Trading bots are popular among cryptocurrency traders for their ability to automate the buy-low, sell-high strategy. This guide will teach you everything you need to know about automatic trading bots, including how to set them up and manage them.

Automated Trading Basics

DCA bots

<h2>What is Dollar-Cost Averaging (DCA)?</h2><p>Let's start with the basic concept. <a href="https://gainium.io/dca-bot">DCA</a> stands for "Dollar-Cost Average", and it's a trading and investment strategy that aims to reduce the risk of investing a lump sum at the wrong time by splitting up the intended investment into smaller orders.</p><p>Breaking it down to the bone DCA it is essentially this:</p><ul><li>You have a budget of 1500$ to buy apples, and instead of buying all of them in one go, you decide to buy 300$ worth every month of it.</li><li>In month 1, you can buy 1 kg of apples for 30$ (yeah, they are very expensive apples), so you have 10Kg for 300$</li><li>Next month the market price is lower so you can buy more apples for the same amount of your money (you buy 30kg for 300$). Of course, the price might still be higher than 10$, like it happened in May in the example below. Still, you don’t know that, so DCA allows you to spread the risk over time to ensure you will never spend all your money at the highest or the lowest but at the average purchase price that is still lower than the market average price. In the example below with 1500$ you have bought 82,5 kg of apples. Spending all your budget of 1500$ on the first month would have allowed you only to buy 50kg [(1500$ x 10kg/)300$] = 50kg</li><li>The average market price is 23$ per kilo (30$+10$+20$+15+40$)/5 = 23$, but because you could buy more apples at a lower price, your actual average purchase price is 18.18$ (total budget of 1500$ divided by the 82.5 kgs of apples purchased) = 18.18$</li></ul><figure class="image"><img src="https://back.gainium.io/uploads/Fig_1_apple_chart_2_637ec82ae9.jpg" alt="Fig 1 apple-chart 2.jpg"><figcaption>Fig. 1</figcaption></figure><p><br>Due to their simplicity and potential for high returns, DCA bots are popular among beginner crypto traders and investors. DCA bots are readily available on many bot platforms and can be easily customized to fit your trading style and risk tolerance.</p><p>DCA might give you fewer returns than investing all at once; however, as you already know, it’s almost impossible to time the perfect entry in the market.</p><p>Cryptocurrency trading is the only one except Forex that is open 24/7; therefore, bot trading is convenient as they can trade for us while we sleep or are out about living our lives.</p><p>Another reason bot trading is compelling is that it removes the emotional factor that often leads to making mistakes. We all have been there, at the moment of pressing buy or sell, sometimes it’s just impossible to make a decision. The bot will take care of that for you.</p><h2>Types of DCA</h2><p>There are two main types of DCA spaced across time intervals (time-DCA), price intervals (price-DCA), or both (double-DCA). They are fundamentally different and carry different risks.</p><h3>Time DCA</h3><p>Time-DCA is typically used as an investment strategy. It’s the simplest of all and requires the least knowledge to set it up, as you will need to set the bot to invest the same amount at regular intervals. However, this strategy is blind, it will also buy at the top (which you might want to avoid). The previous chart represents time Time-DCA in Fig. 1 where the same amount of money is used to buy apples each month. This strategy is good for a downtrend and sideways market conditions.</p><h3><br>Price DCA</h3><p>Price-DCA is a trading strategy. It is also quite simple, consisting of buying an asset at different price levels. You can decide beforehand which prices you want to purchase and how much of the asset you wish to purchase. For example, you might want to buy every time the price decreases by 1% and never buy above or below a fixed price. The problem with this strategy is that you might miss the train if the price never reaches your desired one. This strategy is suitable for downtrend market conditions.