Cryptocurrencies

Automatic Trading, between Myths and Realities – Cryptocurrencies

Last week I told you about how I got addicted to trading, and how I got out of it. Today, I will talk more about myself, to resume the rest of the chapters of this Trading Forum! Who has never dreamed of being able to trade in peace, from a swimming pool, the beach, or even while sleeping? I think you’ve probably heard of auto trading before. While this area sparkles wonders, it seemed interesting to discuss it with you! Come on, make yourself comfortable, with a mojito (either virgin depending on your age / preference, or in moderation of course), and let’s go!


Preamble

Before going into the details of this chapter, I first wanted to tell you about two / three small dots. Indeed, it is possible to put several notions behind the term automatic trading, and it is important, in my opinion, to to distinguish.

Also, during this chapter, we will discuss 3 large families automatic trading:

  • Copy signals ;
  • Buy / Rent trading strategy ;
  • Development of your own bot.

In addition, before you start automatic trading, it is especially important to remember a few basic basics (my dear Watson).

After fourteen chapters of this Trading Tribune, I think (well I hope) that you have understood the importance of rigor necessary in this discipline. And if I tell you about this, it’s not for nothing.

Indeed, within the framework of automatic trading, you will be dealing with two situations which present the same danger:

  • Backtest phase of your strategy;
  • Increase in the number of real trades.

These two situations will give paramount importance to an element that may have seemed trivial to you until now: expenses.

While cryptocurrencies are known for their particularly low transaction fees, that doesn’t mean they are non-existent. And especially, these transaction fees are not the same as the trading fees !

Indeed, the transaction fees come from the fees generated to remunerate the producers of blocks of a blockchain (for example, miners on Bitcoin).

However, in trading, the fees are defined by the platform itself ! They can therefore be (and often are) higher than transaction fees.

I’m not trying to scare you here. But it is important tobe aware of it ! Too often I see people come to me with profitable simulations of their bot on a history … And when I ask them if they have taken into account the fees for each trade, the smile fades. And when they take them into account, the smile becomes a grimace.

A Bitcoin trader when he realizes he has forgotten the fees.
What do you mean, costs? Not know. (Credit Warner Bros)

Copying signals, the wrong idea

Who has never been tempted to follow this famous trader with such fantastic results? But if you know, the one that promises you to make 500% per month !

He takes the time to explain to you that he is philanthropic, and that he believes that everyone should have access to wealth … And that is why he is sharing his signals with you for “only” 100 € per month.

What a generous man… In addition, he even sometimes shows some of his signals on his Twitter, and they are always winners! What about losing trades? Doesn’t he show them or maybe he never does? (if you’ve come this far, I imagine you already have that question answered!)

In the image below, typically, you see a message from a group of signals. Wow, that makes you want no ?

Image of a sell group of trading signals

Me, the first thing that jumps out at me is a capital increase of 474% in just 22 trades… It means a average of 21.54% per trade. So far, everything seems consistent. Well almost.

Indeed, if you have started to learn trading, you know that you never bet 100% of your capital on a trade. We adjust our position size to the risk taken. So when you achieve a + 50% with 20% of your capital, you only increase it by 10%, not 50%.

To achieve a + 21.54% gain on the total capital per trade, the latter would therefore have to be much more important … This contrasts with the + 66% maximum stated in the last line. In short, either the trader is lying or he puts 100% of his capital in each trade … It comes down to choosing between plague and cholera.

Yeah well ok, I haven’t been very kind to traders who sell signals. But I think sometimes it’s important to put things back on track.

Now imagine for a moment that you came across a real rare pearl. Someone who really does get results, and who, for a variety of reasons, decides to share any of these trades with you. Is it a good idea to follow it? No.

Indeed, if you wish learn trading, your worst enemy will be to delegate certain tasks. A trader is alone against himself. In the same way that every trader has his own trading system, nobody can do graphical analysis for you.

Still, the lure of easy money wins you over. And you decide to follow it. For a few months, all is well, you make a small profit. Then, one day, without warning, he announces that he is quitting. That he is no longer happy with trading, or that he has achieved his personal goals.

You then find yourself alone. No problem ! You have seen him trading for months, just replicate his strategy! You then open the Bitcoin chart, and you begin to analyze it. And there, the observation is harsh: white sheet syndrome, you are unable to make any trace. Have the last few months been for nothing?

It is important to understand that there is a heavy difference Between observe and practice. You will never be a professional footballer, despite all the hours spent watching your favorite team play from your sofa. The same goes for trading.

If you give a man a fish he will eat one day; if you teach him to fish, he will always eat.

This proverb defends the idea that it is important to surrender autonomous vis-à-vis his needs. There will not always be someone there to take care of you. Learn to trader (fish), rather than to follow the signals (accept the fish).

Buy or rent a strategy, the jungle of crypto services

For this part, I prefer to make a quick aside: I was not contacted by any company to write this article. The projects listed will be because I know them by name, so I might forget others that I don’t necessarily know. This is not intended.

