Bitcoin algorithmic trading strategies
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Arbitrage Arbitrage trading is the concurrent buying and selling of an altcoin to profit from its price imbalance. This strategy is done by exploiting the price differences of altcoin exchanges. For instance, if a trader buys bitcoin at ZB. While a human is capable of pulling this off, an algorithm works a lot better, faster, and more efficiently. Market-Making A market maker is a trader or a firm that buys and sells assets for its own account.
A market-maker makes a profit in two ways: by raising the price of an undervalued altcoin or by lowering the value of an overpriced altcoin. This requires executing multiple orders simultaneously, which is better suited for an algorithm than a human. How to Trade Algo-trading bitcoin allows investors to trade more efficiently and at better prices.
Smart Routing Smart routing is an automated process of handling orders, with the goal of taking the best available opportunity throughout a range of different exchanges. This algorithm splits an order and spreads it across several marketplaces simultaneously, providing better liquidity. Although a really smart human may be able to perform smart routing, it is best executed if the process is automated. TWAP allows traders to purchase or sell a specific amount of an asset evenly over time.
The algorithm executes an order based on the average price of an altcoin at a specified timeframe to avoid moving the market. The Takeaway Bitcoin algorithmic trading automates the execution of orders, making for more efficient and timely trading overall. It is suitable for the budding and volatile altcoin market, a market that never sleeps. Algorithms are, thus, a go-to tool for day traders who want to gain an edge in the digital asset market.
Subscribe to the Bitcoin Market Journal newsletter for more information on bitcoin trading strategies. If you could only pick one crypto investment Sign up below to get access to our Blockchain Believers portfoloio, with our top-rated crypto pick. Evan EzquerEvan is a cryptocurrency investor and fundamental analyst. A cross below the slower moving average is bearish. Mean Reversion While markets can and do trend strongly at times, these strong trends are outliers, and a move back to the mean or average levels almost always follows.
Standard Deviation Reversion The idea of standard deviation comes from statistics, and it is simply an average movement away from the mean. In trading, two standard deviations are most frequently used, and the Bollinger Bands indicator is the most popular tool for trading based on standard deviations. Bollinger Bands are two lines that enclose price action, one above and one below, with each line being two standard deviations from the mean.
Whenever price reaches one of these bands, it is considered overbought or oversold and is then expected to revert back to the mean. Algorithmic Arbitrage Trades Arbitrage has been one of the most popular and most successful algorithmic trading opportunities. In arbitrage trading, you take advantage of mispricing across exchanges to collect risk-free profits. With hundreds of exchanges, it is almost guaranteed that prices for the same asset will differ from one exchange to the next, making it simple enough to buy the asset at a lower price at one exchange, and then sell it immediately for a profit at another exchange.
Of course, to take advantage of these price differences, you need to be quick since they might only exist for a few seconds. In Consideration of Open-Source Bots If you are just getting started with coding a bot for algorithmic trading, you should know there are quite a few open-source trading bots already available to use as a codebase. A few of the most popular and well-known free, open-source bots include Gekko, Zenbot, and Freqtrade. Arbitrage has been mostly taken over by high-frequency traders using powerful servers and latency-free connections.
Remember though that while algorithm trading is automatic, it still needs to be monitored. Market conditions can change, and the algorithm will continue trading, even if every trade is a loss-making transaction. Related Reading:.
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