’s better to take a dollar-cost-average approach.There you have it. The internal structure, or guts if you will, of a cryptocurrency trading bot. There’s just one more question to answer. Can a trading bot turn you into the world’s newest billionaire?

Can You Get Rich With a Cryptocurrency Trading Bot?

Once again, we’re back to semantics. There definitely IS a chance you could become a crypto billionaire, but it’s not very high. Rather than spending (almost) pointless energy towards that end, aim lower and think how a bot might be valuable as a testing tool on a demo account. Right now, expert consensus regarding trading with bots skews towards the ugly side.

This Reddit user had this to say:

“If bots worked, everyone would use them. This does not discount the private bots used by BlackRock and other massive trading firms. We will never have access to the data and teams of devs that they do.” — vibrate

Also this:

“It’s a good way to lose all your money….if people here don’t know what they are doing in the market I wouldn’t expect them to be able to […] set [a bot] up so it is useful.” — Person51389

In theory, algorithmic trading can yield huge profits, but it hardly ever does outside the walls and machinations of huge firms. The developers/hackers selling commercial bots to the average day trading hobbyist schlub make their money selling the bot, not using it to trade outside of tightly controlled demonstration conditions. Before throwing away your hard-earned money at the next “great” trading bot, consider the following:

Does the firm selling the bot have a provable track record (i.e. professional experience) for profitably managing at least $100 million? If not, they’re small potatoes and likely don’t have the resources or access to a large enough data pool to draw any sort of worthwhile conclusions.

Is their algorithm widely known, or worse, open-source code that anyone can play with? If so, run far away. Any “edge” the bot might have had early on has long ago been diluted to the point of irrelevancy.

What’s the money angle? Are they simply selling you a product and disappearing? Not a good sign. Your success should be related to their success in some way. Maybe they reduce fees if you suffer losing trades. Follow the money and business motivation.

Final Thoughts

The basic problem with cryptocurrency trading bots is the disconnect between developers and the needs of cryptocurrency traders. Chances are, the team that creates the bot isn’t interested in cryptocurrency further than the extent required to create the algorithms.

This is not a recipe for success. You’d be better off to skip the bot and buckle down to learn fundamental and technical market analysis, risk management, and maybe even a bit of psychology. Emotional trading might be the most common culprit in snatching defeat from the jaws of trading victory.

Good luck out there!

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