When it comes to trading cryptocurrency with maximum efficiency and profits, the use of automated bots ranks front and center. Once you set up these bots to work according to preset conditions, you can rely upon them to make effective trades in your absence.
This allows you to benefit from 24/7 market movements, while also ensuring that trades are performed as soon as your preset conditions are met. But if you want to take these accurate and rapid trading features to the next level, you might be interested in exploring the fervor around artificial intelligence (AI) trading.
Simply put, AI crypto trading refers to buying and selling cryptocurrency with the help of smart and self-sufficient bots. In addition to working through preset conditions, the synthetic intelligence of these bots allows them to learn from historic data and make their own trading decisions.
But is AI crypto trading worth using in place of traditional bot trading? To help you seek an effective answer, here’s a lowdown on AI, crypto trading, and the combination of these factors.
🧠 What is Artificial Intelligence?
AI is a branch of science that refers to giving machines or software the power to learn from data and deliver analysis, assessments, or results in light of the information. A typical application of AI can include other branches of synthetic intelligence such as machine learning (ML), artificial neural networks (ANNs), and deep learning (DL).
These subsets work using the following approaches.
- Machine learning is a subset of AI that analyzes specified sets of data and learns how to use that knowledge to make decisions.
- Artificial neural networks are a subset of ML. These networks use a series of algorithms to mimic the human brain and how it correlates information to make informed decisions.
- Deep learning is a more advanced form of AI that combines the mechanics of ML and ANN. By using more than three neural networks, deep learning significantly boosts its ability to process data and execute informed decisions.
Depending upon the use case of an application, an AI system can use one or all of the above approaches in different capacities. The actual utilization depends upon the developers and how they intend to use AI in their systems. In all cases, the goal is to determine a highly capable system that is able to be self-sufficient to a noticeable extent.
This also holds true for cryptocurrency trading, where you can find a variety of bots that promise to use AI in an optimal way. As a result, some of these bots can use the most basic iteration of AI, while others go beyond that foundational approach to deliver more advanced functionalities.
📈 How AI Can Be Used in Crypto Trading?
Whether you have noticeable experience in making trades within the cryptocurrency market or only hold a surface-level view of this sector, you may already be aware that crypto trading operates in a highly volatile environment.
Some cryptocurrencies that show an upwards trend in their pricing throughout a trading day could see a drop in their value right before the market closes. Similarly, a variety of digital assets that do not hold up to market expectations for a few weeks could suddenly breakout as star commodities. In many cases, this cycle repeats itself for many cryptocurrencies over the course of a few hours, days, or weeks.
Due to this reason, the crypto market is known as being wavy, and pretty often repetitive in its state. If you keep a close eye on what is happening in the current market movements and compare those actions to historic data, you can understand which way certain cryptocurrency assets may tilt in the near future. This lets you decide whether you are going to be better off buying specific assets, selling them off, or holding onto what you have until a viable opportunity presents itself.
That is where the AI system can work wonders for understanding the market and making informed decisions based upon its knowledge. Whether the solution is using machine learning, neural networks, or deep learning, the right system can assess historical market data, compare it with current market conditions, and project asset price movements to help you make profitable trades.
Since AI can also fulfill these goals faster than an individual trader who is making the analysis and putting together projections on their own, it gives AI-powered trading bots a massive advantage over conventional solutions. In addition to saving your time, it also improves your chances of earning profit through your trades.
But performing swift yet deep analysis and delivering rapid yet informed predictions is just a part of how AI can be used in cryptocurrency trading. For instance, if an AI bot is built upon the usage of ML, ANNs, or DL to execute certain actions, it can also make your trades for you without you having to preset its actions beforehand.
This provides you with a variety of benefits for using an AI cryptocurrency trading bot instead of a conventional automated solution for crypto trading. Where typical automated bots may require extensive input from your end, AI-powered trading solutions could do all the work on their own. This makes them an ideal setup strategy for a variety of traders, whether they are trying to save time or harboring concerns about their lack of trading knowledge.
🤖 AI Trading Bots, How Do They Work?
AI trading bots for cryptocurrency work by using their analysis and projections to outline potentially profitable trades across different markets. At the same time, they can also execute these trades on their own without any intensive interjection from your end.
This means that when you use an AI-powered cryptocurrency trading bot, you don’t have to put up with extensive measures to analyze historical data, rummage through digital charts, or come up with the best way to navigate the market. Instead, you can simply choose your AI-bot and let it determine the best approach for you based upon market conditions.
To help you understand the process in a better manner, here is a breakdown of launching your AI cryptocurrency bot for optimal trading activities.
Sign Up to an AI Trading Bot Platform
The first step to using your AI-powered trading bot is to sign up with a platform that offers this service. You can choose from a host of different providers, but the final decision depends upon your budget as well your comfort with the cryptocurrency exchanges that the platform supports.
