Do AI Trading Bots Work?
Cryptocurrency trading has grown exponentially over the last few years, whether the market is bullish and regularly producing crazy moonshots, or whether it’s bearish, and it seems like the activity and opportunity have dried up.
Regardless of the market state, retail traders continue to pour in and try their luck with digital assets.
Some individuals, however, simply don’t have the time to sit at a terminal following the charts or placing loads of different buy, sell, and stop-loss orders.
Instead, they use AI trading bots. It’s about time we took a look at the functionality, benefits, and drawbacks of AI trading bots to help you decide if they might be right for you.
Note; just a quick one, BONKbot is not an AI trading bot, it is a Telegram trading bot, and while it works autonomously, it’s not quite what some would describe as AI.
What Are AI Trading Bots?
AI trading bots are automated software tools or programs that leverage artificial intelligence (AI) and machine learning (ML) algorithms to help you trade.
More than help, they actually do most of the work for you, and so they’ve become widely used by retail traders and professional traders alike to save time and energy.
They’re able to analyze market data, identify trading opportunities, and enter/exit the market with optimal timing for speed and precision.
Of course, they’re not just limited to crypto, you’ll also find AI trading bots used commonly in stocks, forex, NFTs, and beyond.
How Do AI Trading Bots Really Work?
It’s all about data. Data, data, data. An AI trading bot must be programmed to receive, digest, process, and act upon vast amounts of market data in real-time. This is something humans struggle to do, but where bots completely thrive.
Here are some of AI bot key functions:
Data collection - the bot goes out and collects data from different sources, such as market prices, trading volumes, and historical data.
Analysis - using ML algorithms, bots can analyze the collected data to identify patterns and trends.
Decision Making - by looking at its own analysis, the bot makes purchase or sale decisions to help maximize profits.
Execution - the bot then automatically handles the trade without need for human intervention.
Do AI Trading Bots Really Work?
Well, this is quite a controversial subject, but since we’re in the industry, we’d argue that yes, AI trading bots work.
We understand that the efficacy is up for debate, so let’s explore the pros, cons, and opinions of the community to break things down further.
Pros of AI Trading Bots
The trio of advantages delivered by AI trading bots are as follows:
Efficiency - AI trading bots are remarkable at analyzing huge data sets and executing trades much faster and with greater accuracy than their human counterparts, reducing opportunity for error or missing out on the most profitable trades.
Consistency - Bots operate without emotions, ensuring trades are executed according to predefined rules and strategies, rather than emotional values or FOMO. They also work 24/7, not needing to eat or sleep.
Accessibility - Traders of all skill levels can find a bot to suit their trading needs and appetite for risk, from hesitant beginners to seasoned professionals.
AI Trading Bot Cons
It’s not all good news, unfortunately.
Costs - Many trading bots operate on the freemium model, starting with a free trial or a free version with limited features. To access the best parts of the bot, you’ll need to pay, and it can get pretty expensive for the best ones.
Flexibility (of lack thereof) - Despite their sophistication, AI trading bots have been known to struggle with sudden and dramatic market changes, reacting much slower than humans who may fare better at understanding the micro or macroeconomic factors behind market changes.
Complexity - Configuration often stumps human traders when it comes to setting up a bot, especially when they have no prior knowledge of trading or market terminology.
Community Opinions
To get a sense of real-world experiences, let's look at some opinions from Reddit users.
Do AI-Based Trading Bots Actually Work for Consistent Profit?
LanchestersLaw: If by “AI” you mean ChatGPT, no.
If by “AI” you mean an industry scale trading platform running out of a warehouse sized server with petabytes of data run by a dozens of professionals, then yes.
Complete_Bag_1192: You don’t have the same compute that NYC based hedge funds do. So possible yes, eh… maybe.
For you? No. Definitely not. You’ll have shit latency when executing trades, and you most likely dont have access to things like Bloomberg Terminal
Feelings towards 'AI' Trading Bot?
Sonofanders_: It has been and always will be about the data, so I’d focus on what the bots are trained on. You can have the most elegant neural network, but if the input data is garbage, the predictions will be too.
Tulipa1634: Trading bots have been around for a long time. The Forex space was overcrowded with that stuff back in the day. If they really work, why would you sell them to others?
Why don’t AI/bots work?
Free_Butterscotch_86: They can work, but most people who create bots do not make them properly. 99.9% of trading algos fail because they are overfit too much to past data and have no predictive power on out of sample. AI can be used not as trading signals (they are notoriously bad at making trading decisions) but as filters for how likely a given signal is to be a winner or not. The secret sauce behind algo trading is in your robustness tests to remove overfit algos.
Ride_electric_bike: They work and they move markets. Not the ones you or I can access. The ones Goldman Sachs et all make.
Best AI Trading Bots
Several AI trading bots stand out in the market. Here are a few notable ones:
QuantConnect: Known for its advanced algorithmic trading capabilities, QuantConnect offers a comprehensive platform with a wide range of trading strategies.
3Commas: This bot is popular among cryptocurrency traders, offering robust features such as grid trading and smart order routing.
CryptoHopper: CryptoHopper provides a user-friendly interface and a range of trading strategies, making it a good choice for both beginners and advanced traders, while it bills itself as the “most powerful crypto trading bot”.
BONKbot
You might be wondering, why haven’t we included ourselves?
Well, we’re not strictly an AI trading bot.
BONKbot is, however, a great option for those looking to get started with trading, as it offers a simple and intuitive user interface, making it an excellent choice for beginners who want to automate their Solana-based trading activity.
Ultimately though, we run on different on-chain principles from traditional AI trading bots.
Conclusion
AI trading bots have gained a lot of traction and mindshare in the trading community thanks to their ability to process and analyze data at incredible speeds. However, they are not without their drawbacks, as people have explained on Reddit.
The effectiveness of these AI trading bots largely depends on the specific needs and preferences of the user.
So, whether you’re a beginner or a seasoned trader, it’s essential to do your due diligence and understand the pros and cons before committing to an AI trading bot. Watching some YouTube videos and reading bot-specific guides will be a good start.
Good luck on this journey!
Have You Tried BONKbot Yet?
If you're considering using AI trading bots, the best approach is to start with a bot like BONKbot, which offers a straightforward and user-friendly experience.
As you gain more experience, you can explore more advanced AI trading bots like QuantConnect or CryptoHopper. Remember, the key to successful trading is understanding your tools and strategies thoroughly.
Happy trading!