As you start to get into cryptocurrency trading, you will likely come across the term cryptocurrency algorithmic trading. Crypto algo trading represents a method of trading cryptocurrencies that involves computer programming.
What Is Cryptocurrency Algorithmic Trading?
Algorithmic trading refers to the practice of programming a computer to implement your trading strategies for you.
It is essentially a type of cryptocurrency trading bot that you program to follow your strategies. Bitcoin algo trading relies on technical analysis, which the computer algorithm completes with mathematical models.
The idea is that trading with computer algorithms or bots lets you trade 24/7 and make trades instantly, before you would even have time to react.
Given the volatility of cryptocurrency, this timeliness is crucial.
To set up crypto algo trading, you will need to have a trading strategy as well as some basic coding skills. There are programs that can help you create the bot, but you will still need a basic understanding of coding to program them and avoid errors. Actually, as Haruinvest, we’re providing this service for you. Learn more from here.
The issue for many people is having a strategy, as following algo trading crypto strategies requires some knowledge of the cryptocurrency market and its trading.
Is Algorithmic Crypto Trading Profitable?
Cryptocurrency algorithmic trading can be profitable. However, its profitability largely depends on the quality of your algorithm and the strategies behind it. There is a steep learning curve to developing profitable strategies.
Is There an Algorithm for Crypto?
There is no single set algorithm for crypto. Various crypto traders and crypto account managers develop their own algorithms. You are also free to develop one.
Are Crypto Trading Bots Real?
Yes, crypto trading bots are real and are responsible for executing the algorithmic trades.
Read: Day trading crypto
Algorithmic Trading Strategies
With that basic knowledge of algo trading, take a closer look at some of the most popular algo trading crypto strategies.
Moving Average (MVA)
Moving averages are not a strategy by themselves, but they are the basis for many strategies.
To get a moving average, you add together the average value of a cryptocurrency each day for a set number of days. Then, you divide the total by the number of days.
Some of the most common moving averages used are 5-day, 10-day, or 20-day moving averages. You are free to use any duration you want.
Taking Moving Average to Minutes
Because cryptocurrencies are so volatile, some cryptocurrency algorithmic trading strategies rely on much smaller intervals of time than days. A common example would be using 5-minute increments over the course of a single day for the moving average. This results in 288 averages combined.
Simple Moving Average Crossover
With a solid understanding of moving averages, you can look at the strategy of simple moving average crossovers. All you need to follow this strategy is your moving average and the knowledge of the cryptocurrency’s current price.
Anytime that the current price crosses the moving average, the algorithm will buy or sell. If the price crosses above the MVA, it triggers a signal to buy. If the price crosses below the MVA, it triggers a signal to sell.
This algo strategy works on the idea that the moving average will react slowly to the changes in price.
Exponential Moving Average Crossover
This is a more complicated and more accurate version of the simple moving average crossover. While it produces the same triggers to buy or sell a crypto based on the price crossing the MVA, the calculations are different.
Remember that in a simple moving average, you simply add together the averages for each increment and divide it by the number of increments. The exponential moving average improves upon this by using exponents to give more weight to the values from the most recent intervals. To do this, the equation used is recursive, building on its previous iteration.
You can also think of this bitcoin algo trading strategy as an improvement over the simple moving average crossover, although it takes a different approach. It still relies on the simple moving average, but it tries to predict the decline in price before the price crosses below the MVA. It attempts to do the same and predict rises in price before the price crosses above the MVA.
To do that, mean reversion tests the price against a lower bound and an upper bound. These are placed an amount below and above the moving average line, respectively. This strategy also uses the offset, which is the amount by which the upper and lower bounds are offset from the MVA. The offset amount is represented as a percentage, with a separate figure for each bound.
This strategy is most common if a crypto’s price fluctuates before going back to similar prices.
All of the above strategies for cryptocurrency algorithmic trading have you compare the crypto price or value with the value of the US dollar. The algorithm always moves its value between the given crypto and USD. The downside is that those strategies don’t let you gain value as a crypto’s price falls.
Pairs trading improves upon this by looking for two cryptos with opposite trends. The idea is that if one falls, the other will rise. This strategy involves doing a mean reversion on the difference in the prices of the two cryptocurrencies.
How to Start Automated Algorithmic Trading with These Trading Strategies
If you want to start automated algorithmic trading with these strategies, you can program your own bots, find an exchange that supports bots, and see what happens. However, successfully programming your bots requires a great deal of knowledge.
Haru Invest offers an alternative, especially in the form of Haru Earn Explore. This product uses automatic investment algorithms created by the experts at Haru. This saves you the hassle of having to understand the cryptocurrency market as well as the need to understand the complexities of each strategy. The experts at Haru closely monitor the markets for you and adjust the algorithms as necessary.
You can choose which cryptocurrency you want to invest in with professionally managed algorithmic trading, with the choices of BTC, USDT, and ETH. You also have the option to choose your asset with a Switch Pool investment for crypto farming.
Getting started is as simple as creating a Haru Invest account and depositing the cryptocurrency of your choice.