Automated software allowed multiple sectors to cut redundancies and increase profits, and the world of crypto trading isn’t deprived of its benefits. As the global crypto market value estimated has reached around $1.09 trillion, the popularity of cryptocurrency isn't going to wane anytime soon. What’s more, the intensity of processes related to crypto trading and cryptocurrency management is expected to grow exponentially, revealing the need for an automated boost.
For crypto entrepreneurs and traders, such a boost comes in the form of crypto trading bots. However, as always, before you can glean value from the DeFi technology, you need to understand what makes it tick. While professional teams always handle the bot development process, there are details and specifics that decision-makers benefit from knowing.
For that reason, in this guide, we will shed light on the technology, the fundamental development steps, and the insights for stakeholders who want to empower their operations with the best crypto trading bot.
- What is a crypto trading bot?
- How does a crypto trading bot work?
- Business-boosting benefits of a crypto trading bot
- Types of crypto trading bots
- How to build a crypto trading bot?
- What are the must-have features of a crypto trading bot?
- Facts about crypto trading bots to know before committing
- Final thoughts
What is a crypto trading bot?
A crypto trading bot is an automated tool that takes over a specific set of purposes and tasks executed by professional crypto traders. Mostly, such tasks include selling and/or buying cryptocurrencies under the predetermined parameters.
The main goal of a crypto trading bot is to maximize profit by using technological precision and capacity for handling multiple operations at the same time.
What's important to remember is that a crypto trading bot isn't a button for generating profits. It's a tool—and every tool has a purpose which needs to be specified by the stakeholder before the development.
How does a crypto trading bot work?
Any automated crypto trading bot is connected to a relevant crypto market platform and operates following its pre-configured market parameters, such as price, trading volume, and time frame. The most frequently used indicators are Bollinger Bands, relative strength index (RSI), moving averages, and Moving Average Convergence Divergence. Using these data points, crypto trading bots monitor the chosen market online and respond whenever market conditions align with the pre-set indicators. As soon as there is a match, the bot executes its core function—which in most cases involves automated trading.
For a more intricate review of this software operations, it makes sense to take a look at the following scenario:
- A client needs a crypto trading bot for the Bitcoin market. The bot should be based on a moving average indicator and, therefore, use a moving average crossing approach, i.e., include a slow-moving average and a fast-moving average.
- The trading is executed whenever there is a crossover. If a fast-moving average is crossed above the slow-moving average, the bot will proceed to buy cryptocurrency. Meanwhile, a fast-moving average crossing below the slow-moving average is a signal for the bot to place the sell order.
- The team develops an automated crypto trading bot that constantly monitors the market and calculates averages, automatically buying and selling cryptocurrencies.
However, the functionality of crypto trading bots isn’t limited by these operations only. The capabilities of modern technology extend well beyond simple processes, allowing crypto traders to configure their crypto trading tools for different purposes and strategies.
Learn how enterprise DeFi will impact the financial system of the future
Business-boosting benefits of a crypto trading bot
Before talking about how to build a crypto trading bot, we should address the following question: what makes crypto trading bots worth the effort?
Like any automated tools, crypto trading bots make it possible to get more results faster—which is crucial to the world of cryptocurrency trading, where markers move incredibly fast, and one smoke break can cost a beneficial trade. However, there is much more to crypto trading than being in charge of monitoring and executing tasks.
- Future-proof strategies
Every trader operates according to a certain strategy based on their priorities and data on their hands. But their strategy can fail them in a year or two—or even in a week due to blindspots and underlying flaws. Preventing such issues needs constant strategy reviews and running them through various scenarios, yet few traders have time for that.
An automated crypto trading bot can address this concern and test the strategy against simulations to evaluate its efficiency and identify potential problems, ultimately allowing traders to polish their strategies and prepare them for the future.
- Improved trading accuracy
The pre-configured parameters and flawless operation via indicators make crypto trading bots a solid solution to the volatility of the crypto trading market. By monitoring the market 24/7, they never fail to identify the right currency, time, and moment for making a profitable trait. At the same time, in-built risk management mechanisms prevent them from executing an unprofitable trade and losing money.
