Last week we talked about the top successfull algorithms, this week we'll answer this question : Bots VS Humans, who's the best?
What is algorithmic trading? What is trading? How do you trade Bitcoin? Is a trading robot better than a human? Have you ever asked yourself these questions? We'll find the answer today!
What is trading?
Trading has been around since the dawn of time, with its beginnings in Roman times when people traded stocks and bonds on the forum. Speculation is therefore well rooted in our human nature and we have seen a resurgence of non-professional traders with the rise of Bitcoin and crypto-currencies.
The simplest version of crypto trading consists of buying a coin, with the aim of selling it for more. There is, however, the possibility of "betting" against a crypto, which is called shorting, and thus making a profit the lower the crypto goes.
How do you become a trader?
Crypto trading, and trading in general, is one of the most difficult skills to master as it contradicts our most basic instincts. Indeed, the survival instinct that is ours and that has allowed us to evolve for thousands of years is one of the biggest obstacles to success in trading. It's what will make us cut our profits quickly or prevent us from opening the next position after a loss.
Trading is therefore a very difficult skill to acquire and one that takes time to master. It is not so much the technical knowledge that will be the hardest but the management of emotions. As I mentioned earlier, our human nature plays tricks on us when it comes to keeping our cool while Bitcoin loses 15%.
The key to successful trading is discipline and emotional management. If you can master this, you can make money with even the simplest system. All you need are strict rules for entering and exiting trades and a risk management plan.
The hard part, of course, is sticking to it. Dr. David Paul gave a lecture on the psychology of trading in 2018 and his message was: If you can follow your plan to the letter, you are between 8 and 30 trades away from the trader you want to be!
Trading bots, the solution?
Creating an algorithm is far from easy because in addition to having to master the same technical background as any manual Bitcoin trader, you also have to learn a programming language.
For the most common algorithms on the crypto-currency market, the language built into the Tradingview platform, Pinescript, will be used. This language has the advantage of being rather simple to learn compared to Python or Javascript.
In addition, Tradingview has a built-in backtesting tool that allows you to evaluate the behaviour of your strategy on past price data so that you can optimise your algorithm before moving on to the live test phase.
Algos better than humans?
Well, we have reviewed the characteristics of a manual trader and those of a trading algorithm but until now, we still haven't answered this question: Are algorithms better traders than humans? Let's go through it point by point shall we?
Trading algorithms have no emotions!
This is probably the most important point in the differences between crypto-traders and bots. Remember the survival instinct? Well, the algorithm has none and will open a position when its parameters are in the green, regardless of the result of previous trades. This allows us not to distort the statistics of our strategy and especially not to miss opportunities.
Trading algorithms have no distractions
The ease of distraction depends of course from one person to another but we will all agree on one point: We cannot stay focused 100% of the time and we can be distracted. Unfortunately for us traders, the market doesn't care and continues to evolve without regard to our existence. Algorithms don't care and are on 24/7.
The algorithms are faster!
Some algorithms perform thousands of transactions per second. That's right, these are often reserved for large investment funds but even the simplest of bots will enter a position before the crypto-trader has time to confirm his purchase. This is an ease of execution that allows you to enter at the best prices, without hesitation.
Conclusion
From a general point of view, for most of us, using an algorithm such as those available on the Upbots platform for free will be the most suitable solution. It removes the need to control your emotions and ensures a long-term passive income.
In some cases, for more advanced trading strategies, the inherent rigidity of programming an algorithm will be an obstacle to the success of the strategy. For those who have managed to control their emotions, nothing will ever replace human subjectivity.
