10 Best Trading Bot Strategies 2022 — A Full Guide on How to Choose The Best Trading Bot Strategies💸

Trading cryptocurrencies and Forex trading are excellent ways to make money. You can trade as a side hustle, or you can also become a full-time professional trader. The trading market never sleeps. Since the market is live, you might lose a great deal in the hours you were away or asleep.

You might also not hear about a great opportunity to trade since there are too many leads to track. That’s where trading bots and trading bot strategies come to the rescue. There are lots of bots you can use to automate your trading process. You need to learn about the best trading bot strategies in order to choose the best bot and strategy that suits your needs.

What Are Trading Bots?

In 1949, the American trader Richard Donchian came up with a set of rules to buy and sell funds. This concept was an automated sell-and-buy system that became the backbone of what we know today as trading bots. In the 1980s, famous traders like John Henry began to adapt rule-based trading, and since then, trading bots have been popular to use in one way or another.

There are two main ways to use a trading bot. First, traders can use trading bots to automate and simplify the whole trading process. Second, with a lot of research and knowledge, the trader can use a bot to stay ahead of the market and make profits all the time. Trading bots can be used both for crypto and forex trading. We have blog posts on what are forex trading bots and the best crypto trading bots to have you covered on the concept.

In order to use trading bots, traders have to have a good knowledge of what a bot does and how to trade with it. In this blog post, I gathered five of the best trading bot strategies for both crypto and forex trading. By studying these best trading bot strategies, you can decide on how to use a trading bot to gain maximum profit from your trading game.

Also read: What is Forex VPS?

What Are The Best Trading Bot Strategies?

Trading bots work quite similarly in crypto and forex trading. Some strategies are actually the same in both markets. Bot strategies determine the level of automation you need for your trading process and the number of trades you want to do in a day.

In the following section, we will look at the best trading bot strategies for both crypto and forex trading.

5 Best Crypto Trading Bot Strategies

1. Mean Reversion

Mean reversion strategy works in cryptocurrency and other markets. It is based on a simple assumption. The mean reversion assumption is that when a coin’s price shifts slightly up or down from its average price, it will revert to the average price. This assumption is based on market psychology. Basically, let’s say a coin’s average price is $1. When the price goes up to $1.25, traders will start selling their coins until the price goes back to $1. If the price drops down to $0.75, then the market acknowledges this as a bottom and starts accumulating until the price goes back up to $1.

2. Momentum Trading

 The cryptocurrency market is like a set of waves in the ocean. In a momentum strategy, a trader will hold short-term assets and sell them at their peak price, the top of the wave, right before it crashes. This strategy is based on the assumption that prices will continue to rise way up the average price and eventually fall back down. The most vital factor here is knowing when to get on the wave (entry timing) and when to get out (exit timing). This strategy will allow your bot to recognize the high rise and sell your assets at the momentum before prices fall down. 

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3. Arbitrage

Arbitrage strategy is one of the most famous and best trading bot strategies since it works both in crypto and forex markets. I will explain later in this blog post about how to use this strategy in a forex market. One interesting trading fact is that an asset can have two prices simultaneously. This is mostly due to price fragmentation in marketplaces. Let’s say a coin’s price value is $2.02 in Exchange A and $2.04 in Exchange B. if you apply the arbitrage strategy to your trading bot, it will buy the coin at Exchange A and sell it at Exchange B at the same time. This way, you make $0.02 per coin in an instant. If you choose to trade cryptocurrencies with bots, the best crypto arbitrage bot is Pionex. The crypto trading bot has multiple strategies and features, but the best Pionex bot strategy is to use is the arbitrage strategy. 

4. Naïve Bayes

Ah! This is where technology comes to mankind’s rescue in trading! Remember how I said your bot would learn how to buy and sell at the right time in momentum trading? Adding ML (Machine Learning) and AI (Artificial Intelligence) to algorithmic trading holds powerful potential in the trading business. In momentum trading, these technologies will help decrease human errors. When you give your computer enough information, it can determine the best entry and exit timings.

The Naïve Bayes strategy is a type of ML technology that works by the probability of an event occurring due to classification variables. Enough with big words now. Let’s say that a coin’s price has been going down (the classification) for the past two days (prior probability), what are the odds that the price will continue to decrease today (posterior probability)? If the machine announces that the chance of the price going down is 70%, then it is a good time to sell your assets. 

5. Natural Language Processing (NLP)

The cryptocurrency market can be affected by the news, event, and other similar content. With the NLP strategy, you can program your trading bot to react positively or negatively to the news with certain keywords. NLP programming will give your bot the possibility to analyze articles and tweets with given keywords and decide on whether it is a good time to buy or sell assets according to the news. For example, when news like “Coin X is booming after the fund manager buys stake,” it will alarm your bot to buy coin X with keywords like coin X, booming, and buy.