- Increased productivity
Unlike humans, software can be focused on several processes and sources simultaneously, which makes crypto trading bots a major productivity-boosting tool. With the help of bots, crypto trading professionals can trade on multiple platforms and execute several strategies, enhancing their chances of profit and minimizing risks.
- Lack of human error
Aside from automating trading processes, crypto trading boots take emotions and human factors out of the equation, basing their decisions on data and parameters. This benefit is essential to crypto trading because sometimes the wrong state of mind or mood can result in a trader miscalculating and sabotaging themselves by a bad exchange. To err is human, and crypto bots ensure end-users avoid unnecessary stress and frustration while enjoying higher profits.
Given such advantages, crypto trading bots are becoming essential to securing successful and lucrative exchanges and combating the fast-shifting landscape of the crypto trading market. So, investing in creating a crypto trading bot means investing in more stable and rewarding activities while reducing the risks of profit loss.
Types of crypto trading bots
No automated crypto trading bot is identical to another. Each variation has its features and points of focus. For instance, there are pre-configured crypto trading bots for less tech-savvy users that are very quick to set up and launch—and then there are bots for technical or fundamental analysis with a very basic UI. There can be AI crypto trading bots (which is a very massive and diverse category on its own) and bots not powered by AI.
Due to such a variety, stakeholders need not only to understand what tasks and purposes they need a bot but also to differentiate between multiple types of crypto trading bots.
Dollar Cost Averaging (DCA) bots
Operate following the DCA strategy: buying at regular intervals, in smaller amounts, regardless of the intervals. Use such pre-configured parameters for the frequency of investments and invested amounts.
Explore price differences between exchanges. Make trades when there is maximum benefit from price discrepancy.
Gain advantage from short-term price fluctuations by making fast trades.
Mean reversion bots
Identify the asset's average price and execute trades when it deviates from that indicator, allowing it to sell high and buy low.
Comb through news sources and event data, analyzing their influence on the market and making trades based on that influence.
Which one of these bots is considered the best crypto trading bot? As always, there is no definite answer. To realize which bot type would deliver the most value, crypto traders need to evaluate their risk tolerance and goals.
It's always a matter of preferences and needs. Before we can even start talking about how to build a crypto trading bot, we need our client's insights on who will be interacting with the bot, their understanding of the technology and usability needs, preferred strategy, market parameters—and much, much more.
How to build a crypto trading bot?
As a rule, the process of building a crypto trading bot is left entirely to the crypto trading bot development company the decision-makers choose to work with. However, from our point of view, this approach isn't entirely correct. The knowledge and understanding of the development processes allow crypto professionals invested in getting the best crypto trading bot for their needs to be more aware of the general outline of the development journey and the insights the development team might need.
Due to this, we’re going to look at the most important steps of crypto trading bot creation.
1. Discovery session
Hands down, it is the most important step of any project. This is where we visualize and ideate what the client needs—and where we need maximum input. We need to understand the flow, the indicators, the strategy, and the algorithm that the future trading bot must follow. The more detailed the client’s vision is, the easier the rest of the journey goes. So, we always encourage our clients to be very clear and specific in their requests.
A discovery session is necessary for building a productive and well-performing crypto trading bot. At this stage, the client provides the development team with their vision of the future trading tool:
- Algorithms. How does the client expect to gain profit with the bot's help? What tokens do they intend to work with? What network and platform do they expect to operate in (Coinbase, Binance, other)? Will the bot be tied to Stablecoin? If yes, what Stablecoin will be used?
- Purpose. What will the bot be used for? What is the market? What strategy will the bot be based on?
- Sources. What data sources on market prices and events will the bot be using? Are they free or paid? Would they be relevant for the goals the bot is supposed to cover?
During a discovery session, double checks and reviews are more than encouraged: the fewer gaps and blindspots the task has, the better the end results.
