Education
9 min

How to Select the Optimal Automated Crypto Trading Approach?

In this article we discussed the different approaches in automated crypto trading and make the best choice for great profits.

Over the past few years, automated trading bots have gained significant popularity. Numerous cryptocurrency trading platforms recommend automated crypto trading bots, each based on distinct crypto trading strategies. While some prove profitable, many turn out to be scams or ineffective. For novices, identifying the best crypto trading algorithm that yields profits with minimal risks can be daunting. At Skyrex, we boast extensive expertise in automated cryptocurrency trading, and today we're sharing our insights into various algo trading crypto methods. We'll explore different crypto bot trading strategies encountered online and assess their potential profitability. Let's delve in!

Grid Trading Strategy

When employing automated trading tools on any leading crypto exchange, you'll encounter the grid bot strategy. At first glance, this appears to be a straightforward trading strategy. Exchanges prompt you to configure your grid trading bot and swiftly amass substantial profits. However, reality often differs from promises.

How does the grid trading strategy function? Initiating the bot at the reference price during a chosen moment, let's consider the long grid bot as an example. After selecting the reference price, you establish the range within which buy and sell limit orders will be placed. The grid bot's concept involves purchasing more assets as prices decline and partially selling them during bounces, provided prices haven't reached the upper band of the range. To illustrate, refer to the image below.

Chart 1. Grid trading strategy.

As depicted, while prices plummet, the algorithm initiates long trades at different levels. Each trade closes at a level higher than the local bounce. If prices drop below the range's lowest point, traders typically employ stop-loss measures due to a change in trend. Similarly, if prices exceed the highest point, halting the trading bot's execution is advisable, as other strategies better suit uptrends. Let's evaluate the strengths and weaknesses of this algorithmic trading bot.

Advantages

1. Swift automated trades: Monitoring price action round the clock isn't necessary, making the grid trading bot ideal for experienced cryptocurrency traders seeking to automate their routines.

2. Availability across major crypto exchanges: Tools for configuring your grid bot are readily accessible on top exchanges. For instance, initiating a binance grid trading bot is straightforward.

3. Efficiency during sideways markets: In the absence of a clear trend, few cryptocurrency trading strategies rival the grid, allowing you to profit while others either hold assets or attempt to trade unreliable breakouts.

Disadvantages

1. Not suitable for crypto trading novices: Despite its apparent simplicity, novices are advised to steer clear of this strategy. Misjudging the market trend risks significant losses. Additionally, some exchanges may encourage leveraging, heightening the likelihood of depleting deposits.

2. Ineffective during trending markets: Profit generation with the grid bot hinges on price dips within the trading range. However, when prices ascend, the trading range remains untouched in the near term.

DCA Trading Strategy

Leading cryptocurrency trading platforms advocate DCA trading bots, a strategy conducive to market profitability. Resembling the grid, this strategy is adept at trailing trends.

How does the DCA trading strategy operate? When market prices plummet unexpectedly, the strategy purchases via limit orders established according to specific rules. Given that prices don't perpetually decline, the algorithm closes trades profitably upon natural corrections. There's no need to await trend continuations; local rebounds suffice. Subsequently, the algorithm patiently awaits the next dip. The greater the dip, the larger the accumulated position and potential profit.

Chart 2. DCA trading strategy. Trade example.

The crux of the DCA trading strategy's success lies in the rules governing trade initiation. For instance, at Skyrex AI Bot, we employ fractal breakdowns to accumulate assets below, capitalizing on the high likelihood of price level retests and guaranteed profits. It's imperative to note that many DCA trading bots encountered online lack such rules, merely purchasing assets during price dumps, oblivious to market structure. Consequently, the risk of substantial losses escalates if prices plummet further than anticipated.

Another crucial aspect is the limit order grid. Determining the maximum tolerable price dip for your DCA strategy is essential. Typically featuring multiple layers, such grids facilitate asset accumulation at lower prices. For instance, Skyrex AI Bot incorporates five layers, enabling profit generation amidst local price fluctuations and significant downturns. Let's examine the strengths and weaknesses of the DCA approach.

Advantages

1. Suitable for all market phases: Whether uptrend, downtrend, or sideways, the DCA strategy thrives, negating the need to predict market prices.

2. Ease of setup: Configuring your bot necessitates defining layer drawdown levels, making it the optimal strategy for experienced traders capable of discerning current market phases.

3. Varied trade initiation conditions: Employ a myriad of indicators to determine initial entry and limit order grids, ranging from simplistic to advanced.

Disadvantages

1. Not recommended for crypto trading novices: As with the grid strategy, DCA trading demands experience. While DCA outperforms grid in the long run, setting up layers necessitates the ability to discern market phases. During bullish phases, a 20% correction is infrequent, whereas bearish stages may witness corrections of up to 40%.

AI Crypto Trading DCA Bot

In 2020, Skyrex introduced the inaugural trading bot, employing a simple DCA strategy. By June 2023, we'd augmented it with new entry condition features. However, a recurring challenge persisted: manually setting layer values in accordance with prevailing market phases. Fueled by our lead trader Ivan's affinity for Elliott waves, we devised a machine learning algorithm to identify the current Elliott wave using supervised learning. Based on the defined wave, the DCA strategy automatically adjusts layers. Consequently, when the bear market wanes, bullish settings activate, yielding unprecedented monthly profits. This encapsulates the functionality of the Skyrex AI Bot, boasting the following advantages:

1. Ideal for beginners: Even crypto novices can leverage our bot without configuring settings or discerning market cycles, ensuring a passive income stream.

2. Consistent monthly income: Unlike other strategies susceptible to significant drawdowns, the Skyrex Bot yields a steadily ascending equity curve, a crucial factor as elucidated in our previous article.

3. Effective across all market phases: Irrespective of prevailing trends, our bot thrives, save for a marginal reduction in ROI during bearish phases characterized by sluggish, low-volatility markets. Nonetheless, bearish months typically conclude profitably.

Summary

In summary, three widely embraced automated crypto trading strategies exist. While the grid proves effective in sideways markets, novices risk deposit losses by misjudging market trends. Conversely, DCA, adaptable to all market phases, requires expertise to optimize according to prevailing conditions. For beginners and seasoned traders alike, employing a DCA bot with AI market cycle detection is the optimal choice, epitomized by the Skyrex AI Bot. Until next time!

Skyrex Creators
Content Creators
Trade easy with Smart tools
Utilize AI-enhanced SmartBot for automated decisions and SmartTrade terminal for tailored manual trades, all in one integrated platform
Get started

Experience the next level of trading efficiency