Since the crypto markets alongside the DeFi space continue to evolve and become more difficult for the average person to understand, algorithmic trading keeps growing in popularity among global traders.
Now you can access an endless array of tools, which were previously limited to use by only experienced traders and trading firms including, crypto exchanges and trading bots.
This article will help you understand algo trading and its potential to improve your cryptocurrency trading outcomes.
How Algo Trading Works In Cryptocurrencies?
Crypto algo trading is the process of establishing predetermined trading rules that combine historical data, statistical models, mathematics, and strategies to determine buying and selling opportunities.
Trading algorithms can simply execute trades if the price rises or falls by more than 5%. Since it uses mathematical formulas and historical data to guide decision-making, algorithmic trading doesn’t actively forecast every change in market bias or black swan situations.
Since computers are known to trade more quickly and more accurately than humans, algo trading can be quite profitable when you learn to put things correctly. Analyzing historical and current market data to project future price movements, you must possess a strong grasp of mathematics, including algebra, calculus, probability measures, and statistical analysis.
Studies spanning several decades have shown that the largest profits and losses are made by a few number of volatile days annually. Therefore, to become a profitable trader, you also need to find the correct balance between aggression and protection.
See Related: Algorand (ALGO) Price Prediction After Fed Hiked Interest Rates, Again
How To Begin Crypto Algo Trading
You’ll find a ton of books, online courses, and learning communities available if you’re ready to give algo trading a try. To learn about market behavior in terms of psychology and quantitive analysis, begin with the basics of both technical and fundamental analysis. You’ll eventually gain more programming skills, enabling you to understand complex trading strategies and come up with a proper trading plan.
Apart from subscribing to online courses, you can also purchase an already-existing trading algo trading platform to handle all the hard work if you want to get started with algo trading right away. However, a lack of understanding of the tools you’re paying for might cost you significant losses or limit your profit potential.
Algorithmic Trading Vs Automatic Trading
Algorithmic trading requires a human user to utilize technical tools and decide when to execute a buy or sell entry. On the other hand, automated trading completely eliminates the need for any human involvement as the computer itself makes all the trading decisions.
However, crypto trading bots can be used as slog trading tools. These bots are designed especially for cryptocurrency markets to leverage decentralized crypto exchanges alongside crypto-native features like MEV protection. In general, algorithmic trading can be used to any financial market.
Crypto bots can be pre-programmed or modified to carry out various potent tasks, including copy trading, airdrop hunting, creating multi-wallets, and more.
Pros and Cons of Algo Trading
Pros
- Algorithmic trading can be done 24 hours/day and 365 days/year.
- A quick analysis of price charts.
- Trading at lightning-fast speeds–in milliseconds and microseconds.
- Free from human-made errors and implement higher accuracy.
- Enables diversification of trading portfolios by managing multiple trades simultaneously.
Cons
- Disruption in the algorithmic process might hamper the trade execution process.
- High initial expenses on setting up primary algo-trading infrastructures.
- Algorithm writing requires programming knowledge.
Conclusion
Algo trading indeed enables you to place buy and sell orders and manage the entries using programmed codes. Being entirely dependent on technology and programming can help you remove the adverse effects of fear and greed in trading. However, algo traders must continue to build and update algorithms diligently. So, prepare yourself with programming knowledge, computer hardware, and familiarity with the financial markets before you begin.