You can choose between a variety of payment packages on these platforms. But make sure that you are selecting an approach that goes in line with your finances. This ensures that you don’t have to strain your bank account just to try out a new piece of technology.
Choose Your Foundational Approach
The point of choosing an AI cryptocurrency bot is to free yourself from choosing or building convoluted strategies. However, some bots still provide you with the option to have basic control over how your trades are performed.
But instead of adding any difficulties, these solutions make the process convenient by outlining different types of bots for your selection. From bots that perform well in bullish conditions to bots that are more suitable for sideways markets, you can choose your bot’s trading attitude, behavior, or approach through preset options.
Connect Your Exchange
Once you have chosen a bot to your liking, you can move forward with connecting it to your cryptocurrency exchange account. If you don’t have an existing account, you can open one within the institutions that are supported by your chosen AI-powered crypto trading platform.
Afterward, you can follow basic instructions to connect your account to the bot through application programming interface (API) key permissions for trading. This is a basic yet important security protocol that lets the bot control your funds for trading but not for withdrawal.
It’s crucial to keep in mind that any bot that asks you for withdrawal permission, or even more alarmingly your exchange account’s password, is a major red flag that you should stay away from at all costs.
Launch Your Bot
After you have connected your chosen bot to your exchange, you can see how it starts performing trades according to its own synthetic intelligence analysis as well as the set limit of your budget. Highly reliable bots not only provide you with end results but also let you see their activities in real-time. This also gives you the option to stop trading in the middle if it’s not going according to your liking.
In any case, it is better to practice patience and see the results over the course of a few weeks. During this time, you can invest in this approach by using funds that you can afford to lose. This ensures that if you end up bidding farewell to some funds due to your trading activity, you don’t take a massive financial hit that you cannot recover from.
👍 Pros and Cons of AI Trading
Similar to any technology, AI crypto trading comes with several pros and cons. Before using this approach, it is important you remain mindful of them and make an informed decision in light of all benefits and disadvantages.
Advantages of AI Crypto Trading
- Simple setup
- Swift execution
- No learning curve
- Chances to earn profit
- Minimal investment of time
Disadvantages of AI Crypto Trading
- Limited to no control over your strategy
- Self-sufficient bots may only earn limited profits
- Unavailability of extensive options in the market
- Higher fees than many conventional trading bots
- Risk of losing your funds to tech-powered algorithms
By comparing these pros and cons next to each other, you can determine if AI crypto bot trading is suitable for you, your trading style, or the financial goals that you have in mind.
👌 How to Understand If the Crypto AI Bot is Good?
While AI crypto bots operate in a limited space, you still have more than a handful of options at hand where every single one vows to surpass its competitor. In such a growing and competitive space, you need to be vigilant about picking the good apart from the bad, and steering well away from the ugly.
To make sure that you are able to choose a bot that is worth its salt, keep the following points in mind.
Credibility
Check if the bot comes from a credible or at least a visible and traceable team. Any platform that seemingly operates from the shadows is a red flag. Similarly, any solution that binds you into a year-long contract from the get-go instead of giving monthly options is not a good sign.
Transparency
If the bot claims to make you rich overnight and has no proven history to back up its claim, it might just be nothing more than a money-grabbing scheme. On the other hand, if a bot is transparent about its abilities in fluctuating market conditions and presents claims of variable profits, it presents as a reliable platform.
Technology
Any bot can slap the AI label on top of it and call it a day. But in order to be truly powered by AI, the platform has to show the use of real technology. While it might be a slightly time-consuming requirement to read through a platform’s fineprint and what technology it uses, it is worth the effort.
Security
In order to securely connect to your exchange account, a trading bot absolutely has to use API keys without withdrawal requirements. If the platform asks you to give withdrawal access on its API key or requires your exchange account password, it is a huge security risk.
Reviews
By looking at user reviews on reliable third-party platforms, you can make sure that you are choosing an AI crypto bot that comes with proven service quality. If there is an alarmingly large number of bad reviews, you might be better off the associated AI crypto bot.
🦾 Can AI Outperform Humans?
While AI can remarkably outperform humans in speedy calculations and accurate analysis in a variety of settings, the use of AI in the cryptocurrency trading space is still fairly new. That is why, it is still too early to say if AI crypto trading can surpass the human touch, business acumen, and hands-on experience that comes through skilled traders.
However, the reality is that there are many spheres where machines outperform humans. As the AI crypto trading bot trend develops, you can see more data on how great the technology is at effectively replacing the human-developed trading strategy.
For now, you can see the technology at work by choosing an AI crypto bot that checks all the boxes for a reliable platform. After testing it safely through spare funds, you can determine if it holds up to your expectations.