How to train an AI bot to day-trade crypto

Key takeaways

You can train AI bots to analyze and replicate human trading behavior.
Crypto trading bots are on 24/7 — a key advantage over human traders.
You can build your own bot from scratch or purchase one through a service.
While a great tool, AI bots aren’t perfect and can present significant trading risks.

As someone who has dabbled in the world of cryptocurrencies and technology, I must say that the idea of using AI bots for crypto trading intrigues me. Having seen both the rise and fall of various coins over the years, I can appreciate the allure of a bot that never sleeps, learns from its mistakes, and makes decisions based on cold, hard data rather than emotional impulses.

Picture having an unceasing aid who manages your cryptocurrency trades for you, constantly crunching numbers and implementing strategies as you dream. This is the might of artificial intelligence trading bots at work.

These software tools employ sophisticated techniques to imitate human-like trading patterns, handle investment strategies, and adjust to shifting market circumstances.

What is an AI bot for crypto trading?

In my experience as a crypto investor, I’ve come across AI bots – automated software that mimic the actions of traditional human traders. These intelligent tools scrutinize human behavior, particularly the patterns in day trading, and establish guidelines based on their findings to follow.

For example, if a bot finds that humans historically buy Bitcoin (BTC) at a specific price and sell it at another, it will factor that into its ruleset. An AI bot continuously evaluates market activity to refine its operations, allowing you to input custom rules and parameters to guide its decisions.

In this guide, you’ll learn how to create an AI-powered cryptocurrency trading bot. We’ll discuss both the advantages and potential drawbacks involved in teaching such a bot to trade cryptos.

Why train AI for crypto day trading?

Just as humans can make errors, artificial intelligence bots are also subject to mistakes. If the prospect of potential inaccuracies deters you from incorporating a bot into your investment approach, it’s important to remember that setting up an AI trading bot has numerous advantages.

24/7 trading: As a human, you can only trade so often. The crypto market is active 24/7, making it impossible for you to stay on top of it all the time. A bot doesn’t fatigue. It doesn’t need rest and can implement your trading strategies even while you’re away.
High-speed capabilities: Not only is a bot available 24/7, but thanks to machine learning for crypto trading and the speed of modern technology, a bot is faster than you even while you’re awake. AI day trading crypto bots can process millions of calculations per second, and even if it makes a mistake, that speed can potentially make up for a failure before you notice.
A non-emotional approach: Using AI in cryptocurrency trading can benefit you greatly, as it doesn’t factor emotion into its strategies. It won’t freak out and do a reactionary sell-off based on a gut feeling. Instead, the bot will trade based on its rulesets and training parameters.

Have you heard? It’s possible to educate bots on the trading methods of well-known figures such as Warren Buffett. Keep in mind that this doesn’t assure profitability, but it’s one approach to training your bot effectively.

How to train a crypto trading bot

There are two ways to start day trading crypto with AI. You can build a bot from scratch or you can sign up for a pre-existing platform like Coinrule or Pionex.

Build an AI crypto trading bot from scratch

Creating a AI cryptocurrency trading bot right from the start demands some level of technical proficiency. To get going, it’s crucial to grasp a programming language such as C or Python. These languages play a vital role in creating the rules and automating trading actions.

Afterward, it’s necessary for the bot to have up-to-date crypto price information. Usually, this data can be obtained from cryptocurrency exchanges through their Application Programming Interface (API). APIs serve as intermediaries, facilitating smooth communication between applications, just like the social media share buttons on this page do.

Consider an API as if it were a server at a restaurant. When you want something specific from the establishment (a dish or information), the API acts as the intermediary. You place your request through the API, and they handle it and ensure it reaches the right party within the restaurant (the service provider). In this way, the API serves as a go-between that facilitates communication between you and the service you require.

To proceed with creating an AI algorithm for cryptocurrency trading, you should ensure that the prerequisites are met, and that requires a solid understanding of the various trading strategies. Notably, some popular day trading strategies include:

Scalping: Scalping involves buying and selling crypto based on their minute-to-minute price changes. You’re taking advantage of crypto’s inherent volatility, buying when it drops a few dollars and selling when it jumps a few. This trading method isn’t focused on massive profits but instead on small profits that add up over time.
Technical trading: Many day traders utilize technical trading strategies like the relative strength index (RSI) or the moving average convergence/divergence indicator (MACD). The RSI helps identify whether an asset is overbought or oversold, while the MACD tracks price momentum and trends. Both are essential for predicting market movements and timing entries and exits.
Arbitrage: Cryptocurrency exchanges show different prices at different times. Arbitrage involves buying a cryptocurrency on one exchange where the price is lower and selling it on another where the price is higher, capitalizing on the price discrepancies. Programming this will require multiple exchange APIs, of course.

Many bot developers build a bot focused on one of these strategies, such as an arbitrage bot or a scalping bot. You can always swap the strategy at a later date or build multiple bots.

After constructing your bot, it’s crucial to assess its performance through a process called backtesting. Backtesting mimics trading using historical data to determine how the bot would have functioned in past market conditions. This is similar to a sports team practicing drills to prepare for situations they might encounter during an actual game.

After successful backtesting, it’s time to release it into the wild. Here’s how to get it live:

Step 1: Choose a hosting environment

Cloud services: Platforms like AWS (Amazon Web Services), Google Cloud or Azure offer reliable and scalable servers that keep your bot running 24/7 without interruption.
Dedicated servers: For maximum control and performance, consider using a dedicated server. This provides enhanced security and exclusive access to server resources.