</p><h2>Martingale Multipliers</h2><p>DCA bots can use multipliers, aka Martingale system, which consists of increasing the investment's size and the deviation (distance) of the following orders by a fixed multiplier.</p><h3>Volume Martingale</h3><p>Volume martingale increases the chances and speed of closing a trade. Every additional purchase of an asset from the initial entry will be multiplied by a number (multiplier). The more the price deviates from the initial order, the more asset the bot will purchase. This is possible because the average price of purchase (as could see from the example of the apples), is lower than the average market price. We need a minor increase in the asset's market price to close a profitable deal.&nbsp;</p><p>We want to close the deal with 1% in the two examples below. In the instance with no martingale, the bot buys one coin every time the price decreases by 1%, it fills 5 orders covering a deviation of 4% in a price decrease, so to close in profit, it requires a &nbsp;price increase of 3.1% from the last order.</p><p>In the example with Martingale, the price only needs to increase by 2.3% from the last order to close in 1% profit, and we also sell more coins making more profit than with the previous bot.&nbsp;&nbsp;&nbsp;<br>&nbsp;</p><figure class="image"><img src="https://back.gainium.io/uploads/Fig_2_no_price_martingale_c88f34140b.jpg" alt="Fig 2 no-price-martingale.jpg"><figcaption>Fig. 2</figcaption></figure><figure class="image"><img src="https://back.gainium.io/uploads/Fig_3_volume_martingale_of_1_5_2_ec584622b5.jpg" alt="Fig 3 volume-martingale of 1.5 2.jpg"><figcaption>Fig. 3</figcaption></figure><p>Martingale increases the chances of closing a deal but also requires more significant capital to invest. So during a long downtrend is very risky to have a Martingale multiplier.</p><h3>Price Deviation Martingale</h3><p>The martingale strategy can also be applied to the price deviation, so every order will not be spaced equally in the chart but by a multiplier of your choice. This allows you to cover a more significant deviation using fewer funds. Cryptocurrencies are very volatile, so this tool is handy. As you can see from the example below (Fig. 4), with a multiplier of 1.5% on the price, we can cover almost the same deviation of the bot in Fig 2. spending only three coins.</p><figure class="image"><img src="https://back.gainium.io/uploads/Fig_4_price_martingale_only_of_1_5_84b5b04e9d.jpg" alt="Fig 4 price-martingale-only of 1.5 .jpg"><figcaption>Fig. 4</figcaption></figure><p>Both martingale strategies can be combined and work very well in maximizing your chances of closing a profitable deal. In the example below, we can see how we can efficiently use both. As mentioned before, bots with volume martingale use a lot of capital, so it is challenging to cover enough price deviation suitable for cryptocurrency trading. That’s why price martingale is very useful, as it helps find the right balance between safety and budget.</p><figure class="image"><img src="https://back.gainium.io/uploads/Fig_5_price_and_volume_martingale_ee836851fc.jpg" alt="Fig 5 price-and-volume-martingale.jpg"><figcaption>Fig. 5</figcaption></figure><h2>Types of deal start conditions</h2><p>There are three main types of deal start conditions, not all trading platforms have all of the following, so you will need to find which platform best suits your trading style.</p><h3>ASAP</h3><p>ASAP stands for "As Soon As Possible". These bots start a deal immediately and will open a new one once the previous deal is completed. They are used by traders who believe the market will go in a particular direction and want to run as many trades as possible.</p><h3>Signal</h3><p>Signal bots use indicator signals to trigger the deal start. Signals can be built within the bot platform or sent from an external service (such as TradingView) as a webhook. Gainium has conveniently already included the most popular presets like <a href="https://gainium.io/help/rsi">RSI</a>, <a href="https://gainium.io/help/macd">MACD</a>, <a href="https://gainium.io/help/qfl">QFL</a>: With Gainium you might not need to subscribe to the external service to send the signal.