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How to Use AI in Crypto Trading

by Johnny Bitcoin from
How to Use AI in Crypto Trading

Looking for how to use AI in crypto trading to augment your trading performance? AI trading bots are getting more and more popular among crypto traders. This article thoroughly explains how AI trading applications can up your trading game.

The crypto market operates 24/7 and 365 days a year. This makes crypto investing starkly different from investing in stocks or commodities. Also, crypto is inherently more volatile. This means more frequent price changes!

AI trading bots can help you keep an eye on price movements, market trends, trading setups, and buy/sell opportunities around the clock. Also, you can simply automate your trades, and the system executes them while you are away from the screen. And what can analyze data better than sophisticated AI tools run by powerful algorithms? Let’s look at how you can drastically improve your crypto trading performance using AI trading bots.

1. What is an AI crypto trading bot?

An AI trading bot is simply a sophisticated piece of software application that can trade like a pro! These applications are run by advanced algorithms to make decisions like an expert human trader, or even better. So, if you want to analyze the sentiment in the market (are majority investors bearish or bullish?) or find a trade setup that has a higher-than-average winning opportunity, AI trading bots are your go-to tool.

ai tools for risk management

What’s more? Ask the bot to buy BTC every time its price falls by 1% or sell crypto when its price rises by, let’s say, 20%. The bot will heed your commands like the mythical genie.

A good example of an AI-supported technology that enables traders to improve the returns on their investments is Bybit Trading Bot. By utilising this feature, traders can take advantage of lateral market shifts by selling at the highest and buying at the lowest points. In other words, they can navigate and efficiently spot both bull and bear markets, what positively influences finalising investments at consistent intervals. Currently, in their offer, Bybit has three different bots (Spot Grid Bot, DCA Bot, and Futures Martingale Bot) which you can choose accordingly to your own specific goals.

2. Different types of AI trading tools in crypto

AI trading tools can be of different types depending on what they do. Some tools are great for automating trades while others work best for generating trade signals or analyzing market sentiments. Here are the most common types of AI trading applications in crypto:

  1. Automated trading bots: These bots are mainly used for automated trade execution. Automated AI bots allow you to set trading criteria (like ‘sell BTC when it reaches $31K’) and the bots execute trades when the criteria are fulfilled. Example: Pionex.
  2. AI tools for generating trade ideas: These bots constantly monitor the market to gauge market trends and identify profitable trade setups. So, you don’t need to keep your eyes fixated on charts to get trade ideas. Example: Altrady.
  3. Bots for data analysis and backtesting: Want to back-test past data and build smart trading strategies? These backtesting bots can come in handy. These bots can analyze huge amounts of data to test your trading strategies or conduct paper trading to improve your trades. Example: Algoriz.
  4. AI tools for sentiment analysis: AI trading applications are not only good for analyzing data and charts, but they can gauge market sentiments too. There are specialized AI trading bots that can analyze news reports and even social media posts to understand the ‘mood of the market’.
  5. High-frequency trading bots: These AI bots are designed to execute trades instantaneously to benefit from small price changes. Example: HaasOnline.

In addition to these 5 types, there are specialized AI tools for risk management, arbitrage trading, portfolio management, copy trading, and social trading. It is very vital to understand how they work before you start incorporating them into your strategies. However, we strongly advise doing so, as it will greatly influence the efficiency of your trading-related activities.

3. Pros and cons of using AI bots in crypto trading

AI-based trading applications give you an added advantage to optimize your crypto trades. However, they can also have certain disadvantages, like a lack of human intuition. Let’s look at these pros and cons of crypto trading bots:

Pros

  • AI trading bots save you time and effort by automating trades.
  • Using AI bots, you can generate highly profitable trading ideas, which may not be feasible in a manual setup.
  • AI tools are great for backtesting gigantic amounts of data and developing new crypto trading strategies.
  • AI bots make it feasible to monitor the market 24/7 without having to sit in front of the screen.
  • AI trading applications can analyze market sentiments better using advanced techniques like natural language processing (NLP).
  • AI bots for cryptos help in risk management by managing stop losses.
  • One of the biggest advantages of AI tools in crypto trading is that we can get rid of human biases, emotional judgments, or fat finger errors.