Step 2: Secure your bot

API key management: Store your exchange API (Application Programming Interface) keys securely using environment variables or secret management tools like AWS Secrets Manager. API keys allow your bot to interact with cryptocurrency exchanges.
Encryption: Protect data exchanges between your bot and exchanges using HTTPS or SSL (Secure Sockets Layer) protocols to ensure information remains confidential.

Step 3: Connect to exchanges

API integration: Link your bot to cryptocurrency exchanges (e.g., Binance, Coinbase) through their APIs. This enables your bot to execute trades and retrieve real-time market data automatically.
Error handling: Implement error handling to manage issues like API rate limits or connection drops, ensuring your bot remains operational.

Step 4: Monitor and maintain

Real-time monitoring: Use tools like Grafana to track your bot’s performance metrics, such as trade execution times and profitability.
Alerts: Set up notifications for critical events (e.g., failed trades, significant losses) via Slack, Email or SMS to respond promptly to any issues.

Have you ever wondered that historical trading data often spans for many years? That’s why a trading bot is usually educated on extensive financial downturns and uptrends, like the Great Recession of 2008.

Using a pre-built trading bot

If you prefer utilizing a ready-made trading bot without having to build one yourself, you’ll find several service providers at your disposal.

Automated crypto trading services such as Coinrule and Pionex utilize AI for seamless operation. They equip users with ready-made bots that are effortlessly managed using rule sets and strategies. Unlike creating a trading bot from the ground up, these platforms offer quick modifications to your rule sets, allowing you to adapt your bot according to changing market conditions on the fly.

Here’s how you can deploy your AI bot using this method:

Step 1: Set up your account

API connection: Link your crypto exchange account to the platform using secure API keys provided by the service.
Configure strategies: Customize your bot’s trading strategies using the platform’s user-friendly interface, often featuring drag-and-drop rule sets.

Step 2: Secure your setup

API permissions: Grant only necessary permissions to your API keys (e.g., trading and reading data) to minimize security risks. Avoid granting withdrawal permissions.
Two-factor authentication (2FA): Enable 2FA on both your exchange and trading bot accounts for added security.

Step 3: Launch and monitor

Activate the bot: Start your bot with the desired settings using the platform’s dashboard.
Continuous monitoring: Use the platform’s built-in tools to track your bot’s performance and make adjustments as needed.

Ready-made bots make it simple to start crypto trading with an automated system, but simplicity has its price – monetarily speaking. Cryptocurrency bot trading platforms take a percentage of your earnings, which varies based on the size of your profits. Essentially, when your profits are larger, you’ll pay less in fees since the platform benefits from a greater volume of transactions. It’s a mutual agreement: if you help them make more money, they’ll help you make more too.

Did you know? Crypto trading bots don’t have emotions. Humans often trade based on emotions over logic, which can lead to critical mistakes. An AI bot can circumvent emotional blunders.

AI agents vs. crypto trading bots

You can also consider an AI agent — a more advanced form of software than the crypto trading bots described earlier. Unlike trading bots, which are typically trained on historical data and follow predefined strategies, AI agents can adapt and evolve over time, learning from new trends and market conditions.

AI agents offer a wide range of capabilities beyond merely trading. They function as financial advisors or digital helpers, offering insights, suggestions, and even executing trades based on their ongoing learning process. Users often find these agents useful for making more educated decisions and streamlining tasks, though they retain the final decision-making authority.

Certain AI models, like Truth Terminal and Coinbase’s Based Agent, have the capability to not only develop marketing strategies but also release Non-Fungible Tokens (NFTs). For instance, the Truth Terminal launched a campaign centered around a well-known memecoin named Goatseus Maximus (GOAT), which significantly increased its worth.

For you, the Based Agent is designed to help you build your personal AI agent swiftly. Each created agent comes equipped with its unique digital wallet for cryptocurrencies and direct connection to the Coinbase API, granting them an extensive pool of data since their creation.

Risks associated with using an AI bot for crypto trading

Over the last several years, if you’ve kept an eye on technological advancements, you’d surely recognize the potential hazards associated with Artificial Intelligence (AI). Since AI learns from human behavior, it’s undeniably more efficient and swift than us humans. However, it’s important to remember that AI isn’t without its dangers. Here are some risks involved in employing a crypto trading bot:

Always-on behavior: While a 24/7 bot taking advantage of every opportunity sounds great, what if it makes a massive mistake while you’re asleep? You can make all the rules in the world, but managing your bot to mitigate losses is important. Trading tools like stop-loss can help manage losses.
Security vulnerabilities: Bots are always online and often connected to one or more crypto exchanges. This constant connection leaves them vulnerable to hacks and theft.
Failure to adapt: Crypto trading bots are trained on historical data. They may not automatically adjust to market changes or trading strategies without some manual tweaking.

Regardless of the potential hazards, educating an AI bot for day trading cryptocurrency opens up an intriguing prospect for both skilled and inexperienced traders alike. Whether you opt to create your own bot or select a pre-existing service, AI bots provide several benefits, such as uninterrupted accessibility, swiftness, and a logical perspective on trading transactions.

As I delve deeper into the realm of cryptocurrency trading, I’m acutely conscious of the boundaries and potential pitfalls associated with AI bots. However, with rigorous training, meticulous backtesting, and strategic fine-tuning, these AI tools can prove to be formidable allies in navigating the dynamic crypto market.

2024-12-07 17:49