</p><h3>Periodic</h3><p>Periodic DCA bots open new deals at intervals, regardless of market price. Which, as we discussed before, is a form of long-term investment.</p><h2>Risk Management</h2><p>When getting started with bot trading, one of the most important things is understanding your risk appetite and managing your funds.&nbsp;&nbsp;&nbsp;<br><br>DCA bots use a significant investment to run safely. The more deviation you cover and the more funds you use by adding volume with the martingale scale, the safer your bot becomes. However, this has an impact on the daily ROI. So you must balance how much you want to invest, the profit you want to achieve, and the potential losses you will incur. These are just some of the variables, as you might create a super safe bot from a theoretical point of view, but you are running it with one very risky asset.</p><h3>Technical Analysis and Fundamental Analysis</h3><p>There are several tools available to manage your bots; first of all, comes your research learning about Technical Analysis (TA) as well as Fundamental Analysis. (FA). TA is based on the analysis of the charts and aims to forecast the market's future based on an asset's historical behavior. In other words, it is trying to identify a trend and opportunities for trading. FA instead looks at macroeconomic factors to evaluate the value of an asset instead of the historical performance. So it is looking at qualitative and quantitative elements to establish an asset's potential and value.</p><p>Once you have done your research, this can also be automated using some filters in your bots: for example, only trading large cap tokens; and with the appropriate deal start conditions, for example, only trading oversold tokens if you are running a long strategy DCA.</p><h3>Bot controller or orchestration (stopping and starting bots)</h3><p>Another tool to help your risk management would be to switch on and off your bots entirely depending on market conditions. This orchestration can be done again with a webhook alert from an external platform like TradingView. For example, you might want to start your bots when DXY is falling or stop your bots when it’s rising, as the dollar price (most of the time) is inversely correlated to the price of Bitcoin.</p><h3>Backtesting and Paper trading</h3><p>Many bot platforms provide you with a tool to <a href="https://gainium.io/crypto-backtesting">backtest your strategy</a>. This step is the most essential part of your strategy recipe. It will never be 100% accurate, but it will help you tweak your bots to find the right risk-reward ratio balance that suits your trading lifestyle. Gainium's backtesting tool allows you to back-test your strategy on different timeframes. The smaller the timeframe, the more accurate the backtesting is.&nbsp;&nbsp;&nbsp;<br><br>Some platforms allow you to run bots on demo accounts; this is called “<a href="https://gainium.io/crypto-paper-trading">paper trading</a>”, so a good practice could be the following. You could do your research, run a backtest and try the bot on paper trading before running it on your real account. It’s important to note that paper trading is also not 100% accurate as several factors cannot be replicated on these accounts.&nbsp;&nbsp;&nbsp;<br><br>Many people come to trading and bot trading hoping this would be a get-rich-fast method. This is not the case, and they are often upset when looking at the daily return. However, the daily ROI matters the most, and if you have a good strategy, are consistent, and are perhaps compounding your returns, you will be surprised! No other asset can give you such good returns with proper risk management. Even a small, conservative, and achievable 0.1% a day will give you a whopping 43% return when compounding your earnings.&nbsp;</p><p>See it yourself <a href="https://compounddaily.org/compound-daily-interest-calculator/">here</a>.</p>

