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Maximizing Profits with Automated Crypto Trading

Maximizing Profits with Automated Crypto Trading

So you’ve been trading crypto for some time now. You’re ready to get serious and start maximizing your trading profits. Where do you start and what should you do? 

 

One of the easiest ways to rapidly improve virtually every aspect of your trading process is to use bots.

 

Automated crypto trading, if done correctly, can increase your trading volume by orders of magnitude while decreasing your risk substantially. On top of that, auto trading can help you rapidly iterate and improve your strategies.

 

That’s all well and good but how do you access these benefits? We’ll find out together in this article. Let’s dive in.

What Are the Benefits of Using Crypto Trading Bots?

The major benefits of automated crypto trading are: 

 

  • Access to advanced analytics
  • Improved and simplified risk management
  • Distributed trading over multiple exchanges (when using a third party like Dash 2 Trade)
  • Simplified diversification into multiple crypto assets
  • Non-stop trading

Get Better Crypto Bot Trading Results With Advanced Analytics

Advanced performance analytics, such as PNL (Profit and Loss), open orders, win-loss ratio, and various indicators, are crucial for evaluating the effectiveness of your trading strategy. These metrics provide a data-driven approach to assess how well your bots are performing, enabling you to make informed decisions.

Regular Review

Make it a habit to review these analytics regularly (daily, weekly, or monthly based on your bots’ trading frequency). This will help you spot trends in your trading performance, identify strengths and weaknesses in your strategies, and make rapid improvements.

Benchmarking

Compare your performance against relevant benchmarks or indices to gauge your bot's relative performance. This can help you understand if your strategy is outperforming the market or if adjustments are needed. The Crypto Top 10 Index is a good starting point. You can also benchmark your performance against simple “buy and hold” strategies (otherwise known as HODLing).

Use Comprehensive Dashboards

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Utilize trading platforms or tools that offer comprehensive dashboards with a wide range of analytics. This will give you a holistic view of your trading activities and performance. Dash 2 Trade offers a ton of useful data you can use to create great strategies, optimize the ones you’ve already deployed, and track your overall trading performance.

What to Avoid When Using Advanced Analytics

Avoid becoming overly reliant on a single metric. It's essential to consider a range of analytics to get a complete picture.

 

Pay attention to the cost of trading (fees, slippage) when evaluating PNL. These costs can significantly impact your net results, especially in high-frequency trading strategies like scalping.

How to Get Even Better Results Over Time

 

  • Iterate and optimize: Use the insights gained from performance analytics to continuously refine and optimize your trading strategy. This could involve adjusting risk parameters, trying new indicators, or tweaking entry and exit points.

 

  • Backtest your strategies: Regularly backtest your optimized strategies against historical data to validate their potential effectiveness before implementing them in live trading.

Accessing Superior Risk Management When Trading With Bots

Effective risk management is the backbone of successful trading, ensuring that losses do not wipe out your trading capital while maximizing potential profits.

Set Clear Risk Parameters

Focus on defining how much risk you’re willing to take on, early. This involves establishing stop-loss orders, determining the maximum percentage of your portfolio to risk on a single trade, and deciding how much drawdown you are willing to tolerate. All of this and more can be programmed into your trading bot so you will need to configure things only until you find a profitable trading strategy. 

Diversify Trading Strategies 

Just as diversifying your investment portfolio is crucial, diversifying your trading strategies can help mitigate risk. Don’t rely solely on one approach; combine trend-following strategies with mean-reversion strategies, for instance, to spread your risk. Luckily, with automated trading diversifying strategies is as simple as setting up another bot.

 

Read our detailed breakdown of crypto bot trading strategies.

Apply Automated Risk Controls

Use trading bots to automate your risk management rules. This ensures that your risk parameters are adhered to without the need for constant manual oversight. Algorithmic trading software like the one currently in Dash 2 Trade’s backtester and a soon-to-be standalone product, give you granular control over risk management strategies.

When and What to Avoid When Automating Risk Management

 

  • Avoid setting too tight stop-loss orders in highly volatile markets, as this may lead to premature exits from potentially profitable positions.
  • Don't neglect the impact of fees on your trading strategy, especially if you are engaging in high-frequency trading.
  • Beware of overconfidence in your market analysis. Always be prepared for the unexpected and ensure your risk management strategy can handle sudden market shifts.

How to Get Even Better Results Over Time

 

  • Review and Adjust: Regularly review your trading outcomes and adjust your risk parameters and forecasts based on real-world performance.
  • Stress Testing: Periodically stress-test your trading strategies against extreme market conditions to ensure your risk management strategies are robust. The best tool for the job is a backtester like the one Dash 2 Trade offers. You can use it to run your trading strategy against historically turbulent market conditions and assess how well your bots perform in such scenarios.

Apply Distributed Trading Over Numerous Exchanges

Trading across multiple exchanges can mitigate risks associated with relying on a single platform, which became evident with events like the collapse of FTX. This approach provides added security and flexibility, allowing traders to take advantage of different market conditions, liquidity levels, and asset availabilities across various exchanges.

