How to Algorithmically Trade Cryptocurrency Responsibly
Thu Apr 20 2023
Before starting to algorithmically trade, it's important that you understand what the best practices are, and how to generally have a mindful, responsible approach. Learn more.
Trading cryptocurrencies can be exciting and lucrative, but especially in algorithmic cryptocurrency trading, it’s essential that you follow good practices and tips designed to minimise your risk, exposure and ensure that your strategy is actually doing what you want it to do.
What Is Responsible Trading?
Trading crypto responsibly means a complete understanding of how your algo trading strategy may behave, as well as taking necessary measures to minimize risk.
It also means taking accountability and understanding if the trading activity you’re doing really works for you. Responsible traders will avoid behaviors and activities that can lead to irresponsible trades. A large part of responsible algo trading is understand why the signals of your trading strategy, and optimise in time.
5 Tips to Help You Trade Crypto Responsibly
Trading cryptocurrencies responsibly requires you to manage multiple aspects of your trading behavior. Here are some tips to help you trade crypto responsibly:
1. Secure Your Trading Account and Wallet
This goes without saying. Before you start trading, it’s crucial to secure your account and wallet. Use strong passwords, enable two-factor authentication (2FA), and whitelist withdrawal addresses. Never share your private key or seed phrase with others, just like your bank account details. Use a hardware wallet to store extra funds and keep them safe.
2. Create a Trading Plan
The reality is that Algo Trading won’t magically turn bad traders into good ones. Without a pre-existing strategy, it’s not advised going to market. Instead, try out more experimental approaches in paper trading mode. You can do that on our algorithmic crypto trading platform for free.
Your plan should outline the kind of trades you want to make, conditions for trading, and your trading objectives. Your risk profile and trading style will determine what your limits are.
3. Manage your risk, use stop loss
Not using a stop loss is a sure way potentially losing your entire investment. When algo trading, using a stop loss will help you avoid a rude awakening, and minimise your risk.
4. Explain your algo trading strategy to someone
After you’ve built or defined your trading strategy, try explaining it to someone, does it still make sense?
- How and when will your strategy trade?
- What’s your expected timeframe?
- How many different assets will you trade a day?
5. Test your algo trading strategy
Before taking it to market, you should always test your algorithmic trading strategy and observe the results to ensure that it works the way you expected it to. There are two main ways of testing your strategy: either through Backtesting or Paper Trading.
Backtesting allows you to take your strategy and run it on historical data. This is a great way to get an idea of how your strategy would have performed, if you were to run it for the past year for instance. However, bear in mind that past profits are not always reflective of future returns, and markets can shift.
Paper Trading let’s you try out your current strategy on the live market in real time, but using virtual money. This way you get exposure to the current market conditions but without using real funds. Paper trading is a good way to figure out how your strategy is performing right now, but just bear in mind that you are not competing in an order book so live results could be slightly different. Did we mention you can paper trade for free on Æsir?
Conclusion
Algorithmic trading can be a great way to have an edge over manual traders, but it doesn’t come without risk. Ultimately, whether you trade algorithmically or manually, be responsible about it, follow best practices and proper risk management. Join us on discord and find other people who are enthusiastic about algo trading. It’s always good to bounce ideas off one another.