Cryptocurrencies have become a popular asset class among retail and institutional investors. They now have a combined market cap of more than $2 trillion. Exchanges like Binance and Coinbase are also processing digital currencies worth over $100 billion every day. Therefore, in this article, we will assess what cryptocurrency robots are and whether they are safe to use.
What is a cryptocurrency robot?
A cryptocurrency robot is a tool that many traders use to analyze and execute orders in the digital currency industry. Some robots are designed to send signals of different cryptocurrencies to traders automatically. These people can then do their manual analysis and then execute trades instantly.
Other robots are built to conduct analysis of different cryptocurrencies and then execute trades automatically. As a result, these bots can work on a 24/7 basis because the cryptocurrency market is never closed. In addition to just opening trades, these advanced bots can also set a take-profit and a stop-loss as a risk management feature.
The idea behind most robots is easy. In most cases, a manual trader will have a set of strategies that they use to trade. For example, a strategy can be based on an intraday indicator like volume-weighted average price (VWAP).
In this case, perhaps the trader executes a buy trade when the cryptocurrency crosses the indicator when the price is rising. Therefore, the developer will just write a code that authorizes the broker to execute a buy trade when VWAP moves above the Bitcoin or other cryptocurrency price.
There are many cryptocurrency robots today since anyone can build their own. Some of the best known of them are Bitcoin Champion, Bitcoin Trader, and Bitcoin Code among others.
Are cryptocurrency robots safe?
The answer to whether cryptocurrency robots are safe is complicated. In most cases, robots are safe to use even though they don’t guarantee that a trader will constantly make profits.
The best way is testing the robots by yourself.
For example, according to the German site Cryptomonday.de, they tested the robot called Bitcoin Code replying to one of the most common Google searches: Bitcoin Code Fake. “Wir haben die Bitcoin Code App getestet und unsere Bitcoin Code Erfahrungen 2022 in diesem Bericht zusammen mit allen relevanten Fakten dokumentiert”, translated in English as “We tested the Bitcoin Code app and documented our Bitcoin Code experiences in this report along with all relevant facts.”
Most people type this keyword as they seek to understand whether the bot is safe to use by traders.
In other instances, the robots that most people buy online don’t work effectively. This is partly because their developers built them with the goal of ripping people off. Some of these builders are also known for stealing their customers’ card numbers
It is also possible for a robot that a trader built themselves to lead to substantial losses. The situation happens because of the difficulty of translating manual parameters into a piece of software. In fact, many people who have used the popular free robot builders have made substantial losses.
Reducing risks when using robots
There are several strategies you can use to reduce risks when using cryptocurrency robots. First, it is recommended that you read reviews from experts and past users when buying a bot. These reviews will give you first-hand information about whether the robot works well or not. You can find these reviews in platforms like Google, Facebook, and dedicated review services like Trustpilot among others.
Second, always test the robot to identify whether it works in different market conditions. You can do this through the strategy tester tool that is offered by most trading platforms like NinjaTrader and MetaTrader. Backtesting uses historical data to simulate the performance of the bot.
Third, always do a forward testing procedure for a few weeks to see how the bot works. In this process, you should use the bot well using a demo account. At times, you will find that backtesting and forward-testing produce significantly different results.
Fourth, always ensure that your initial starting capital when using a robot is a bit small. Many bots allow you to start with as little as $250. Begin with that amount and then see how it performs in a certain period. Only add to the funds if you believe that the fund’s performance is satisfactory.
Finally, you can reduce risks by ensuring that it has adequate risk management features. The most important ones are stop-loss and take-profit. A stop-loss is a tool that automatically stops a trade when it reaches a certain loss level. A take-profit, on the other hand, automatically stops trades when they reach a predetermined profitability level. These are important tools that will reduce your risks when trading.
Further, if you are buying a bot, use one that offers a free trial. Such a bot will give you an opportunity to back and forward-test it.
Cryptocurrency robots are important tools that help to automate trades. They have become popular as the number of people investing and trading digital currencies has grown exponentially in the past few months. In this article, we have assessed whether these bots are useful and effective. Also, we have noted the most important procedures that one should always take before using a bot to execute trades.