Cryptocurrency trading never rests. Markets are open all night and day, and price volatility can occur at any time. To majority of traders, it is not practical to monitor charts full-time. That is where trading bots come in. It is possible to create a bot with Python, which trades according to your strategy automatically, even when you are asleep.
Why Python for Crypto Bots?
Python is the go-to language for crypto trading bots, and for good reason. It is very easy to learn, it has plenty of libraries to analyse data, and it integrates easily with Exchange APIs. Popular applications such as Freqtrade and CCXT can enable one to jump in quickly without writing everything themselves.
You do not have to be a professional programmer as well. With a basic understanding of Python, it is possible to make a working bot in a few hours. Its learning curve is not as hard as in other languages, and that is why Python is taking over the algorithmic trading sphere.
What You’ll Need
Before you start coding, you’ll need:
- A cryptocurrency trading account (Binance, Coinbase or Kraken). To have your bot make trades, you will need API keys.
- Python 3.8 or newer.
- General basic Python and Pandas knowledge.
- A basic trading plan to begin with.
Understanding the Basics
Trading bots follow rules you set. Example: Buy Bitcoin when it falls 5% points, capped at 20-day average, sell when it increases 5% points, capped at 20-day average. The bot monitors the prices and makes trades automatically.
Cryptocurrency has its own language, which is not always easy to understand. Order books, candlestick data, and API endpoints may be commonly used when creating bots. These technical terms can easily be explained on websites like Webopedia, where you can learn how crypto exchanges and trading systems work.
Setting Up Your First Bot
Start by taking a walk through a simple setup with the CCXT library that supports more than 100 exchanges in the cryptocurrency market.
The initial step will be to integrate with your preferred exchange with your API key. The bot then retrieves historical price data, usually as candlestick charts displaying opening, closing, high and low prices in a given period of time.
An ordinary plan could involve a 20-day moving average of Bitcoin prices. A decrease in the current price by over 5% below this average will result in the bot issuing a buy signal. When it goes above 5% above the average, it signals to sell. Otherwise, it holds.
The bot constantly checks the prices and automatically makes trades in case these conditions are fulfilled. It is a fundamental reasoning behind more sophisticated trading schemes.
Testing Before You Trade
Always play with fake money. Backtesting demonstrates the performance of your bot based on historical data. It is simple with Freqtrade inbuilt tools.
The importance of backtesting is that the strategies that appear good on paper may not make money in reality. It demonstrates problems such as excessive trade or poor timing. Bear in mind, there is no guarantee that future results will be the same as the past.
Managing Risk
The greatest error is to overlook risk management. Even a great strategy has bad periods. Follow these rules:
- Always invest no more than what can be lost.
- Set automatic stop-loss limits to sell when prices are falling too low.
- Begin with small steps before being sure that your bot can be trusted.
- Test before going live.
Trading fees add up quickly. One that will earn 1% per trade may lose money with fees. Always factor in costs.
Common Pitfalls to Avoid
Over-optimisation is a trap. You are merely testing until your bot returns perfect results on historical data, and then it fails with real trades. The reason is that you have optimised it for the past instead of the actual market conditions.
Volatility is another problem that should not be ignored. Cryptocurrency markets are volatile when there is news. Your bot should have safeguards to interrupt trading under extreme conditions.
Do not create your bot and leave it alone. Audit and track performance. Automated trading needs constant monitoring to be successful.
Moving Forward
Trading bots will help you approach your trading strategy uniformly and without emotion. Still, they are not the silver bullet to making money – the vast majority of traders lose money anyway.
Begin with a simple strategy and low trades, and then move through the levels as you get to know it.
Research on other strategies, participate in communities and continue to test. Python is open to building bots, but you will not become wealthy right away. It takes time and discipline to learn about markets, code, and risk in your first bot.
The software and expertise are free, and Python will allow you to trade automatically at your convenience, with either a simple or complex strategy.
