By Johnny Khan, FOUNDER & LEAD DEVELOPER at Empyreal
When you’re trading cryptocurrencies in the global 24/7 market, edge is everything. Trading bots powered by autonomous AI agents can help give you that edge.
Trading bots can’t make you smarter, but they can help you act smarter.
At their best, AI and blockchain are powerful tools for democratization and access to the financial system, narrowing the performance gap between savvy individuals and powerful institutions like hedge funds.
Used correctly in the context of trading, autonomous agents can flatten the learning curve for beginners and empower more sophisticated users to develop their own models that they can, in turn, share and monetize for themselves.
Basic trading made simpler
Fundamentally, bots simplify some of the core principles of trading – take-profit, stop-loss, dollar-cost averaging – to help users get an edge on core trading principles and disciplines that professionals take years of practice to build.
For example, when you’re electing to take a position using a bot, you get the option upfront of taking profits or setting a stop-loss, that is, you choose the conditions for when you will exit the trade. It sounds basic (and it is), but that’s the point: the bots encourage first-time users to think like pro traders, with discipline and rigor put front of mind, and clear goals for trades set before the emotions of a winning or losing bet take over. Then it’s up to the bot to execute the strategy, without intervention from the human user.
You’re free to do your own research, perform your Technical Analysis and monitor charts. That’s all good, but trading bots are one new tool in your overall trading strategy that eliminates tedious manual processes that create opportunities for error.
Of course, you can’t be a dumb, lazy or low-information trader and expect AI to make you money. You still have to have a reasonable thesis or actionable information to give you an advantage over other traders, but utilizing bots can make you act like a better trader – someone who doesn’t have to close your positions when you go to bed, or when you want to get away from the computer and touch grass.
Read More : How AI Is Enabling Advanced Fraud Detection for Insurance Claims
More accessible advanced strategies
As developers get better at creating bots, and users get better at using them, more advanced indicators will come into play to trigger your pre-defined strategies.
Here’s where we begin to approach the boundary of trading as science and trading as art.
For example, Bitcoin is often seen as a leading indicator – when Bitcoin starts to dump, everything else tends to dump after it. Imagine setting a trigger for a 5% drop in the price of Bitcoin, which instructs a bot to immediately take short positions on Ether, Dogecoin, Solana and Ripple.
That’s something you’d be doing if you were sitting at the computer watching the charts in real-time. You really start to unlock the power of agents when you have those sorts of automations, informed by more advanced strategies such as mean reversion or moving average crossover.
Leveling the trading field
To really use AI effectively, you have to have a better model than everyone else has. That’s why major hedge funds spend so much resources competing with other hedge funds for the best AI models.
Really good traders who deal with large amounts of money will tell you that as they scale up the amount of funds they’re managing, it gets more difficult to make money. That makes sense. A strategy that works for someone with $100 shouldn’t be equally effective for a million dollars, or a billion, especially as the size of your trades begins to impact the market itself. Think about trying to turn $100 into $200 on small-cap assets; that’s very different from trying to go from $50,000 to $100,000.
In a competitive environment, once an AI model becomes generally available, it loses its effectiveness. It would be cool if everybody could just make a million dollars overnight using the same trading algorithm. But typically, there has to be a bag holder. In a market that includes a mix of large institutions and small retail traders … guess who generally ends up as exit liquidity?
But a big win for the little guy is to have better protections, to be able to automate aspects of their strategy, and to utilize technical indicators to trigger positions. Those are immediate advantages that bots can give retail users to decrease the performance gap with professional fund managers.
Of course, it’s important to note that not all trading bots are created equal, and traders should be aware that they’re often competing against sophisticated systems like flashbots. These are a type of trading bot that can execute trades with extreme speed, often front-running other traders’ transactions. These bots can see pending transactions in the mempool and act on this information before regular trades are processed. While this technology has legitimate uses, it can also create an uneven playing field.
End game: Democratizing finance
The key breakthrough will be when informed and successful trading bot users can begin to develop their own proprietary trading algorithms, which they can in turn open up to other retail users who would like to invest.
Typically, if someone has a trading algorithm and wants to scale it, they’d go to large investors in order to increase their available capital and profit from performance fees.
But with the opportunities created by blockchain and Decentralized Finance, consider the idea of someone building an effective trading algorithm and making it available to other retail users to fund it to a cap of a few million dollars.
With on-chain performance audits and verifiable security measures, ordinary people without access to extraordinary resources can bootstrap an army of investment funds that collectively could challenge the existing power structure that facilitates the accumulation of resources upward, to where existing wealth is already most concentrated
Read More : Global Fintech Series Interview with Frank Pagano, Executive Sales Director at VizyPay
[To share your insights with us, please write to psen@itechseries.com ]