Also read: Best Forex VPS Provider 2022

5 Best Trading Bot Strategies For Forex Trading

2. 2. 1. News-based

The news-based strategy in forex trading is a lot similar to the NLP programming in crypto trading. Natural disasters, war, inflation, and every other type of news can impact the world’s currencies. Based on what is happening in real-time and using a news-based strategy, your bot can react to new wires based on algorithmic systems and generate trade signals. With this strategy, you hold assets for a short period of time because of how fast news is updated and forgotten.

2. 2. 2. Trend-based

A trend-based strategy is simply following market trends. A market trend is when prices move in a certain direction, for example, up or down. Using the trend-based strategy, your trading bot will take a long position when the trend is going upwards, which means that it will buy assets with rising prices. If the prices of an asset go down and the trend is downwards, the bot will go short. Meaning it will sell a security to repurchase it at a lower price. Your bot will analyze historical data and trends to determine whether a trend will continue or reverse.

2. 2. 3.  Mean Reversion

As I have mentioned before, mean reversion or average price strategy is one of the best trading bot strategies that work in both markets. Just like crypto trading, mean reversion is based on expectations that a security’s price comes back to its average price after going up or coming down. When this strategy is implied, your trading bot will analyze surprise upswings and sell assets to buy them back at lower than average prices.

2. 2. 4. High-Frequency Trading (HFT)

One main reason traders use trading bots is that the automated system can work at a pace no human can. High-frequency trading, or scalping, is a strategy that allows your bot to make hundreds and thousands of trades in a matter of seconds. HTF is a great strategy to use if you want to stay ahead of other traders. HFT removes small bid-ask spreads. A bid-ask or bid-offer spread is the difference in the price amount an asset can be sold at, and the same asset’s price amount can be bought. 

2. 2. 5. Arbitrage

Arbitrage is again one of the best trading bot strategies in both markets. In the forex market, a currency can have different values in different marketplaces or countries. With the arbitrage strategy, your bot will analyze different markets and figure out price differences to buy an asset in one market and sell it in another market at the same time. Since the forex market is a live and fast market, no human can work as fast as a trading bot to take advantage of the price differences in different markets. That’s why arbitrage is one of the best trading bot strategies.

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Now, you know all about the best trading bot strategies for both cryptocurrencies and forex markets and also you have all requirements to start trading on exchanges like binance, But the question is, how do you choose?

Which one of these best trading bot strategies is suitable for your trading business?

How to Choose A Suitable Trading Bot Strategy

2. 2. • Check market conditions

The first thing you need to do is to check the market conditions you want to trade in. some strategies like arbitrage only work under certain market conditions. Before going all-in and investing in a trading bot and strategy, research the market and see what exactly you need a trading bot for. Then you can choose your strategy based on the market.

2. 2. • Test your strategy with a demo account

Always backtest a strategy before applying it to your trading bot. Backtesting is the process of testing a bot strategy based on analysis and historical data. With backtesting, you can identify the profitability and performance of your desired long time or intraday strategy. Metrics you can check with backtesting are averages, net profit or loss, volatility measures, and risk-adjusted return.

2. 2. • Review your strategy in terms of won and loss trades

Since the trading bot is going to make thousands of trades with the strategy you choose, you have to analyze the strategy’s efficiency by looking at the bigger picture. Analyzing individual trades will not give you the success or loss rate you need to determine strategy efficiency. Look at the strategy’s performance in groups of tens. Look at the last ten trades made with the strategy and check whether or not the results are desirable. You should not go for a strategy that does not increase your profits.

To Recap

No difference you trade gold or any valuable assets, Trading bots make life a lot easier. When you choose to work as a trader full-time or part-time, and in any industry you choose, it is important to take all advantage of the market. Trading bot strategies can help you figure the market out and make profits that are not humanly possible! All you have to do is make sure you choose the best trading bot strategies to help you achieve your trading goals. 

Trading bots work well on a server. Many traders use virtual private servers to have secure trades with minimum latency. At Cloudzy, we offer different plans with a variety of features to ensure all traders with all sorts of resource requirements can benefit from a VPS. we have active servers in 14 highly demanded locations. You can check out our plans on forex VPS and bitcoin VPS. Feel free to live us a comment or contact our customer service experts if you have any questions!

FAQ

Are trading bots necessary to use?

No, trading bots are not a requirement in the trading business. They do however speed your trading process up with automated features. You can use a trading bot and a trading strategy to make sure you can make the most profit in a short period of time.

What is the most successful bot for trading cryptocurrencies?

There are many companies offering trading bots for cryptocurrency trading. You can read our blog on the best crypto trading bots for more information.  

Why do traders use VPS?

A successful trade is highly time-dependent, no matter the market. traders need a secure server to make sure their trades are safe. A virtual private server provides the security and low latency traders require.

Do I need a VPS for forex trading?

Investing in a VPS plan is the best decision you can make for your forex trading business. Cloudzy offers forex virtual private servers in 14 different locations, allowing you to have a server close to your broker. This means that you will have minimum latency, and with the security and admin access Cloudzy provides, you don’t have to worry about your trades’ and transactions’ security!