Cryptocurrency trading bots are computer protocols integrated with users’ exchange accounts to perform and monitor trade deals. The bots can compare across the exchange platforms and notify the traders about lucrative trade deals with signals. The implementation of bots requires high-power computing systems.
Now, let’s look into its types.
Grid Trading Strategy
Grid trading strategy is executed when there is the desired degree of price volatility in the specified crypto coin pairs. The crypto trader can set the desired profit and loss rates in the bot and automate the trading process with a grid trading strategy. The grid trading strategy works efficiently in the crypto markets that are stable to an extent and fails when there are extreme fluctuations. Crypto traders can set their monitoring bots to notify the extreme price volatilities and could stop the grid trading bot to prevent losses.
Crypto traders must set their profit rates and stop-loss in grid bots by taking the transaction fee into account. The transaction charges must not suck your profit rates completely; it must be negotiable! A penny earned today would be a big residue in your wallet one or the other day!
Arbitrage Trading Strategy
The Crypto arbitrage trading strategy involves buying and selling crypto assets by leveraging the price differences on multiple exchanges to make profitable trades. It is a low-risk trading strategy that needs little to no trading experience. Any trader, novice or experienced trader, is capable of using the arbitrage strategy, and they don’t need an expensive setup.
Example: Buy a bitcoin on exchange A at a lower price and sell it on exchange B at a higher price. Types of arbitrage trading strategy are as follows.
- Inter-Exchange Arbitrage
- Triangular Arbitrage
- Statistical Arbitrage
- Spatial Arbitrage
DCA Bot Trading Strategy
Instead of investing a whole sum of the amount in one go, the Dollar-Cost-Averaging strategy allows a trader to divide the amount and buy cryptos in small amounts at regular intervals. DCA is preferred by traders who want to reduce the risks of paying more before the prices drop.
Since the crypto market doesn’t move in a single direction, a trader can apply the DCA method to maximize the chance of paying lower average prices and making multiple trades. DCA is a time-tested strategy that helps traders avoid short-term price movements and accrue wealth over time.
MACD Trading Strategy
The Moving Average Convergence Divergence (MACD) strategy is a momentum-based indicator that illustrates the correlation between two moving averages of the same crypto. The MACD indicator is graphed as two distinct lines: the MACD line and the signal line. A histogram is implemented to monitor the distance between the MACD line and the signal line.
The MACD is a technical tool traders use to spot trading opportunities and manage open positions in the market. The MACD strategy also helps to identify market conditions, price action behavior, and solid entry and exit points.
While using this strategy, traders only need to monitor the relationship between the signal line and the MACD line. They need to understand the following terms.
Convergence: Convergence occurs when the market is compressed. The MACD line and the signal line come closer to each other.
Divergence: Divergence occurs when the market is trending. The MACD line and the signal line move away from each other.
Trailing Take Profit Strategy
Crypto traders use the Trailing Take Profit strategy to increase their profits when the prices move in a favorable direction. This strategy is designed to lock in profit and limit losses. The trailing profit increases once the crypto’s price crosses the previous high. When the profit increases, it cannot move back down, thereby securing the profit and eliminating losses.
Using the Trailing Take Profit strategy, a trader can keep the trade open and profit till the price moves in their favor. The open order will be automatically closed when the price changes direction.
Here’s an example of how the strategy works.
- A trader buys a bitcoin at $10,000 and sets the Take Profit at $11,000 and the Trailing Take Profit at 5%.
- When the price reaches $11,000, a Stop Order at $10,450 will be triggered. Then if the bitcoin’s price goes down to $10,500, the Stop Order is not changed.
- When the coin’s price increases again and hits $12,000, the Stop Order changes to $11,400. Then again, if the price falls to $11,000, the Stop Order is executed at $11,400.
Wrap-Up!
You’ve come a long way from cryptocurrencies to earning profits from them, just through swapping and trading in platforms. As a bonus, you’ve earned a crypto trading strategy too! The customized cryptocurrency trading bot strategies can help you conclude lucrative trade deals throughout the day, and you can maintain immense liquidity in your crypto portfolio!
To know more about Crypto Trading Bot Strategy:
https://blog.blockchainfirm.io/crypto-trading-bot-and-its-strategies-for-better-profit/
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