So after some consideration you finally decided to fire up a trading bot to see what all the fuss is about. Solid choice because in many cases trading bots have the potential to outperform both manual traders and the market.
However there are a few things to consider before actually putting real money at risk and turning the bot on. Therefore we want to share our top 5 tips for getting started with algorithmic bots.
Tip #1 – Familiarize yourself with a strategy
Before choosing a bot, it is important to understand what the bot is supposed to do. For example, you can’t expect consistent short term profits from a “Dollar Cost Average” bot, since it is supposed to help dollar-cost average your long-term investment position.
However, you can expect a good scalping bots to consistently grow your account, one small trade at a time. Therefore it is important to understand what the bot of your choice does, so you won’t get false expectations about its performance.
In addition, it is also important to pick a bot depending on what is happening with the market. For example, if you expect the market to be ranging for the next month, activating a bot that executes a trend-following strategy might not be the best decision. In the best case it will most likely make only small gains, break-even, or in the worst case scenario it is going to bleed value from your portfolio because of choppy market conditions that it’s not ideally suited to.
If you are unfamiliar with different algo trading strategies, check our educational article on this exact topic!
Tip #2 – Define your risk
Remember the golden rule – never risk what you are not willing to lose. When trying something new, such as crypto trading bots, you should adjust your risk even more. The worst way to use a trading bot is to load it up with more money than you are comfortable with, see it have two losing trades in a row and then panic and pull the money out. Every strategy involves drawdowns and losses, so you should be comfortable taking a small hit on the amount that you put in.
It’s important to understand and accept that no matter how good or complex the strategy a bot is executing is, your portfolio growth will not be a straight line. There will be highs and there will definitely be lows. Another argument for using proper risk management is that it will help make you less stressed when you are missing out on opportunity costs. Let’s say that you put more money than you should have in a bot, and on a +25% green day you notice that the bot didn’t take any position.
Even though this might be completely in line with the strategy of the bot, you would feel uncomfortable missing out on a significant upside. To save you some stress, use proper risk management.
Tip #3 – Always be learning
Even though using crypto trading bots can make your life significantly easier, trying to maximize your profits by finding the optimal algo trading strategy is hard. Therefore to find the optimal parameters for your bot, you might want to consult with other algorithmic traders in our UpBots Discord community.
You might get a new perspective on things or find out something that you’ve never thought about.
However, none of this means that you need to make this your full-time job or 24/7 obsession – after all, here at UpBots we are trying to make your life easier, not harder!
But even if you want as hands-free a trading bot solution as possible, it will always serve you and your wallet well to try and understand how the bot you activate works and in what type of market conditions it performs best. In time you will be able to use the bots more efficiently and it will certainly show up in your PnL.
Tip #4 – Get used to the volatility
Crypto is a notoriously volatile and bumpy ride. Sometimes there are weeks when you feel like telling everyone you know about this magic internet money that’s doubling in value each week. Other times you may find yourself trying to decide between a whiskey or a good healthy cry because your portfolio just got rekt. All those juicy gains from the last two weeks gone…and all you did was go to bed!
People that have been in crypto for extended periods of time become emotionally numb to this, but obviously this is not easy for a beginner. Therefore the only solution for becoming better at stomaching volatility is exposure to it, so buckle in Dorothy…Kansas is going bye bye.
Risk management obviously helps. If your life savings aren’t on the line, it is easier to get used to the swings. Learning more about the assets is very useful too – if you are optimistic about the upcoming technological progress of crypto, it is easier to see the bigger picture and to not sweat about intraday swings.
Lastly, knowing the limitations of your bot is important – knowing what risks the bot is willing to take reduces both the uncertainty and your stress.
Tip #5 – Enjoy the process and master your emotions!
It is also important that you enjoy the process in crypto. After all, we endeavor every day to bring our users a platform that is as accessible and inclusive as possible for everyone, including the New Recruits.
Naturally, like everything though you will experience challenges initially that may be difficult but the more and more you learn about crypto and trading it, (see point 3 above), the more you will enjoy the process.
Having access to the best trading bots can make your entry into crypto a smoother experience than most people have, but only if you allow it to. If you are feeling stuck, or have any questions that you can’t resolve, you should always reach out to us in our community here.
If executed correctly, algo bot trading can be an intellectually stimulating hobby, and also a great way to build wealth and fast track your net worth.
However, as with all things involving monetary risk, it is important to be in control of your emotions and not let greed or fear take over. If you are using a bot then it’s best to fully assess the bot’s capabilities before you activate it. Don’t turn it on and then freak out and exit the trade manually because your emotions got the better of you. This is a classic newbie mistake that will result in you losing your capital.
So concludes our top 5 tips for algo trading. I hope that these have been helpful to you, particularly if you are starting out and are considering firing up an UpBots algo bot.
If you do we wish you good fortune with it and hope you’ll join our community over on Telegram here. Please drop in and say hi.