In the past year, there has been a noticeable increase of AI crypto trading bots disscusion, not only on platforms like YouTube but also within Discord communities. Despite the initial allure of many AI-generated strategies, a significant number of them prove to be unprofitable in the long term. Often, individuals, especially YouTubers or marketers (who, more often than not, excel in marketing rather than trading), present seemingly lucrative strategies with an edge. However, these strategies are typically showcased and tested within short timeframes, often spanning weeks or, at best, a few months. So, what considerations should we take into account before venturing into the realm of trading bots and putting our money at risk?
What about the Time?
When it comes to trading in the crypto world, the difference in how fast and effective trading bots are compared to human traders is pretty clear. Crypto bots can make trades super quickly, in just milliseconds, and react instantly to changes in the market. This speedy execution helps them grab opportunities and handle the fast-moving nature of the crypto market really well. On the flip side, even though human traders are smart and can analyze things, they often struggle to keep up with the rapid pace of bots. This is especially true in situations where decisions need to be made really quickly, like in high-frequency trading.
Moreover, trading bots operate tirelessly, functioning 24/7 without the need for rest. This constant availability allows them to capitalize on market opportunities around the clock, responding to price movements and executing trades without any downtime. In contrast, human traders face inherent limitations in terms of time and energy. The need for rest and periods of inactivity can potentially result in missed opportunities, preventing traders from engaging in profitable transactions during specific market conditions.
Are you an Emotional trader?
There’s a clear distinction between trading bots and human traders. Bots follow strict algorithms without any emotional influence, ensuring that every decision is based on logical analysis using market indicators and data. This means they don’t fall prey to emotional biases that might sway judgment. On the flip side, human traders are susceptible to the impact of emotions, especially during volatile market conditions. The highs and lows of the market can lead to impulsive decisions, potentially impacting their overall strategy. Here, the advantage of bots lies in their ability to minimize these emotional pitfalls, emphasizing the significance of a rational and data-driven approach to trading.
Adaptability to Market Conditions
When adjusting trading strategies to market conditions, it’s crucial to recognize human involvement, even with trading bots. Algorithmic development stems from human insights and ideas. Traders identify correlations in historical market data, reflecting on past trades to inform bot strategy adjustments. Trading bots excel at swift changes based on predefined criteria, but the initial algorithm conception involves human-driven analysis and creativity. While bots may be more efficient in rule changes, the foundational ideas come from the human brain. This collaborative interplay underscores the synergy needed to navigate financial markets’ complexities.
Risk Management
Trading bots employ advanced risk management features such as automatic stop-loss orders and position sizing, minimizing potential losses and enhancing capital protection. On the other hand, human traders excel in effective risk management through discipline and experience. However, the human element introduces the possibility of lapses, particularly under intense market pressure. Human mistakes, such as misjudging entry numbers, entering the market in the opposite direction, accidentally closing a trade, or simply forgetting to set a limit order, can occur. While bots leverage automation for precision, human traders rely on their judgment and expertise, emphasizing the need for a balanced and strategic approach to risk management
AI Trading Experiences
In our exploration of crypto trading platforms, we ventured into Pionex, https://www.pionex.com/en/ , which stands as the world’s initial exchange providing free, built-in crypto trading bots. As one of Asia’s fastest-growing platforms, Pionex offers an automated crypto trading environment that we found user-friendly and, to some extent, profitable. However, our experience was limited to spot trading, and over a six-month period, our bot’s earnings fell short compared to the returns from a simple hodling strategy. Disappointed by the percentage profits achieved during this timeframe and comparing it to our personal trading strategy, we concluded that this particular trading approach might not align with our goals.
Another AI trading we considered was VantagePoint Software, endorsed by Jack Schwager, the author of the renowned trading psychology book “Market Wizards.” The software, developed in partnership with TradeShark, introduces proprietary indicators like Trend Weight, Overbought/Oversold, Directional Weight, and Dual Trend. While the prospect of using tools created by a proven trader was appealing, further investigation revealed a mix of reviews and an ambiguous marketing pitch on the website. Consequently, we decided against delving deeper into this option.
A notable piece of advice we extend is to stay away from seeking a profitable strategy directly from chat GPT. Crafting a successful strategy demands extensive data, rigorous testing, and is likely to entail a substantial amount of time, potentially resulting in wasted efforts.
Conclusion
Despite the popular saying “work smarter, not harder,” our experience with AI trading and bot platforms like Pionex has not consistently proven to be profitable. Looking back to the 1990s, traders crafted mathematical formulas that demonstrated substantial profits for extended periods. However, even these successful strategies required adjustments to accommodate changes in the market. While we don’t discount the existence of profitable bot strategies. It’s crucial to conduct thorough research before investing in trading bots or purchasing automated strategies, with the understanding that there is no holy grail in trading. Sometimes, opting for the more demanding route of learning to trade and developing a personalized trading bot may prove to be a more sustainable approach.