A Quick Guide To AI-Powered Crypto Trading
More than 10,000 cryptocurrencies are actively being traded currently. That’s a lot of cryptos, right? Unlike traditional stock markets, crypto trading doesn’t take a break. Trading for cryptos is active 24/7, 365 days a year. Thus, monitoring market fluctuations, tracking trade patterns, and numerous other changes in the crypto market in a single day are practically impossible. That is, unless you have a super-efficient tool that can monitor crypto trading tirelessly, accurately, and automatically.
Crypto price swings occur daily. While this volatility can be seen as risky, investors can profit from this by studying the pattern of fluctuations and employing various strategies. However, analyzing these patterns means analyzing vast amounts of data.
When it comes to pattern recognition and prediction involving a lot of data, artificial intelligence (AI) and its subtype machine learning (ML) systems can help tremendously.
What is AI-powered crypto trading?
First, AI crypto trading is the buying and selling of cryptocurrencies using AI-powered trading bots. These bots can be programmed to behave when certain market conditions are met. They can also learn from past data and apply those lessons in their trading decisions. Moreover, the platform enables traders to map profitable strategies for various markets.
The algorithms in these programs collect market data, analyze and interpret it, determine potential risks, and implement buying and selling of these assets. For example, you can set up your trading bot to buy crypto like Ethereum when the price reaches a specified threshold.
As an investor, you don’t have to create different price indicators and chart patterns. The bots can do these for you. You also won’t have to go neck-deep in historical data when researching and analyzing data—the algorithms can do it efficiently at a much faster rate. You can simply choose an AI-powered crypto trading bot suited to your needs.
Choosing your AI-powered crypto trading bots
Digital assets like cryptos are becoming more popular. In fact, an NBC News poll finds that approximately one in five Americans have dabbled in cryptocurrencies. Trading tools like these are thus becoming more in demand.
To meet this demand, crypto trading bots have also increased. As a result, the sheer number of these crypto trading bots made picking the right trading tool confusing. Remember also that not all AI-powered trading algorithms are the same.
- How to spot fake crypto trading bots
Many of these trading tools are created by unknown developers. These generic bots often promise fantastic returns to traders to lure as many buyers as possible. But these are just claims not backed by any sort of data. Some are outright scams.
Legitimate AI trading bots have data you can verify and creators you can check. Moreover, even though bots are automated, they should still be supervised by humans. So, be wary of crypto trading bots marketed as fully automated. Legitimate trading bots also implement your transaction strategy to the letter. This action should be easily verified by checking the transaction records.
How does AI work in crypto trading?
With the entry of advanced tech tools like AI and ML, traders and investors, especially beginners, are increasingly looking to these tools for guidance in navigating crypto trading. But how does AI help crypto traders in managing their investments?
- More reliable market predictions
The algorithms can forecast significant occurrences in crypto exchanges. Consequently, this ability enables investors to make correct inferences and take advantage of the predictions. Collecting, interpreting, and analyzing vast amounts of data sets allow AI to work with more useful information. More useful information helps AI to give more helpful insights about the crypto exchanges. Because AI feeds on data, larger data sets can increase the probability of having useful data, increasing the accuracy of predictions.
Moreover, the blockchain, which functions as a digital ledger, can contain information about the behavioral patterns of cryptocurrency. The AI can analyze and use the information in the blockchain to further improve the accuracy of its predictions.
- Sentiment analysis
This type of analysis means using AI’s branches like natural language processing (NLP) to analyze people’s sentiments or opinions on specific topics. In cryptocurrency, a positive view can translate to a price increase. On the other hand, a negative view overall means a price decrease.
This analysis requires a huge amount of data that has to be collected and analyzed. The data is gathered from internet forums, news, social media posts, articles, blogs, and anything the AI finds online. Artificial intelligence also enables the trading bots to recognize market manipulation by identifying specific types of manipulative behavior in sentiment indicators.
- Automated trading strategies
Reacting quickly to the changes in the stock market, including crypto, is an advantage. With the help of artificial intelligence, not only can traders respond quickly, but they can also engage in high-frequency trading (HFT) in an instant. High-frequency trading refers to algorithmic trading involving the transaction of large orders in less than a second. Traders who react quickly are generally more successful than traders who just wait and follow others.
- Turn insights into profit
Developers and data scientists, through artificial intelligence, can design algorithms that process unstructured data and convert this into clean, up-to-date, and relevant data. Using different criteria, AI can extract data from large, unstructured data sets such as financial information.
Artificial intelligence would then turn this data into insights that traders can understand. In turn, insights from the platform can guide them in making decisions that maximize their profit. The information is presented in an interface or dashboard as insights traders can easily digest.
Studying the crypto market can take a lot of time and effort. But AI-powered crypto trading helps in this respect. It can process large amounts of data quickly and accurately, and it provides insights that steer traders and investors into making profitable decisions.
The AI crypto trading bots help investors by providing more reliable market predictions, sentiment analysis, automated trading strategies, and a means to monetize insights.
Statista. (2022, February 3). Number of cryptocurrencies worldwide from 2013 to February 2022. https://www.statista.com/statistics/863917/number-crypto-coins-tokens/
Franck, T. (2022, March 31). CNBC. One in five adults has invested in, traded or used cryptocurrency, NBC News poll shows. https://www.cnbc.com/2022/03/31/cryptocurrency-news-21percent-of-adults-have-traded-or-used-crypto-nbc-poll-shows.html
Mirzayev, E. (2022, May 11). Investopedia. How to Profit from Volatility? https://www.investopedia.com/articles/active-trading/040515/how-profit-volatility.asp
Molina, J. (2021, February 11). Medium. Crypto Trading Bots — How to Avoid Scams and Pick the Best One. https://medium.com/coinmonks/crypto-trading-bots-how-to-avoid-scams-and-pick-the-best-one-feaf5be7b71
Kumar, N. (2021, July 21). LinkedIn. Spotting the 5 Common Crypto Price Manipulation Patterns. https://www.linkedin.com/pulse/common-crypto-manipulation-techniques-nitin-kumar-