In this article you can learn about Dollar-Cost averaging (DCA) basics and how to run and manage DCA bots profitably.

DCA bot basics

<p>If you have been using crypto trading bots long enough, chances are some of your bots were left holding “red bags.” This term refers to a deal with a significant negative PnL. Exiting red bags for profit is more of an art than a science, and the best approach depends on various factors. In this article, I will explain the process I followed for my own red bags, and hopefully, it will give you some good pointers for managing yours.</p><h2>What to do if your bot has red bags</h2><p>The first step in assessing the situation is acknowledging your available options. Those options are:</p><ol><li><strong>Do nothing</strong>.</li><li><strong>Close the deal and accept the losses</strong>.</li><li><strong>Manually micromanage</strong>.</li><li><strong>DCAing your way out.</strong></li><li><strong>Convert the deal to a DCA short bot</strong>.</li><li><strong>Convert the deal to a grid bot</strong>.</li></ol><p>Choosing the right approach depends on a few factors, including your knowledge and experience as a trader, your time horizon (how long can you wait), the opportunity cost (what else could you be doing with the funds), your emotional resilience, deal size, the particular token involved, etc. I've personally used every one of them, but my favorite is exiting with a grid bot. Each situation is unique, and you may mix and match any of those options to suit your needs.&nbsp;</p><p>Let's review each option in more detail.</p><h2>Option 1: Do nothing</h2><figure class="image"><img src="https://back.gainium.io/uploads/0f2a00ceb3ca3739b284356b61b12957_535bb508e8.jpg" alt="0f2a00ceb3ca3739b284356b61b12957.jpg"></figure><p>It may be painful to watch these red deals and try to prevent yourself from hitting the panic button, but sometimes the best thing you can do to avoid an even worse situation is to do nothing and observe.</p><p>This is especially true when there is a sudden price drop. When markets dump, we often underestimate how far down they can go. Trying to time the bottom, aptly named “catching a <a href="https://academy.binance.com/en/glossary/falling-knife">falling knife,”</a> is a dangerous endeavor, so you may as well stay out of it until the market settles.</p><p>Taking action too early is a mistake I've made countless times. Even though it may feel like the price is already super discounted and you may never get a chance to buy at this price again, let me tell you, that is rarely the case. More often than not, the market continues to dump, and I wish I had resisted the urge to add more fuel to the fire.</p><h2>Option 2: Close the deal and accept the losses</h2><p>This may seem like a mistake, but actually, for some people it can make sense. If you are not willing to take additional risk and the remainder funds involved in the deal could be better used elsewhere (opportunity cost), you can consider cutting the losses and moving on.&nbsp;</p><p>In most cases, though, closing the deal right after a dump might not be the best time. Markets tend to rebound, so waiting a little before acting on it could pay off. Furthermore, you can set a DCA short bot or a grid bot without taking any more risk (last option), so review all other options before throwing the towel.</p><h2>Option 3: Manually micromanage</h2><p>Another option is to convert your deal to a manual trade and set a specific plan for how you want to exit. This option allows you to set parameters that may not be available with a bot. For example, you may decide to sell a portion of your red bags at a loss to free up some funds. Or perhaps you are waiting for your favorite indicators to give you a signal to buy or sell.</p><h2>Option 4: DCAing your way out</h2><p>This option involves adding more DCA orders if you still have funds available or manually buying base through the DCA bot.</p><p>This can be a viable strategy if you get the settings and timing right. Note the “IF”; timing the market and predicting how far down the price can go is extremely difficult. In addition, you are adding exposure to that particular coin, potentially unbalancing your portfolio and adding more risk. For those reasons, if you go with this option, consider the potential risks carefully.</p><h2>Option 5: Convert the deal to a DCA short bot</h2><p>If you think further downside is still on the table, a viable option is to short the red bag with a short DCA bot and try to squeeze as much value from it as possible. This option has the advantage of not having to add additional exposure to the coin.&nbsp;</p><p>When setting a short bot, I recommend covering at least a 50% price deviation. Take into account that each DCA order is actually selling the token, so you may want to set up the bot in a way that your average sell is higher than your breakeven price.</p><p>For Gainium users, you can set up a bot with the following configuration:</p><ul><li>Deal start condition: Manual. This will ensure to start the deal only when you are ready.</li><li>Strategy: Short.</li><li>Take Profit: Disabled. Keep into account that the short bot is already selling the asset as the price increases. Taking profit means buying the asset back, which we do not want. Once all DCA orders are filled we can cancel the deal and delete the bot.</li><li>DCA settings: Here you can adjust to your liking, just ensure that the final breakeven price is higher than your average purchase price if you want to exit in profit.&nbsp;</li></ul><p><img src="https://back.gainium.io/uploads/short_bot_red_bags_824641e70b.png" alt="short_bot_red_bags.png"></p><h2>Option 6: Convert the deal to a grid bot</h2><p>Lastly, my favorite option is to exit with a grid bot. The advantage of a grid bot is that it can be configured to have less risk than a DCA bot (if no buy orders are set). As long as you choose a wide enough grid, the profit generated from the volatility will accumulate and eventually could cover your losses completely.</p><p>Setting the grid width depends on how long you are willing to wait. As a general rule, the wider the grid, the longer it would take to exit, but the more profits you can generate along the way.</p><p>A good rule of thumb for setting your upper grid price is to pick the nearest resistance to your breakeven price for that deal. However, it is possible that you are still at a loss by the time reach this target, specially if there wasn't enough volatility on the way up. If you can afford to wait, I recommend setting the upper grid price to a strong resistance that is higher than your breakeven price.</p><p>For the bottom price of the grid, you may choose the strongest support level close to the current price. When considering the bottom price, you would want to decide if you are willing to add buy orders (i.e., choosing a price under the current price) or would like only to use the existing base (i.e., selecting a price over the current price).</p><p>If you are using Gainium's grid bot, you can set the initial purchase price to be the average price of the red bag. It will automatically keep track of your breakeven price (taking into account any profit generated).</p><p><img src="https://back.gainium.io/uploads/grid_red_bags_cf99ff2b00.png" alt="grid_red_bags.png"></p>

