The Most Famous Bot Types
This week we look at some of the most famous types of bots out there, to help you towards that passive income dream. We will take a look at what these bots are, what they do, the pro’s and con’s of running them and who they are best suited to.
So let’s meet this formidable “super-band” of bots….
Simple Bots
99% of the people outside of investment assume trading is Buy Low, Sell High — well, without overcomplicating it….this bot is pretty much that.
A Simple Bot will conduct a buy (or sell if going short) and then depending on the exit strategy sell (or buy if going short) that trades in a profit or loss. Whilst very simple on the outside, in order to achieve this a lot of legwork has to go into getting the best possible entry into this position as it is literally a make-or-break trade. There are a couple of ways how the exit can be defined though whether it takes profit or the stop-loss:
Fixed — This is often defined by the bot in that a pre-set % will be entered by the user, for example, 5% stop-loss and 10% take profit. If you are familiar with an asset and its general volatility this is a great way to go.
Dynamic — As the name suggests this is a little more exciting in that the Take Profit and Stop Losses will be defined by certain logic or confluences which could be a support or resistance is broken or ATR Bands. They can be great for conserving profit by raising stop-losses and maximizing take profits, equally if not perfect then they can cost you exponentially more!
Pro’s
Liquidity — You almost always have liquidity when using these kinds of strategies (this can be dependent on the size of the stop-losses//targets), for the most part, you are either going to hit a stop-loss or take a profit and not have an open-ended trade is reliant on the market to turn bullish again to close
Capital Efficiency — It is frustrating to see capital sidelined and not working, this kind of bot is designed to maximize that capital
Long/Short — Unlike DCA these will usually treat Long and Short trades equally thus not leaving you exposed to uncapped upside meaning a strong chance of profiting all year round.
Con’s
Realized Losses — Yes, you will have to eat some losses which will never come back unless you can make back in profit.
Liquidation/Diminish Account — Similar to the above this can quickly lead to a potential zero balance account if this is not kept in check.
Longevity — Unfortunately since these kinds of strategies generally need sniper-like accuracy to be profitable it means that the likelihood of them being successful forever is slim, as the markets and volatility change over time then this will affect the strategy usually and can lead to losses, outside of machine learning it is very rare to find long term successful strategies.
Who Are These Bots Good For?
Those who understand the psychology of trading, risk: reward and accepting losses as part of trading — ultimately people who accept risk but also enjoy the upside too, you know who you are! Unfortunately, it is not a system that you can just look away from and ignore as it (like trading) requires a cut-off point or you can end up with a big fat zero in your account. Like with everything there are good and bad strategies out there searching will be the hardest part!
DCA (Dollar Cost Averaging)
Arguably the most popular/famous type of bot within the world of automated trading and for good reason.
A DCA bot or Dollar Cost Averaging Bot will continually buy-in in order to accumulate your positions gradually instead of in one initially large buy. These buys can be based on different metrics such as
Time-Intervals or Allocations — Buying a fixed amount at regular intervals or even on set specific dates. The advantages are that you will literally get an average buy price over a long enough period.
Fixed Coefficients (Martingale) — Buying at fixed levels as the price decreases often using increasing capital volume to aggressively move the average price down giving greater potential upside to profit. The core advantage here is that the average buy price will only ever go lower but it means that allocated capital can often go untouched.
Dynamic — Uniquely available on Mizar — buys will be conducted when certain market parameters are met. For example, every time the RSI crosses the 30 on the daily timeframe then a buy will take place, this can be automated or even done manually. The big advantage here is that it can greatly increase the efficiency of capital when using the DCA system.
Pro’s
Increase profit targets dramatically — this is why we are all here right? DCA dramatically helps increase the ability to increase that profit target by lowering the average entry price more and more as the market drops
Reduce time in trade — Whilst DCA can lead to trades being stuck for a long time they can also do the opposite and dramatically decrease the time waiting to exit a trade in profit versus the traditional 1 buy 1 sell model.
Accuracy — You really don’t need to be pinpoint accurate with your entries with DCA as you have several more opportunities
“100% win rate” — Technically you don’t lose if you don’t sell in loss — DCA system can offer a 100% win rate providing you manage your capital well and have patience (this is assuming the asset you are trading doesn’t go ahead and pull a “LUNA”). So yeah, you totally can have zero realized losses with DCA.
Con’s
Larger Account — You need a good amount of capital to use DCA effectively especially through the bad time in order to effectively use DCA when the price is crashing over long periods of time.
Patience — Orders can often be in positions for long periods of time whilst waiting for the market to turn bullish again
Mindset — You need to be pretty strong-willed as the majority of the time with DCA you are looking at “Red Positions” — although you have to remember this is UNREALIZED losses and will eventually come green and also understanding that throwing more money at sinking trades IS the right thing to do.
Long Preference — Realistically you want to be leaning heavily towards using DCA bots for Long based trades. Why? Well as we have seen ALOT in crypto some insane gains and inflow into the market in general and we are far less likely to ever see the lows of certain assets again than we are likely to see the highs again. Imagine being stuck in a Short DCA trade on SHIB for instance!? Although with enough capital and time you would technically still be able to get out in profit, technically…
Inefficient — No two ways about it, DCA is an inefficient use of capital as 90% of the time you will not be touching the bulk of the capital that is required for that safety net.
Who Are These Bots Good For?
Realistically they are better suited to people with larger accounts, patience, and who understand the general psychology of investing or at least that Bitcoin ISN’t going to zero every time there is a 10% drop. A good strategy can be a serious earner when the market is in your favor.
Grid Bot
The Grid Bot is designed to catch every price movement in the specified range. The bot splits the range into multiple Grid Levels and places a buy or sell Limit Order on every level, which allows one to buy every drop and sell every rise. As the Grid Bot places both buy and sell orders at the same time, it requires both coins from the pair to trade. If you trade BTC against USDT for example you will need to be holding both BTC and USDT.
Pro’s
No Real Deep Strategy Needed — Surprisingly you don’t need any magic bullet strategy to get this rolling, it is a pretty simple structure coupled with a good eye for triggering it in the right market it can be extremely profitable.
Highly Profitable — Used correctly in ranging volatile markets few systems can be as profitable as this
Works in Long/Short Markets — It is efficient in the sense that it takes advantage of both bullish and bearish movements constantly
Effective in Ranging Markets — Often Ranging and Consolidating markets can be the least preferable trading conditions for most strategies but is optimal for Grid Bots.
Con’s
Requires a trading knowledge — Essentially the better the trader the more efficient the capital can be allocated — done wrong you can have capital doing nothing a lot of the time or actually put yourself at risk
Need to hold both the quote and base asset — You need to be holding a decent amount of both the quote and base asset that you are trading in order to use a bot like this.
Cannot really be left alone — You gotta be keeping an eye on these bots as when the market structure breaks you need to reset and get ready for setting up the next one.
Who Are These Bots Good For?
These are great for someone who does have a bit of a grasp on the market and trading — more specifically around the market structure of the assets you are looking at trading
So who is the king ding-a-ling!?
Simply there is no one perfect solution so use a combination of different styles and reap the benefits of all of them when the market conditions call for them!
“Nothing Works All The Time, Everything Works Some Of The Time” — Words by BlockHead // BlockParty Trading
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