Investment marketplaces — particularly the volatile cryptocurrency market — move at lightning speed and operate around the clock. It’s not surprising that crypto traders would consider leveraging trading bots, which can monitor the market 24/7, analyze ever-inflowing and changing data and follow established instructions to automatically buy and sell crypto. Bots don’t need sleep and won’t make mistakes due to fatigue, impulse or emotion, and they can react in a fraction of a second.
Bots can be incredibly valuable tools for crypto traders, but along with their many advantages, they do have significant limitations as well. If traders rely too heavily or uncritically on bots, the results may not be what they were hoping for. Below, 10 members of Cointelegraph Innovation Circle share their advice for traders who are considering adding trading bots to their investment toolkits — their counsel can help both experienced and new traders leverage bots both wisely and well.
Maintain constant touch points
As is noted in conversations around innovations in artificial intelligence, technology is always limited by its programming, and crypto participants would be wise to remember that. Therefore, when choosing to utilize trading bots, it’s imperative to tailor expectations and maintain constant touch points to ensure they’re carrying out actions as specified. Traders who opt to put their finances on autopilot tend to regret that flight path. – Oleksandr Lutskevych, CEX.IO
Utilize a trusted exchange
With respect to utilizing bots on-chain, ensure you utilize a trusted exchange with reliable developers. Your trades are at the mercy of code, so ensure you’re utilizing an exchange that satisfies your risk tolerance. Always do your own research and understand that any trade, with or without a bot, bears a risk. – Megan Nyvold, BingX
Know that a bot’s performance can suffer during unpredictable events
Traders should remember that while trading bots can automate and optimize transactions, they lack human intuition and can’t adapt to unexpected market changes. These bots are bound by preset rules, and their performance can suffer during unpredictable market events. Hence, supervision and periodic manual intervention are essential. – Tomer Warschauer Nuni, Kryptomon
Be wary of bots that rely solely on historical data
Traders should be cautious with bots that rely solely on historical data. Unexpected events like regulatory changes or technological advancements could cause significant market changes that bots may miss. Traders need to have a broader understanding of the market to anticipate and adjust to these changes. – Vinita Rathi, Systango
Understand when your human intuition may be needed
Trading bots are not foolproof. They’re still subject to technical issues, software bugs and sudden market changes, which can lead to substantial losses. The lack of human intuition plays a role here. Certain events can have an impact on the market that bots may not be programmed to handle. Regular monitoring and risk management are crucial when using trading bots for crypto. – Anthony Georgiades, Pastel Network
Be cognizant of all the variables that can occur in a trade
Traders should always keep in mind all of the situations — such as false breakouts — that might occur while making a trade. Further, most of the indicators used in trading are not of an exact nature and can mislead a bot if it’s not well-programmed. Traders should always keep up with constant monitoring, even if they are using bots. – Abhishek Singh, Acknoledger
Research the impact AI is having
Artificial intelligence has changed the trading bot game. In the past, a bot’s limitations would have included over-optimization, impeding its capacity to handle current events; a lack of human intuition; and the inability to react correctly to unexpected volatility. With AI, trading bots are starting to run with the required “human element.” Despite this, however, programming issues will still persist. – Sheraz Ahmed, STORM Partners
Get familiar with how bots analyze information
Most trading bots rely on Wyckoff chart analysis techniques, which are great for technical analysis. But if a fundamental event happens that no one has factored into the price, expect what looked like a “sure bull pattern” to head south. Always monitor what is happening with a trade. – Zain Jaffer, Zain Ventures
Don’t miss swing-trading opportunities
While trading bots are great at eliminating emotions while trading, they also lack decision-making skills and reactivity. While you can program stop-loss orders and take-profit targets, sudden, wild swings are often when human traders are able to take profitable advantage of the market with an immediate strategy change. Bots can’t. Be sure to set alarms so you never miss a swing-trading opportunity! – Tiago Serôdio, Partisia Blockchain
Remember the importance of mood in the crypto market
Trading bots’ pre-programmed algorithms can’t predict human sentiment or market changes, a less-obvious drawback. They cannot “feel” the market’s mood, which is vital in highly speculative and emotionally driven crypto markets. They may ignore market sentiment on social media, news events and regulatory developments, which can greatly affect Bitcoin pricing. – Arvin Khamseh, SOLDOUT NFTs
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.