2. Building an architecture
After the client forms their request and provides all the information and materials regarding flow, strategy, and the components of the future bot, the team studies the task closely.
Paying close attention to the goals and the specifics of the bot, the team lead maps out the general architecture of the journey and identifies the development steps and stages. This step generally determines the length of the project and its estimated deadline.
3. Creating UX/UI
From our experience, a detailed UX/UI design is rarely involved in creating an auto crypto trading bot, especially compared to other custom software development. Generally, the most basic UI for internal use covers the end-user's goals well enough. For that reason, this is usually the shortest and least complicated step.
As a rule, clients plan to be the end-users of crypto bots, which doesn't require adapting them for beginners or less experienced users. Of course, a more user-friendly design can be part of the request, but most clients prefer to focus on efficiency first and usability second.
When creating UI for an automated crypto trading bot or an AI crypto trading bot, real-time synchronization with the bot's performance and features is a must. The main task of the layout is to visualize data and provide end-users with detailed information about the bot's performance. This part must be clear, understandable, and not over-encumbered by unnecessary elements and features.
4. Bot coding: Decision-making
Concerning the development of the functionality of a crypto trading bot, the first part of the process is configuring its decision-making protocols. At this stage, the team connects the bot to the sources and platforms it collects data from.
This is where the bot gets equipped with indicators and parameters for making the decision based on the chosen strategy and the bot type.
5. Bot coding: Decision execution
After configuring the decision-making parameters, the team proceeds to establish the algorithms for the future crypto trading bot.
The backend part is the supporting pillar of any crypto trading bot's success and functionality. It allows us to build an algorithm and set the strategy in motion. So, my advice to crypto pros interested in creating the best crypto trading bot for their goals would be: find qualified backend experts once you have your strategy planned to the smallest detail. They’ll ensure all the features you visualized perform as intended.
The backend team connects the bot to API and tools that let it interact with the chosen networks, place sell/request orders, and respond to triggers.
Crypto trading bot testing is the most extensive phase in the entire development journey—and for a good reason. This is where QA experts try out every component of the crypto trading bot and evaluate its performance, checking it for compliance with the client's requests.
In general, there is no such thing as too many tests regarding crypto trading bot software—after all, it will manage financial operations. Therefore, ensuring smooth performance and impeccable work of the algorithm is a matter of security and the end user's confidence in their asset safety.
This is another reason why we always ask our clients to give us a full vision of the bot algorithm. If it lacks specifics, we shape it together with the client during discovery sessions. While bots can overtake manual tasks and liberate working hours, they work with money and can’t be held accountable in case something goes wrong due to a blind spot that hasn’t been addressed. It’s always better to ask extra questions before the development than do intense troubleshooting after a bad launch.
Once the bot receives approval from the QA team, it’s handed over to the client for further use.
However, the cooperation doesn’t necessarily stop there. A responsible crypto trading bot development company or team stays available for monitoring or gathering feedback on the bot’s results to apply adjustments (if necessary) or assist the client with potential questions.
Not all pitfalls can be addressed or prevented during testing. Depending on the AI crypto trading bot’s purpose, different obstacles or challenges may pop up during its use—as a rule, a good bot already has the capacity to overcome them, but having a support team ready to back you up is always a plus.
Advancing a DeFi platform to the new level with a next-gen set of trading tools
What are the must-have features of a crypto trading bot?
As we have established, the quality of the crypto trading bot largely depends on the crypto trader's goals and priorities. There is no fail-proof tutorial: the end success is defined by how well the trader understands their bot's place within their plans and the market they work with. Their prior knowledge of the available bot features and capabilities also impacts their user experience and satisfaction with the outcome.
Being aware of such utilities in advance can be extremely helpful when ideating the perfect tool, so we shall take a closer look at the most important ones:
- Exchange integration. A functional crypto trading bot must be compatible with mainstream cryptocurrency exchanges that are relevant to the trader’s market and strategy of choice. Such a feature is usually discussed during a discovery session.
