The Pros And Cons of Automated Crypto Trading

If you haven't been living under a rock then you have probably heard about blockchain tech being the next frontier of technology. Web3 and all blockchain-related tech are been touted as the next big thing. However, there is a major part of the crypto ecosystem that doesn't get as much attention as it deserves, and that is automated crypto trading.

So there's no confusion, automated trading is simply the execution of trades using software and/or algorithms. It usually involves the use of a scientific trading robot to predict future market movement based on past market data. It has become a mainstay of the crypto industry, especially in recent years. Though it may have a lot of advantages, automated crypto trading, like most other things, also has its drawbacks. In this article, we will be going over the most relevant pros and cons as it relates to automated crypto trading.

THE PROS OF AUTOMATED CRYPTO TRADING

• Speed and Efficiency:Computers are faster than us especially when it comes to tasks that involve computation. This also applies to trading. Whenever a trading opportunity presents itself, a trading robot can place an order quicker than most humans can. Also, unlike humans, computers do not need to sleep, so they can monitor the markets and take advantage of trading opportunities at any time of the day.
• No Emotions: One of the biggest hurdles you will need to overcome when learning how to trade is the hurdle of your emotions. With automated trading, this won't be an issue, since the trading bot executes and manages trades without requiring your input.
• Optimization Potential: When it comes to backtesting, an algorithm can do it much faster compared to a human. With a trading robot, you can go over years of market data to see how your model performs in a few hours.
• Diversification: Since it is automatic, you can have multiple trading bots trading different markets with varying risk parameters. This way, you are not as vulnerable as someone who has his/her eggs in one basket.

THE CONS OF AUTOMATED CRYPTO TRADING

• Technical Barrier: Except you are going to buy or pay for an automated trading system, creating a trading bot from scratch is no easy task. You will need to have a good grasp of programming languages and algorithms.
• Overfitting: In as much as backtesting helps polish your strategy, it can also lead to problems if done too much. Your model may become so good at trading past market data and do poorly when dealing with live markets.
• Depends on tech: For your automated trading system to keep working, you need a good internet connection, a constant power supply, and a reliable data feed. If at any point one of these systems malfunctions, you could potentially lose money.
• Lack of Intuition: Trading robots cannot think for themselves, they operate strictly based on a set of preprogrammed rules. This is to say that should the market behave unexpectedly, your bot wouldn't know what to do, it can't adapt.

CLOSING THOUGHTS

While automated trading systems can enhance trading strategies and capitalize on market opportunities, they are not without risks and require continuous monitoring and adaptation to evolving market conditions. As technology continues to advance, the role of automated trading in the cryptocurrency landscape is likely to evolve, shaping the future of digital asset trading.