What to Look for When Searching for an Automated Trading Solution

Automated Trading Solution

The use and simplicity of automated trading tools in the cryptocurrency space have significantly increased to the point where it’s common to find even green investors considering them as options.

In contrast to just a few years ago, traders are now equipped with tools, such as automated trading bots, that come in various forms, meeting the diverse needs of the overall sector. 

Whether one is looking for an advanced DCA bot, a coin lending bot, arbitrage bots, or even market maker bots, as the space continues to mature, so do the tools around it.

However, with the influx of platforms providing these services, finding the “perfect” automated trading solution can sometimes take longer than needed – here are a few key elements to look for when making your decision.

Available Tools

Traders have different goals, trading styles, lifestyles, and investment strategies, so choosing a company that provides the tools to accommodate those is vital.

This can include access to input personal strategies using a variety of technical analysis indicators. Some platforms either prohibit this or offer very limited indicators to the traders. 

Some may prefer fully customizable trading bots, while others may desire ones that come pre-set and ready to go, requiring little to no input.

For instance, copy trading, where mainly experienced traders publish their automated strategies for others to replicate, has also become a more popular avenue over the years – but not everyone offers these services.

Even then, regardless of how customizable a bot is, or isn’t, making sure you are comfortable overall using the technology is important. With new ventures usually comes learning curves, and most platforms provide guides and tutorials on their website or social media channels, but you should not be struggling with the software while attempting to trade. 

If you are newer or unfamiliar with the different automated services that currently exist and what benefits they provide, a brief research session can help you get acquainted to them. 

Testing 1-2

What’s better than having a plan? Being able to test that plan!

Backtesting is when a trading strategy (usually one that was just created) is applied to historical data and asset performance in order to see how effective it would have been.

The thought process here, and also a commonly used phrase in the industry, is, “past performance is indicative of future results.” While this isn’t necessarily true, the value backtesting provides is indeed invaluable.

Even if the strategy turns out not to be 100% accurate (is there such thing as perfect..?), since the trader is able to see what would have been the best move, they can tweak their bot, making the correct adjustments as needed, then backtesting it again. The process of refinement at its best; rinsing and repeating until near perfect. 

Latency

Latency describes the speed at which data and transactions are shared and executed. 

Anyone involved in the crypto space for longer than a few days know just how much price movement can occur in a matter of minutes and sometimes even seconds in this market.

With such swift price movements, the need to send and receive data, and execute, is vital to a trader’s performance. If a trader is not receiving the most current and accurate price quotes on the price of a coin they are trading, it essentially means they are lagging behind or trading in a past price level.

In a “game” where every percent counts, long-term, this will not be favorable for the trader. 

Trading using tools that have low latency is the goal.

Compatible Exchanges

Although there are thousands of exchanges and a more than fair amount of DEX’s in existence, not all of them are compatible with the various automated services out there, and vice versa. 

A great sign is when you find software that is compatible with large, secured, and reputable exchanges. 

This is especially important if the trader is determined to trade a specific crypto since many exchanges offer a limited amount of coins to trade.

Perhaps the most important task is to confirm whether or not the exchange allows for API trading, as that’s how most automated software connects to an exchange. 

Making the Choice

At the end of the day, no matter how much research is done and how many reviews are watched or read, it frequently comes down to personal testing.

While going through the registration process for various platforms only to discover that it’s not the best fit can be a bit off-putting, due diligence is the backbone of any intelligent investor.

Remember, when it comes to investing, sustained and consistent success is key, not “swinging for the fences” and hoping for grand slams – and the same is true for when it comes to finding automated trading solutions that will compliment your goals as a trader.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.