Maximizing Your Returns: A Guide to Automated Bitcoin Trading

Bitcoin is the biggest cryptocurrency in the whole market with a massive 44% share of the total crypto market cap. It is impossible to find a person in most advanced economies who has never heard about Bitcoin or its meteoric rise from almost 0 to its ATH at $69 thousand. Some retail traders believe that using automated Bitcoin trading is the best approach.

While automation does not guarantee returns on your investments, it is true that certain strategies work excellently when properly automated with trading bots.

Examples of trading strategies that involve automation

Automation is suited best for systems that rely on short-term market positions that require fast reaction, confident execution, and strong understanding of technical analysis. The market as a whole is formed by people who will panic or obsess over certain assets. These are predictable reactions that can be estimated with technical analysis.

While movements of price action within a day can be estimated with relative success, long-term predictions are way easier to make. The biggest challenge is to identify good investment opportunities in the mid-range: what to invest in within the next month or year is the most difficult problem to solve.

Automated Bitcoin trading software is excellent for specific cases of both ultra-short-term and long-term strategies.

DCA buying with algorithmic trading

Distributed Cost Average or Dollar Cost Average is a time-tested approach to investment dictating investors to buy small quantities of assets across a mid-range time frame in set periods. For example, instead of purchasing 1 BTC per quarter, you may find it a better idea to buy 0.08 BTC per week especially if Bitcoin is on a downtrend.

While some people believe that this approach will lose money due to the bullish nature of the coin, you can easily counteract this risk with some technical analysis.

How algorithmic trading makes it easier to execute this strategy:

  • WunderTrading and other automation platforms offer a wide range of preset solutions for DCA buying specifically.
  • You can use bots to initiate new market positions only when the environment is perfect. For example, when the price moves below a certain threshold.
  • Bots will never miss the next scheduled purchase or the next opportunity to make a purchase. If you remove the “stop loss” order from the algorithm, it will effectively purchase the asset for long-term holding.

A robot will follow your instructions to the letter which is something many traders cannot say about themselves. This makes this robot a perfect tool to execute a DCA buying strategy.

Scalping strategies

Scalping is a technique that focuses on making money within a single trading day. It can be quite stressful for a retail trader considering the returns which are usually way smaller compared to returns you earn with long-term market positions.

Nevertheless, scalping can be quite profitable if you have a good strategy. You can use Bitcoin automated trading to create a very powerful system that will generate profits reliably. You won’t make it an infinite money generator that outperforms everything and everyone, but it can be very reliable.

Bots make scalping better due to multiple reasons:

  • Robots can operate around the clock which is necessary for a trading system that relies on opening as many market positions with potential profitability as possible.
  • Robots instantly react to trading signals received from a signal provider. Most retail traders prefer using strategies deployed on TradingView.
  • A soulless computer will never hesitate or second-guess its decisions. It is a perfect quality for a retail trader who makes money on averaging profits across a series of trades.

It is safe to say that algorithmic optimization of a scalping strategy can be extremely useful for retail traders who have high-risk tolerance and good understanding of technical analysis and statistics. With enough dedication, you can create a reliable trading strategy that will hugely benefit from automation.

How to start automating your Bitcoin trading

Any contemporary automation product works with three main components:

  1.   You will need a generator of signals. It can be a trading strategy that you run on an exchange-native terminal or an online platform like TradingView.
  2.   An automation platform will run your scripts and receive signals from the user-defined source. You can even trigger scripts manually.
  3.   A CEX platform where market orders will be executed. It is necessary for the exchange selection process to focus on platforms that have API if you plan to use third-party automation providers.

Some brokerage service providers and exchanges have limited automation products that can be used fairly well be trained retail traders. However, bots offered by these platforms usually lack the necessary sophistication and customization required for a successful Bitcoin automated trading strategy.

Risk management with automation

Since all bots can create market positions already accompanied by strategically placed “take profit” and “stop loss” orders, it is possible to dramatically reduce all the risks associated with such approaches to investing. You can make extremely safe systems by narrowing down the variability of your market positions or go for risker market positions.

It is a good idea to use fundamental analysis in tandem with technical indicators to identify long-term trends in the market and adjust risk tolerance according to expectations formed on the basis of such analysis. For example, if you see that the market has a bullish trend for the next several months, it is a good idea to push up take-profits.

Bitcoin enthusiasts firmly believe that the long-term trend is bullish. However, volatility is still a huge aspect for digital assets that have a purely speculative nature. BTC is one of such assets that should be approached with caution. You should be considerate and informed before attempting to automate any trading strategy that targets Bitcoin, Ethereum, or any other contemporary crypto asset.

Understanding risks is the best way to create a Bitcoin trading system that will maximize your profits and make money consistently!

The main takeaway

Bitcoin trading can be automated and optimized with trading bots. However, it is necessary for a retail trader interested in using such sophisticated tools in their trading system to be very careful and considerate. Mastering script writing and finding the right settings for a bot are two critically important skills that must be acquired before you can use automation effectively.

Use only time-tested automation service providers such as WunderTrading, choose centralized exchanges with good reputation and stable API, focus on learning technical analysis and risk management, and do not rush into automation without testing the waters. For example, WunderTrading has a free plan for all registered users that you can check out without paying a dime.

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