In my first article, I would like to discuss the fundamental challenge of cryptocurrency trading and explain what prompted me to programme a trading bot.
My experience in crypto trading
I have been trading cryptocurrencies since the beginning of 2017. These several years of experience have often given me the chance to earn money. But trading is not a one-way street. There have also been many setbacks. Especially if you have been trading for a long time. Anyone who has already been active in the crypto market is certainly familiar with these phases of ‘give and take’ – sometimes you make profits, sometimes you make losses. Continuous success is challenging.
During these years, I have intensively studied the ‘art of trading’ on stock exchanges, investing countless hours in theory and practice. I particularly enjoy day trading, a trading strategy in which positions are only held for a few days. When prices rise, the position is closed again, i.e. the purchased cryptocurrency is exchanged back into a base currency such as US dollars, euros or even an artificially created substitute currency such as Binance Coin (BNB). Such substitute currencies are often advertised as being backed by dollar reserves in order to keep their value stable.
The risks of day trading
However, day trading involves a high level of risk: you trade on short time horizons (timeframes) and must constantly react attentively to market changes. If you want to be successful in day trading, you have to invest a lot of time, concentrate and be ready to react to new market signals at any time. Other tasks quickly fall by the wayside, as consistent chart analysis and market assessment are very time-consuming. Many therefore consider day trading to be more of a “professional discipline”.
So how can you earn money with trading?
The reality is that most of us also have other responsibilities: We have to work, take care of the family or simply manage our daily lives. Therefore, other trading strategies that are less time-consuming often make more sense. I also changed my strategy after a while. There are various trading and investment approaches in the crypto sector – here are 5 in a brief overview:
- Swing Trading
- Time horizon: A few days to weeks
- Strategy: The aim is to exploit medium-term price fluctuations. Trends are analyzed to find good entry and exit points.
- Suitable for: People with limited time who still want to trade actively.
- Position trading
- Time horizon: Weeks, months or even years
- Strategy: The focus is on long-term trends and fundamental analysis. Assets are bought in the expectation that they will increase in value over the long term.
- Suitable for: Patient investors who do not want to react to short-term fluctuations.
- Investing (buy and hold)
- Time horizon: Years to decades
- Strategy: Buying high-quality assets with long-term growth potential. Common for shares, ETFs or established cryptocurrencies.
- Suitable for: Individuals who want to build wealth without constantly keeping an eye on the market.
- Dollar-cost averaging (DCA)
- Time horizon: Long-term
- Strategy: Regular investment of a fixed amount, regardless of the current price. Minimizes the risk of entering at unfavorable times.
- Suitable for: Beginners or risk-averse investors.
- HODLing (cryptocurrency)
- Time horizon: Medium to long term
- Strategy: Long-term holding of cryptocurrencies, independent of short-term fluctuations.
- Suitable for: People who believe in the long-term success of cryptocurrencies.
I have been trying out some of these methods since 2017. In the long term, I have opted for swing trading. Why? Because it offers me a good compromise between time investment and potential returns.
Why swing trading?
Swing trading uses short-term to medium-term price movements. Recurring patterns can often be identified with technical analysis and market observation. At some point, I recognized such a pattern in the crypto market and focused my trades exclusively on it. In theory, this works very well, but in practice, human error gets in the way.
Discipline, fear of losses and a lack of time quickly lead to the fact that even with a good strategy, you don’t trade optimally.
The role of discipline and human factors
Discipline is crucial in trading. If you don’t follow your plan consistently, even the best buy and sell signals are of little help. This is where computerized solutions come into play that can minimize human weaknesses.
Why a trading bot?
At some point, it just pissed me off to miss the best entry opportunities again and again. Either you have other things on your mind, or you’re asleep, or or or, while the market corrects massively or individual currencies undergo a personal correction.
So I had to find a solution that would replace me, but keep an eye on my strategy across hundreds of altcoins at all times of the day and trade without emotion.
The crypto-trading bot I developed is designed to compensate for precisely these human weaknesses: It reduces the risk of emotionally incorrect decisions and is operational around the clock. This minimizes the three potential weaknesses:
- Weakness: The bot strictly follows the predefined parameters, regardless of emotional influences or moods. The dashboard always shows the set strategies, and if adjustments are necessary, they are made deliberately.
- Fear: Instead of getting lost in tiny time units in the chart and thus losing the overview, the bot dashboard offers a clear, predefined structure. The focus remains on the overarching strategy so that you don’t panic at every little market twitch.
- Lack of time: A bot never sleeps. It continuously monitors all desired currencies and reacts to predefined signals in fractions of a second. This means you don’t have to constantly sit in front of the screen waiting for the next buying opportunity. Once configured, you can go about your normal everyday life. The bot then acts according to the predefined criteria.
Of course, you can also react to the market manually at any time. All bot settings can be readjusted, adjusted or completely deactivated with just a few clicks.
Outlook
In the next article, I will go into detail about the swing trading method I use, in particular the “buy the dip” strategy that I have implemented with my trading bot.