How to use cryptocurrency trading bots responsibly

Tue Oct 17 2023

In algorithmic trading, the risk exposure can be even higher, so practising responsible trading is paramount for the success of your cryptocurrency trading bot. Continue Reading.

Trading cryptocurrencies is a high risk endeavour, and using a cryptocurrency trading bot can expose you to even more risk. Following proper risk management and trading cryptocurrency responsibly ensures that you are making the most out of your crypto algo trading bot.

Creating a Robust Trading Strategy

Having a well defined trading strategy is not only highly recommended, but when it comes to algo trading and algorithmic cryptocurrency trading platforms it’s a prerequisite. In order for a strategy to be viable, you need to cover at least the following:

• Rules and conditions: When will you enter the market?
• Investment Limits: Define the maximum investment amount relative to your total capital. Never invest more than 10% of your total capital per trade.
• Smart Diversification: If your strategy is long term investment into cryptocurrencies, diversification is not enough. You need to ensure that you diversify the risk, and not the assets. Lowcap coins are lot more risky than say top 5 by marketcap.
• Risk Mitigation: Use Stop Loss and Take Profit. Don’t be a tightrope walker without a safety net.

Secure your account and crypto trading bot API Keys

The last thing you want is loss of funds due to improper security practices or other vulnerabilities that make you an easy target for bad actors. Make sure to only allow necessary permissions for your API Keys and do not enable withdrawals. Consider IP restrictions wherever possible. Other precautions include:

• Never sharing private keys or seed phrases.
• Utilizing hardware wallets for storing excess funds securely.

Research different strategies

Due to it’s rule-based approach, there is a wealth of information out there. There are thousands of strategies that have tested and reported on, so make sure to do your research and see what kind of results a strategy is likely to bring, based on other people’s results. Research also applies to the types of indicators you should be using, and how they may be employed on your strategy so there’s really no shortcut or way around this.

Always test your crypto trading bots

This is a vital step that will make or break your strategy. Before deploying your algo crypto trading bot on the live market you’ll need to test its performance. You’ll want to do this in a risk-free environment where you can tweak the various configuration options in order to improve performance over time before setting it live.

You can do this by Backtesting, paper-trading or both. Backtesting allows you to test your strategy on a historical dataset while paper trading allows you to place fake trades on the live market. Rigorous testing adjustments and re-testing are necessary before finding that sweet spot for your strategy. You can get started with paper trading for free on Aesir.

Take extra care if using Leverage

Leverage is a very powerful tool but it also carries a very high amount of risk. A 50x leverage means that a 2% move in the opposite direction will liquidate you. In algorithmic crypto trading, understanding the power, and especially, the risks associated with leverage trading.

It’s especially easy to be liquidated when using a crypto trading bot, so practice safe trading by minimizing your risk exposure, and only use leverage in a safe way.

Remember, the best way to learn is by doing. Sign up to Æsir to get started and Join Our Discord (it’s good stuff).