So, why isn’t everyone doing it? Pablo Lema, founder of Butter Bot, says that bots aren’t a ‘fire and forget’ technology that enable dilettantes to make money without trying: The situation — while still needing improvement — is at least a little better now.
Opportunities for inter-exchange arbitrage still exist, but he recommends using technical analysis bots.
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But trading isn’t necessarily based on technical analysis alone. It’s difficult to program a computer to react to fundamental market conditions such as, say, rumours about the Chinese government taking a new stance on bitcoin, or the latest bitcoin-based black market trading site shutting down. Many bots will use an exponential moving average EMA as a starting point.
These averages track market prices over a set time span, and bots can be programmed to react to what that price does — such as moving beyond certain thresholds. And this is the part that can be improved,” said Stephan de Haas, founder of the Haas Online trading bot company, adding.
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Those have the ability to respond faster then the EMA and their calculation is EMA-related, so it looks the same while it gives off better momentum. You’re still going to have to come up with your own set of trading rules, if you’re going to tell a bot how to make decisions. It’s hard for a trader who’s new to understand the market. Bots can be programmed to be predictive or reactive, or a combination of both, using these combined algorithms, it said, explaining: A predictive algorithm might start buying as it expects the price will quickly rebound, while a reactive algorithm might start selling as it sees the price is dropping.
Both types have their advantages and disadvantages — the challenge is to have the bot employ the correct strategy at the correct time. Even if lots of people use them, the theory goes that the different strategies they employ would stop them all moving the market in one direction and creating an artificial bubble — or worse, a ‘ flash crash ‘.
Not for everyone Is bot trading for you? On the other hand, if you don’t have the financial smarts to put together a trading strategy, then bots could simply end up automating a set of poor market trading decisions. Whether or not you decide to automate your trades, the basic rules apply: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional. Sign up today and you will immediately see the benefits.
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