Trading can require a lot of effort, depending on how you approach it. You need to address several factors in the search for profit. Some traders believe in placing quality orders over quantity, while others prefer to execute many orders quickly. Both types of traders can utilize a trading technique in cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) known as automated trading.
It allows traders to execute orders on crypto exchanges fast to achieve better profits through higher trading volumes. If you're interested, this article will help you understand the pros and cons of automated trading. After you've done that, you can decide which trading technique you want to use between manual, semi-automatic, and automated trading.
What is Automated Trading?
Automated Trading, also known as algorithmic trading or mechanical trading system, uses automated trading software supported by algorithms to execute trading orders at high speed. Investors and traders use trading software and feed it with pre-programmed trading instructions based on time, volume, price, and other trading settings.
Once the set instructions are met in the market, the trading software executes the orders set by the trader. Generally, automated trading is used by Investment Funds, Hedge Funds, Insurance Companies, Banks, etc., to execute a large number of high-volume trades that would otherwise be impossible for humans to execute. Automated trading is now also available for individual traders.
Automated trading aims to enable investors and traders to increase their profit margin by executing many trades. Since humans are limited to executing only a few trades at a time, automated trading eliminates human intervention and uses algorithms to trade at high speed.
Automated trading was previously associated with a complex structure where investors or traders needed to gain knowledge about coding and mathematical models before they could use automated trading platforms. With automated trading platforms like Cryptohopper, this is a thing of the past.
How does automated trading work?
Automated trading is entirely based on systems that use various high-tech and data-based algorithms to execute trading orders. Once you choose which automated trading system to use based on your investment perspective, you set precise buy, sell, and trading rules for the automated trading system, such as trading signals, trading strategies, AI trading strategies, TradingView Alerts, or Copy Bots. The rules can be set based on various market conditions such as Stop-loss, Trailing stop-loss, Moving Average crossover, and other technical indicators.
Once you have set the rules, leave the rest to the automated trading system. When running, the automated trading system executes orders on the crypto exchanges at high speed as soon as the set rules are met in the market.
Additionally, trading through automated trading systems allows you to eliminate human emotions that may negatively affect your profit margin. Since the orders are automatically placed based on the analysis of data and predefined rules, the chances of a successful order can increase. However, trading results always depend on the market and the trading settings used.
The Pros and Cons of Automated Trading
Every trading strategy, system, or model comes with numerous advantages over other trading strategies. However, it also includes some disadvantages. The same is the case with automated trading. Here are the pros and cons of automated trading to better analyze this trading strategy:
Pros of Automated Trading:
High Speed of Order Execution: Automated trading allows you to efficiently execute a large number of orders. Using automated trading, you can trade on multiple crypto exchange accounts use different trading strategies simultaneously. The number of trades that would take long to be executed by a human can be done in milliseconds through automated trading.
Avoids Human Emotions: Professional and experienced investors advocate avoiding human emotions when trading. They feel that human emotions are one of the biggest factors that lead to losses. Therefore, you can determine in advance what needs to happen when an event occurs and act immediately by using Triggers. However, automated trading ensures that human emotions are kept in check and there is no need for human interference in executing orders.
Backtesting: One of the best features of automated trading is its ability to apply trading rules to historical market data to determine the viability of the trading strategy, called backtesting. When you choose a trading strategy for automated trading, you can test it thoroughly before the rules are executed, reducing the possibility of unsuccessful execution to a minimum.
Diversifying crypto portfolio: Automated trading allows you to manage multiple strategies, cryptocurrencies, and crypto exchanges simultaneously, spreading the risk. This enables you to reduce potential risks because you are in more different positions on different trading platforms.
Community knowledge and Marketplaces: Platforms like Cryptohopper have many users who are eager to share their knowledge with each other via Discord or through Cryptohopper Marketplace sellers. Did you know that you can ask most sellers on Cryptohopper questions about their services?
Disadvantages of Automated Trading:
Technical Failures: Automated trading is only as good as the automated system used to execute orders. However, because the automated systems are technologically supported, they can experience malfunctions or technical issues. At Cryptohopper, we always strive to offer the most stable automated trading experience. Are you experiencing problems? Contact support and we will assist you as soon as possible.
Monitoring: Although the execution is automatic, it still requires some degree of monitoring. This is because crypto exchanges may encounter technical issues such as system failures, loss of connectivity, etc. As these factors can result in errors, missing, or incomplete orders, traders need to monitor the execution. Did you know you can easily monitor your trading bots via the iOS or Android apps?
Over-Optimization: Automated trading requires you to choose, adjust, and manage the trading strategy you use. However, strategies developed by traders using backtesting may look good on paper but may fail in the live market at the time of execution. Are you new to automated trading? Start with the default trading strategies available in Cryptohopper to all users or go for Copy Bots.
Requires Platform Knowledge: Automated trading requires knowledge of the software you are using. There is a learning curve before you fully understand automatic trading systems. Therefore, you can use Paper Trading (Demo trading) before trading with real money. This way, you will discover all the functionalities a trading platform offers. Also, always read the introduction of the bot types you are using.
Automated trading is used by traders who do not want to manually execute crypto orders but want to rely on data-based algorithms to execute orders on their behalf. They set predefined rules and feed them to their trading strategy to ensure that the orders are automatically executed at a higher speed than manually possible.