What Are AI Crypto Trading Bots and Do They Work?

AI is an industry that is continuing to develop, and one of the newer uses is using AI to build trading bots. But what are trading bots and how do they work? And do they work for cryptocurrency? Keep reading to learn more about AI trading crypto bots and whether or not you should utilize them.

What Are AI Crypto Trading Bots?

AI crypto trading bots are software programs that have been taught to function within financial markets. While every AI crypto trading bot is different, generally, they are designed to execute trades in a variety of financial markets, with most having the skills to trade stocks, commodities, and cryptocurrencies.

AI trading bots, unlike setting an automatic sale via an exchange, is able to make decisions on its own. While these decisions are limited and based on parameters set by the user, it is important to recognize that AI-based bots go far beyond just setting a floor or ceiling and telling the app to sell your share when that limit is reached.  

How Do AI Trading Bots Work?

AI trading bots use machine learning to make decisions. Of course, when selecting one, the machine has already been taught a baseline of knowledge, but know that the learning is ongoing—meaning the more you use the bot, the more useful it will become.

First and foremost, when you set up a bot, you have to set parameters for it. With most AI trading bots, these parameters are risk tolerance and the markets you wish for it to operate in. Most traders also input the trading strategies that they use the most often. For example they may choose a hodling strategy, grid trading, or a swing trading strategy. You can also set goals in terms of percentage returns or the overall dollar amount of profit.

After everything has been set, you’ll let the trading bot do its work, processing data which it will then collect and analyze.

Once it has analyzed the data, it will match it with trades to make in order to meet the parameters that have been set. It will then execute the trades on its own by placing orders, selling, or holding.

Should You Use AI Trading Bots?

While AI trading bots can be useful for 24/7 data collection and removing the danger of human psychology from crypto trading, we caution investors when it comes to using them for the trades themselves. Although it may seem easy to set parameters and let the bot do its work, remember that AI isn’t an exact science.

The bot will pull from the data it has access to, but with the increasing amount of AI-generated content everywhere, there is no method for ensuring the data analyzed by the AI is legitimate. Additionally, although having a bot execute the trades for you sounds easy, know that it exposes you to a lot of risk.

We have nothing against setting automatic trades for the record, because you are the brain behind the trade, and you set the limits based on your own knowledge. An AI bot removes you from the equation, and you never know when you may visit your portfolio to find the bot sold your BTC in exchange for some Trump coin because the AI read the news article that Trump’s coin was going “to the moon.” See the problem?

What’s more is that not all AI bots are created equal, and while some are programmed well and with a net of financial knowledge behind them, it is hard to know what sources exactly a particular bot was trained on. Thanks to AI books taking over the book space, you might even find your AI bot was trained on a financial book that was trained by an AI bot using Google. Basically, bots can make mistakes too.

Basically, AI bots are useful for around-the-clock trading, but risky, and we advise using them in most cases—especially because an AI trading bot is directly connected with your finances. Regardless, they still do not have a crystal ball, and are not recommended for beginning traders to use.

If you do want to try using an AI trading bot, we recommend dividing your portfolio and testing the bot with just a few tokens first. See how it trades and if it stays within the parameters you set. Don’t let it have access to any more of your portfolio until you are certain. And even then, know that AI bots aren’t always the most secure, and depending on who is backing your bot, you could find yourself the victim of a hack, costing you everything.

Also, remember, if trading bots were truly profitable, why are so many websites offering them for free? Let that sink in.

What AI Crypto Trading Bots Are Best?

Even though we strongly recommend against cryptocurrency trading bots, we recognize that some individuals will use them regardless. If that is you, ensure you are choosing a bot from a company you trust. You do not want to choose a free bot. Remember, you get what you pay for.

During our research, we found the following platforms that had AI trading bots. We still don’t trust them, but if we were going to trial bots we would trial these ones.

·      The AI bot included for Binance customers

·      The AI bot included for ByBit customers

Were you expecting a longer list? Unfortunately, the AI trading bot space is very predatory, and we strongly recommend steering clear. If you do decide to give it a try, please choose one backed by a platform you know and trust to make a good application.

At the end of the day, AI really can’t replace the human knowledge needed to trade cryptocurrency. While it can help with research and monitoring, it can also make mistakes and make decisions based on faulty information. We recommend steering clear of cryptocurrency trading bots and facilitating all of the trades yourself (though you can use the limit-sales feature).