Cons

  • Some AI bots can have technical completeness because of which they may not be easy to use.
  • AI bots are trained with past data. Past data, however, may not always be perfect guides for future market conditions.
  • AI bots are based on algorithms. These algorithms are a set of instructions based on market conditions. Therefore, these AI bots may not work best at the time of exceptional market conditions.
  • Automated trading can lead to huge losses in case there is a mistake in setting instructions.

4. How to use AI-based tools for crypto trading

After the launch of ChatGPT by the end of 2022, there has been a rapid rise in the popularity of all types of AI tools. This is clearly visible in the AI trading domain too. So, we can see numerous AI trading tools and applications for trading stocks as well as cryptos. Using the right AI tool can give you an edge over other traders who may not be using these tools or who are using less advanced tools.

ai bots for crypto

The first step towards implementing AI tools in crypto trading is finding the best tool that suits you. Different AI bots have different interfaces, specifications, and levels of technical requirements (like coding or programming requirements). Moreover, the performance of a tool depends on how efficiently you use it. Here are some general tips for using AI bots in crypto trading:

  • Settle for the right tool based on your requirements and trading goals.
  • Try 2-3 tools before continuing with one in the long term.
  • Compare the features vis-à-vis the costs of the tools to get an idea of the net benefits.
  • Conduct an in-depth study and analysis of how the tool works and how best to use it.
  • Explore the basic and advanced features of the tool to leverage it fully.
  • For automating trades, try trades with smaller amounts to check the efficiency of the tools without incurring any significant loss.

5. Crypto Trading Advice

Whether you are using AI as a tool or not, the world of crypto trading is incredibly complex and dynamic. There is very rarely one piece of advice or trading strategy which will be enough to ensure successful trades. In fact, it is much more likely you will need a whole set of strategies to counter the volatility of crypto markets. As obvious as it may sound, enhancing your knowledge of the crypto world through different forms of media is a vital point to never forget.

Commonly, first-time crypto investors focus their attention purely on the markets. This is not necessarily a bad thing, however, many experts consider this to be one reason a lot of people give up on cryptocurrency within a year. To create a competent long-term strategy, you should gain inspiration for your trades beyond the graphs and figures of the markets.

For example, reading books about successful figures in the crypto world such as Changpeng Zhao or the Winklevoss brothers (we personally recommend reading "Bitcoin Billionaires") can inspire a different way to think about cryptocurrency. Sure, the ultimate goal is always to make a profit, but how you get there requires much more dedication to the subject than a focus on short-term gains.

Our team of experts at JohnnyBitcoin regularly publish articles to assist you on your crypto journey. Whether you need to learn more about certain coins, trends or the best crypto exchange, our aim is to provide you with more knowledge to enable smart decision making. We invite you to check out more of our publications by heading to our homepage after reading this article to discover more.

6. Summing it up

AI tools are run by sophisticated algorithms to mimic human intelligence. These tools have wonderful applications in crypto trading by automating trades, adopting better risk management systems, monitoring the market consistently, and generating great trading ideas. However, the performance of a tool depends on how efficiently you use the tools to your advantage. So, find the best AI bot for investing that suits you, master it, and then leverage it to maximize your gains.

7. How to Use AI in Crypto Trading - FAQ

7.1 Can AI bots generate guaranteed profits?

AI trading bots can increase the chances of profitability. However, they cannot guarantee profitability as trading is a business of probability.

7.2 How to choose the right AI application for crypto trading?

Analyze the features and functions of different trading bots in comparison with their costs. Also, it’s better to try a number of tools before finalizing one.

7.3 Are AI trading bits available for free?

There are many free AI bots for crypto trading in the market. However, they may not have advanced features. Bots with sophisticated trading tools come at a price, which can be a one-time cost or a subscription-based payment structure.

7.4 How to maximize gains using AI trading bots?

You need to use the advanced features of a tool efficiently in order to leverage it fully. So, you must explore the tool and know how to use AI in crypto trading efficiently.

Comments (1)
Grace
Grace 4 months ago
Helpful article... Ai in crypto is a game changer 🙂
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