Pub

In recent years, many products have developed to bring the trader closer to the Holy Grail: have a robot that knows what to do, and that trades for us, day and night. And now, in 2020, you can find several products with more or less similar promises and the differences that are sometimes difficult to distinguish. Point blank, I will quote:

On these sites, you will have the opportunity to see strategies created by other people, and follow through a variable cost depending on the platform. Once the strategy has been followed and the bot launched, he will carry out the latter 24 hours a day, placing trades for you.

For example, the strategy below (extremely simplified) does the following:

  • We invest 100% of the capital in Bitcoin;
  • If Bitcoin reaches $ 7,470, then we sell 100%;
  • If Bitcoin reaches $ 7375, then we buy 100%;
  • And so on, endlessly.
Example Kryll strategy

Obviously, the strategies that are offered to you for purchase are good more complex. For example, it is already more complete and less easily readable. I’ll let you have fun deciphering it if you feel like it.

Example of a complex Kryll strategy

Okay, okay, trading signals is a bad idea. But then, is it not the same to buy or rent a strategy that will trade alone?

Well … sort of. But on the other hand… no.

Oh yeah, Cryptodidact, you know how to help us!

For me, there are two things that make it different:

  • You really have no action to take ;
  • Used well, you can do it in addition to your trading.

It is important that you do not have to take any action. Indeed, when you copy signals, several elements can cause the failure of a possibly already wobbly plan:

  • You see the signal too late, the prices and the situation have changed;
  • You take the initiative to change the signals here and there as you wish.

If you choose to automate your trading, don’t try to intervene afterwards. Plan the trade, trade the plan. Nothing more, nothing less.

In addition, it is possible to see automatic trading as a diversification of your capital. You can thus trade with 90% of your capital dedicated to trading, and place 10% in an automatic strategy. In the same way that you diversify into commodities or real estate, you hope to get another source of income by dividing the risks.

Nevertheless, be careful if you choose to go down this route. The traps can be multiple. Here are a few :

  • An exceptional annual performance is good, but if the maximum drawdown (consecutive losses) is important, then you just won’t have any more capital;
  • Check the fees requested by the platform which sometimes absorbs all the profits, that would be a shame;
  • If possible, learn a minimum about the strategy in order to be aware of of the security systems put in place ;
  • Pay attention to the period tested for performance. If you are told + 20% over a week, but the crypto in question has made + 50% during that time, it means that the strategy made you lose 30% in fact !

Once these few dangers are put aside, you have what you amuse ! Moreover, I can tell you that the communities around these projects are often very benevolent, exchange a lot, and like to share, discuss and help each other. Do not hesitate to go take a look !

Developing your own bot, or how to get your hands dirty

Okay, finally you did the choice to develop your own bot. The reasons can be multiple:

  • Not trust others;
  • Want to be in control of what’s going on;
  • You have a winning strategy;
  • Want to manipulate and experiment;

Whatever the reason, I hope you are up for a few days of work! Indeed, wanting to make your own bot, this is not the easy way.

However, to be exact, at this stage you still have two options available to you:

  • Create the bot from scratch by coding it;
  • Start from a functional bot to “Just” code your strategy Above.

In case you want to create your own bot from scratch, you will need:

  • Find the programming language that suits you;
  • Understand and integrate the APIs of one or more trading platforms;
  • Do the same for an API of a site providing you with data on cryptos (prices, volumes, etc.).

Once all this is ready, you can then develop your bot, from A to Z, and launch your own strategy. You can’t do more than that.

Behind the image of a cat on a slice of pizza (who doesn’t like cat pizza?), KarlCrypto is a French Twitter personality who regularly shares his progress on his own crypto bot that he developed from scratch. If adventure tempts you, do not hesitate to to follow, even ask him advice !

If the idea of ​​building your bot from scratch seems a little too ambitious, platforms like Kryll or BotCrypto (which I have already mentioned to you before in this chapter) allow you to simplify your life! Indeed, they provide you with an easy to understand environment, where you just need to drag and drop blocks in order to create a strategy.

botcrypto policy editor

Buy and sell crypto when a moving average crosses? It will take you between 4 and 5 drag and drop, and nothing more! Pretty cool, isn’t it?

Conclusion

This fifteenth chapter of the Trading Tribune ends here! Hope you still enjoy this series!

Auto trading is the Holy Grail that any trader would love to approach. Indeed, who has never dreamed of automating their earnings, of being able to pursue their passions while earning money … And that’s why this field is so attractive.

However, if the biggest groups in the world still employ traders, it is not for nothing. No quick fix exists. However, this does not mean that automatic trading is impossible. And we’ve seen, throughout this article, the different options available to you, from the least viable to the most viable.

Either way, I hope you enjoy reading all of this, and that you follow this Tribune carefully to the end!

Pub

See you soon !

Previous chapters of the Trading Grandstand:

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