Key takeaways
- You can train AI bots to analyze and replicate human trading behavior.
- Crypto trading bots are on 24/7 — a key advantage over human traders.
- You can build your own bot from scratch or purchase one through a service.
- While a great tool, AI bots aren’t perfect and can present significant trading risks.
Imagine having a tireless assistant that trades cryptocurrency for you, analyzing data and executing strategies even while you sleep. That’s the power of AI trading bots.
These software programs use advanced algorithms to mimic human trading behavior, manage strategies and adapt to changing market conditions.
Imagine having a tireless assistant that trades cryptocurrency for you, analyzing data and executing strategies even while you sleep. That’s the power of AI trading bots.
These software programs use advanced algorithms to mimic human trading behavior, manage strategies and adapt to changing market conditions.
What is an AI bot for crypto trading?
As mentioned, an AI bot is software that replicates regular human trading activity. These tools analyze human behavior, such as how they typically day trade and create rules to abide by.
For example, if a bot finds that humans historically buy Bitcoin (BTC) at a specific price and sell it at another, it will factor that into its ruleset. An AI bot continuously evaluates market activity to refine its operations, allowing you to input custom rules and parameters to guide its decisions.
This article serves as an AI crypto trading bot tutorial and will introduce you to the benefits and risks of training an AI bot for crypto trading.
Why train AI for crypto day trading?
Like any person, AI bots are prone to mistakes. This lack of a perfect track record might turn you off from implementing a bot into your trading strategy. Despite this, there are many reasons to have an AI trading bot setup.
Did you know? You can train bots using the strategies of famous traders like Warren Buffett. While this is no guarantee for success, it’s one of the ways to train your bot.
How to train a crypto trading bot
There are two ways to start day trading crypto with AI. You can build a bot from scratch or you can sign up for a pre-existing platform like Coinrule or Pionex.
Build an AI crypto trading bot from scratch
Building an AI crypto trading bot from scratch requires a bit of technical expertise. To start, you must understand a programming language like C or Python, which are essential for building rulesets and automating trading steps.
Next, the bot needs access to real-time crypto prices. This data can typically be retrieved from cryptocurrency exchanges via their application programming interface (API). APIs act as intermediaries, enabling seamless communication between applications — much like the social media sharing buttons on this page.
Think of an API as someone taking your order at a restaurant. You need a service that only the restaurant can provide, and you use the waiter as a middleman to make it work. The API is the middleman that handles your request.
With these two requirements satisfied, you’ll need to program an AI algorithm for crypto trading. Of course, this means you need to understand the trading strategies. Some common day trading strategies include:
Many bot developers build a bot focused on one of these strategies, such as an arbitrage bot or a scalping bot. You can always swap the strategy at a later date or build multiple bots.
Once you’ve built out a bot, you must check it through backtesting. Backtesting involves simulating trading based on historical data to evaluate how the bot would have behaved in past market scenarios. It’s a lot like a sports team running drills to practice situations that will appear in a real game.
After successful backtesting, it's time to release it into the wild. Here’s how to get it live:
Step 1: Choose a hosting environment
Step 2: Secure your bot
Step 3: Connect to exchanges
Step 4: Monitor and maintain
Did you know? Historical trading data can go back decades. This means a bot is typically trained on massive market crashes and upswings, such as the Great Recession of 2008.
Using a pre-built trading bot
If you’d rather use a pre-built trading bot and not go through the effort of creating your own, there are quite a few services available
Platforms like Coinrule and Pionex offer automated crypto trading with AI. They provide you with pre-built bots you can easily manage through rulesets and strategies. Unlike the create-from-scratch method, these platforms offer easy ways to switch up your applied rulesets so you can easily adjust your bot on the run.
Here’s how you can deploy your AI bot using this method:
Step 1: Set up your account
Step 2: Secure your setup
Step 3: Launch and monitor
Pre-built bots are definitely the most accessible way to get into crypto trading with a bot, but that accessibility comes at a cost. Literally! Crypto bot trading platforms will charge a cut of your profits, depending on how high those profits are. Typically, higher profits result in lower fees for you, as you’re making the platform more money overall. You scratch their back, they’ll scratch yours.
Did you know? Crypto trading bots don’t have emotions. Humans often trade based on emotions over logic, which can lead to critical mistakes. An AI bot can circumvent emotional blunders.
AI agents vs. crypto trading bots
You can also consider an AI agent — a more advanced form of software than the crypto trading bots described earlier. Unlike trading bots, which are typically trained on historical data and follow predefined strategies, AI agents can adapt and evolve over time, learning from new trends and market conditions.
AI agents have a broader scope and can perform a variety of functions beyond just trading. They can act as financial advisers or virtual assistants, providing insights and recommendations, and executing trades based on their continuous learning. While you can always override their suggestions, many traders rely on these agents for more informed decision-making and automation.
Some existing AI agents, such as Truth Terminal or Coinbase’s Based Agent, can go so far as to create marketing campaigns and deploy NFTs. The former even created a campaign around a popular memecoin, Goatseus Maximus (GOAT), skyrocketing its value.
As for Based Agent, you can use it to create your own AI agent in minutes. These agents have their own crypto wallets and access to the Coinbase API, providing them with a wealth of knowledge from inception.
Risks associated with using an AI bot for crypto trading
If you’ve been paying attention to technology over the past few years, you’re very aware of the risks of AI. AI is trained on human activity, and while AI is faster and more effective than humans, it’s not risk-free. Here are some risks of using a crypto trading bot:
Despite the above risks, training an AI bot to day trade crypto presents an exciting opportunity for both experienced and novice traders. Whether you choose to build your own bot or use a pre-built service, AI bots offer the advantage of constant availability, speed and a logical approach to trading.
Still, it’s crucial to be aware of their limitations and risks. With proper training, backtesting and strategy adjustments, AI bots can be a powerful tool in the crypto trading world.
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