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How trading bots are beating you on the markets

It’s undeniable. People are losing money on cryptocurrency markets.
Bitcoin’s price is now down 85% since ATH, and Cryptocurrency Investors lost all their money. But to whom?
We’re going to focus on one part of the winners of this bloodbath: trading bots.


  1. Arbitrage bots
  2. Market making bots
  3. Technical analysis based bots

    1. Arbitrage bots

According to a study, arbitrage bots earned more than 1 billion USD from December 2017 to February 2018 (3 months!), without any risk !

How do they work?

On the one hand: arbitrage

Price across exchanges move following the offer and demand balance. If more people want to buy a coin, the price goes up. If more people want to sell, the price goes down.
The key here is that offer and demand vary between exchanges, and so do prices. For example, BTC can be at 3500$ on Binance, and 3600$ on Poloniex when large moves occur. That is an example of an arbitrage opportunity, and that’s what arbitrage bots are looking for. An arbitrage bot would have bought BTC at 3500$ and sold it at 3600$ on Poloniex, and would have made a nice 2.8% raw profit.
Nevertheless, that kind of arbitrage opportunity is hard to profit from because of the time to move funds from one exchange to another.

On the other hand: triangular arbitrage

triangular arbitrage

Triangular arbitrage takes advantage of a more subtle situation.
Imagine the following situation :

  • BTC/USDT : 3800$
  • ETH/BTC : 0,031$
  • ETH/USDT : 120$
    1 - The arbitrage bot would buy 1000$ of BTC, to get 0.263BTC
    2 - He would then buy 8.48 ETHs with his BTCs
    3 - And would then sell his ETHs for 1017.6$, realizing a nice 1.76% profit

Those kinds of arbitrage opportunities only last a few seconds, and that’s why the quicker your bot is, the better your returns.
Even though due to its ease of setup, triangular arbitrage opportunities are scarce, that’s why the only working arbitrage bots are operated by large funds with well-paid engineers, spending days tweaking their bots.

Also, whatever some want to make you believe, they won’t give their technology to anyone: they can already trade with it on their funds, those pretending otherwise are liars trying to sell a product they wouldn’t use on their funds.

2. Market making bots

Have you already looked at a market’s order book?

order book

The part in red is the offer and in green the demand.

The spread is the band in between where there isn’t anything. Whenever the two zones touch, a trade happens.
When you’re placing a market buy order, you’re paying a higher price than the price you would have sold at using a market order.
The consequence of that is that by placing a LIMIT (market making) order to buy, you would have bought to someone who sold with a market order, and who got a bad price.
To close your position, you would have to sell with a LIMIT order and would have got the price difference, someone, using a market order paid.
You’ve got money from filling market orders: you’re a market maker.
Moreover, exchanges like that! Bitmex has even a negative fee when placing LIMIT orders to attract more market makers and add liquidity to their markets.

However, fees imposed by exchanges and tight execution make it hard to make any money with a dumb market maker bot.
As always, anyone trying to sell you an already working strategy and who would be in direct competition with you is just a lier trying to sell you a non-working product he wouldn’t use himself.

3. Technical analysis based bots

Successful traders aren’t trading the news. They only follow the only working indicator: price.
Price is the direct indicator of the sentiment of a market. Price allows you to see overvalued and undervalued assets.
Based on that, traders started to discover many indicators, often fruits of simple mathematical formulas, and which role is to filter signal over noise.
However, trading based on mathematics only is hard for a human:

  • Markets are moving quickly, and if the statistics tell you that you should sell, but your heart says otherwise, you better listen to statistics.
  • Cryptocurrency markets work in the night. You can’t close your positions each time you go to sleep.

    backtest technical analysis
All of that, without a line of code

Those are the reasons why technical analysis based trading bots are beating humans in each possible scenarios.
The good news is: automated technical analysis strategies are quite the same as classical technical analysis strategies, which means anyone can get started in it by either knowing how to code or by using the right tools.
Some strategies work quite well, as the now 30 years old turtle strategy and anyone can try to beat the market with a bit of intuition, No Phd required
However, the golden rule still applies: if someone is selling you an already finished product with presumed high returns which would put you in competition with him, you’re getting scammed

What to do from now

The only way to win this game is with the right tools. You’re no longer going to be successful in day trading without a bot.
At Kaktana, we’re not giving any answer, but we provide you the tools to get started in automated technical analysis.
We’re giving a few effective strategies as examples, and we hope you’re going to have great results with them. However, you still need to search which coins work best, which stops to use and how you can improve your strategies to finally get the profits you were looking for in the first place.
Manual day trading no longer works, and you’ll have to adapt to the markets if you want to get profits.

Trade while you sleep

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