- Backtesting. Like everything else, strategies can become obsolete or redundant in time. The best crypto trading bot is the one that can determine a strategy's viability in the future by testing it against historical data and evaluating its efficiency. Such a feature allows crypto traders to optimize their strategies and secure high profits without disruptions
- Strategy customization. Since strategies can and must be changed, the crypto trading bot must always provide options for strategy customization and configuration in accordance with the new goals or risks discovered.
- Risk management. Any AI crypto trading bot or automated tool needs to know when to buy, sell, and stop. Risk management tools, such as portfolio management (monitoring a diversified portfolio), take-profit, and stop-loss triggers, should be integral parts of a reliable automated trading tool.
- Real-time market research. To make decisions and execute strategies, the bot must have access to market insights, from charts to order book data to relevant market indicators. Such information should also be available to end-users via comprehensive data visualization.
- Regulatory compliance. Since the regulatory landscape of cryptocurrency trading is still evolving and prone to change, equipping bots with compliance monitoring features is a good way to safeguard traders from potential legal issues and financial problems.
- Security. Last but not least, bot users must be confident about the safety of their data, assets, and trading accounts. Therefore, the plan for the best crypto trading bot must always include trader verification features and enhanced data protection. Two-factor authentication is a must, but additional layers of security can be applied depending on the skills and experience of the development team involved in the project.
Facts about crypto trading bots to know before committing
Although much good has been said about crypto trading bots, there is always a "but" or a "why."
In this particular case, the question is, "If crypto trading bots are so good, why don't they work for everyone?"
The answer is rather simple: much like any tool, a machine learning crypto trading bot is as efficient as it's thought through. Much like any tool, it's not perfect or immune to constraints—and automated crypto trading tools do have their constraints:
- Historical data challenges
In comparison to traditional markets, cryptocurrency markets have limited historical data. Cryptocurrency is still a new asset, still establishing its presence. Therefore, when it comes to developing algorithms or running simulations, crypto trading bots may end up lacking the necessary data to proceed, thus failing to evaluate a strategy.
- Intense competition
Every ambitious trader wants to be on top of the competition. There are many aggressive players in the crypto market contesting for the most profitable trade, which complicates the process of identifying opportunities and tracking trends. Despite being tireless in their monitoring, crypto trading bots need to continuously improve their flexibility to keep up with the events and patterns.
- Regulatory issues
DeFi is still shaping its regulatory base. While we're certain that enterprise DeFi and cryptocurrency are going to have a place in the future financial system, currently, the regulatory guidelines and restrictions remain muddled and uncertain, which may lead to sudden legal issues and changes. Such unpredictability can render the entire strategy unfit for execution—and crypto bots won't be able to adjust in time.
The presence of challenges and flows shouldn't dissuade anyone. No technology is perfect—it's your preparedness to stay aware of the change and adapt to it is what counts. While crypto trading bots make navigating a market as volatile as the crypto trading one easier, they're not a silver bullet. Setbacks are bound to happen. But where there's a setback, there's a solution.
Automated crypto trading software makes it possible to bypass the most challenging aspects of cryptocurrency exchange and go straight to profiting from the opportunities. Their functionality and automation of most human-managed activities make them a helpful and desirable asset—and yet, before decision-makers start thinking about their future gains, they need to think about the practical steps.
While employing professionals from a qualified crypto trading bot development company increases the chances of building the best crypto trading bot, the best result is achieved by combining technological skills and domain expertise with the trader’s vision and commitment to the idea. The more scrupulous they are in describing the goals, the profit-generating patterns, and the purpose of the future bot, the more game-changing possibilities the final product will deliver.
If you're currently fleshing out your crypto trading bot concept and looking for experts who can turn it into the perfect automated match to your strategies, let’s chat!
At Trinetix, we have immense experience with a wide range of DeFi projects and tools. Having successfully developed and launched dozens of automated crypto trading bots, our qualified team will help you map out a blindspot-free strategy and increase the profitability of your operations.