A crypto trading bot is software that places orders on your exchange when rules you set are met. It connects through an API key, watches prices around the clock and acts without you pressing a button. It doesn’t know where the price is going. It follows your rules, including when they lose.
How a bot connects to your exchange
You create an API key on your exchange and give it to the bot. The key decides what the bot may do. A key that can read balances and place trades can’t send coins out of the account as long as withdrawals stay off. Your money stays on the exchange. Here is what a key can and can’t do.
The main types
| Type | What it does | Suits | Goes wrong when |
|---|---|---|---|
| DCA bot | Buys more as the price falls, sells at a target above the average | Markets that dip and recover | The price keeps falling and the budget runs out |
| Grid bot | Places buys and sells at set levels inside a range | Sideways markets | The price leaves the range |
| Indicator bot | Trades when conditions such as RSI or a moving average cross are met | Rules you have tested | The market changes and the rule stops fitting |
| Script bot | Runs code you wrote, such as Pine Script | People who already have a strategy | The script behaves differently live than in its test |
Read more on DCA bots and grid bots.
What a bot can’t do
- Predict. A rule is a bet that something which happened before will happen again.
- Avoid fees. Every order pays the exchange. A bot that trades often can lose to fees alone.
- Guarantee a stop. A stop loss is an instruction. In a fast market it can fill worse than the level you set.
- Replace understanding. If you can’t say why a bot would lose, you aren’t ready to fund it.
What it costs
There are three costs: the subscription, the exchange fees on each order and the losses of the strategy. Subscriptions run from free to about $150 a month. Here is how eight platforms compare.
Before you put money in
- Write down the rule in one sentence.
- Backtest it with fees included and compare it with holding the coin.
- Run it on virtual money for a few weeks.
- Go live with an amount you can afford to lose.
- Compare live trades with the test, and stop if they drift apart.
Crypto prices can move fast and you can lose some or all of the money you trade.