Diversify to Protect

If you want to allocate a substantial percentage of your available funds to trading it’s considered wise to spread your trades and assets across several reputable exchanges. This reduces your exposure should one exchange face issues like technical outages, regulatory problems, or security breaches.

Liquidity and Slippage Management

Different exchanges have varying levels of liquidity, which can affect order execution and slippage. By distributing trades, you can minimize these risks, especially when dealing with large orders or less liquid assets.

Fee Optimization

Exchanges have different fee structures. Strategically allocating trades can help minimize costs. For instance, use exchanges with lower trading fees for high-volume trades.

 

Some exchanges offer temporary fee discounts when trading specific cryptos. For example, Binance has had a long-standing practice of offering 0% trading fees on Bitcoin

Access to Even More Assets

Not all exchanges offer the same variety of cryptocurrencies for trading. By opening accounts on multiple exchanges, you can access a wider range of assets.

When and What to Avoid When Using Multiple Crypto Exchanges

 

  • Avoid Low-Reputation Exchanges: While diversifying, prioritize exchanges with strong security measures and a good reputation. The risk of using a less reputable exchange might outweigh the benefits.
  • Manage API Keys Securely: Trading across multiple platforms involves using API keys for automation. It’s crucial to manage these keys securely. Don’t share them with anyone, store them on a device that’s not connected to the internet or on paper, and limit who can access them by whitelisting IP addresses.
  • Complexity and Overhead: Managing multiple exchange accounts increases operational complexity. Use tools or services that aggregate data and provide a unified trading interface to manage this complexity effectively.

How to Get Even Better Results Over Time

 

  • Continuous Monitoring and Reassessment: Regularly evaluate the exchanges you're using for changes in security practices, fee structures, and liquidity. Be prepared to adjust your strategy and redistribute your assets as necessary.
  • Leverage Technology: Utilize trading platforms that support multi-exchange trading through a single interface. This can simplify the process, allowing for more efficient management of distributed trading activities. Third-party crypto bot trading platforms like Dash 2 Trade are essential in this case.
  • Stay Informed on Exchange Developments: Keep up-to-date with the latest news on exchanges, including any regulatory changes, security breaches, or updates that could affect your funds and trading strategies.

Diversify Your Bot Trading Portfolio

Effective trading requires diversification of investments across various assets to mitigate risk and maximize potential profits from price surges. 

 

By diversifying your investments across different assets, you can reduce the risk of experiencing significant losses if one of them underperforms. Additionally, this approach can give you a better understanding of the market and help you identify the most profitable segments to focus on and maximize your profits.

Trading a Wide Range of Assets

Take advantage of the ability to trade a broad spectrum of cryptocurrencies. Don’t limit yourself to top-tier coins; explore altcoins and tokens from different sectors (DeFi, NFTs, AI, and utility tokens) to spread risk.

Strategic Allocation

Allocate your capital based on the risk-reward profile of each asset or strategy. Higher-risk assets or strategies should constitute a smaller portion of your portfolio to manage the potential downside.

Periodic Review and Rebalancing

Regularly review your portfolio's performance and rebalance as necessary. This involves adjusting your asset allocation and strategy mix to stay aligned with your trading goals and risk tolerance.

When and What to Avoid When Diversifying Your Automated Trading

 

  • Over-Diversification: While diversification is key, spreading your capital too thin over too many assets or strategies can dilute potential profits and make portfolio management cumbersome even when it’s mostly automated. 
  • Ignoring Liquidity: Ensure the assets you diversify into have sufficient liquidity on your exchange of choice. Trading large volumes in illiquid markets can lead to significant slippage, undermining the diversification benefits.

How to Get Even Better Results Over Time:

 

  • Continuous Learning: Stay informed about new assets, sectors, and trading strategies emerging within the crypto space. This can reveal new diversification opportunities.
  • Adaptive Rebalancing: Be proactive in rebalancing your portfolio not just based on performance but also on changes in market dynamics and asset fundamentals.
  • Risk Assessment Tools: Employ tools that can analyze the risk level of your portfolio based on its composition and market conditions, allowing for more informed diversification decisions.

Optimize Your Active Trading Hours (24-Hour Trading)

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Manual trading is tiring and most of your day gets eaten up by menial tasks like opening and tracking orders. Automation can allow you to delegate boring, repetitive tasks to the bots while you focus on more meaningful things. Suddenly, most of your time can be spent creating and refining superior trading strategies. 

Bots need oversight too and the process of automated crypto trading is never “set it and forget it”. That being said, they allow you to spend the majority of your time discovering new opportunities, tinkering with strategies, planning, and above all else, rapidly improving your trades as you go. 

Take Your Trading to the Next Level With Dash 2 Trade’s Autotrading Tools

Whether you’re looking to dip your toes into bot trading with something simple like Dollar Cost Averaging (DCA) or you want to build and deploy the ultimate trading strategy Dash 2 Trade has the tools you need to succeed. 

Learn how you can access crypto bots, market signals, portfolio tracking, premade token bundles, and more.

Built for the future.