If your DCA bot left you holding a deal in red, read this article for tips on how to recover them profitably.

How to recover red bags

<p>When it comes to trading cryptocurrencies, many people adopt a "more is better" mentality. This often leads traders to take on more risk than they can handle, which can result in heavy losses.</p><p>Is not uncommon for beginner traders to set up DCA bots with very risky parameters in an attempt to maximize their profits. However, in a market downturn, DCA bots can quickly fill DCA orders and dry up your funds.</p><p>If you find yourself in this situation, don't despair. There are a few things you can do to try and salvage the situation.</p><p>First of all, you need to take a step back and assess the situation. After you have taken a breath and put emotions aside, you can go over this account recovery checklist.</p><ol><li>Stop bots and remove DCA orders from existing deals.</li><li>Lower take profit for active deals.</li><li>Close positive and near breaking even deals.</li><li>Deposit extra funds if possible.</li><li>Analyze and prioritize remaining deals</li><li>Add funds manually or add DCA orders</li><li>Keep micro-managing and closing trades until there are enough funds for your bots to run normally.</li></ol><p>Let's go over these points in more detail.</p><h2>1. Stop bots and remove DCA orders from existing deals</h2><p>As soon as you realize that your account is overextended, the first thing you need to do is stop all bots and remove any DCA orders that are still active. Stopping the bots will prevent the bots from opening new deals while removing DCA orders from existing deals will prevent the bots from executing more DCA orders and further drain your account. Even if you completely ran out of funds, the bots are monitoring your balance, and as soon as more funds become available they may unexpectedly execute DCA orders. So make sure you have completed this step before doing anything else to avoid an unwelcome surprise.</p><p>When stopping the bots, make sure you don't close the deals. We will be manually closing some deals in a later step.</p><p>Keep an eye on locked funds in pending orders. You will want to free as many funds as possible to manually allocate them.</p><h2>2. Lower take profit for active deals</h2><p>Next, you will want to lower the take profit of remaining deals to 0.05%. This will help minimize your losses and close deals faster, freeing funds to recover other deals.</p><h2>3. Close positive and near breaking even deals</h2><p>If you have any deals that are in profit, regardless of how small, you should close them. The same goes for deals that are very close to breaking even. It is better to take a small loss now and free up funds to focus on recovering other deals.</p><h2>4. Deposit extra funds if possible</h2><p>If you have any extra cash, now is the time to deposit it into your account. The more funds you have available, the easier it will be to recover your account.</p><h2>5. Analyze and prioritize remaining deals</h2><p>The next step is to analyze your remaining deals and prioritize which ones you want to focus on recovering. Take a look at all of the deals that are still open and assess how likely they are to be profitable. You will want to prioritize the deals that are most likely to be profitable and focus on those first. Take into consideration the size of the loss, the current market conditions, and your risk tolerance.</p><h2>6. Add funds manually or add DCA orders</h2><p>Once you have determined which deals you want to focus on, it's time to add funds. But don't add more funds without a plan, take a look at technical indicators and try to determine where the bottom is. Adding funds too early may mean that you end up losing even more money.</p><p>If you don't have the technical know-how to use technical indicators to time when to add extra funds, you may add extra DCA orders at specific price drops instead. Just maz</p><h2>7. Keep micro-managing and closing trades until there are enough funds for your bots to run normally</h2><p>The final step is to keep a close eye on your account and make sure you are regularly closing deals. As soon as a deal starts to turn around, close it. The most important thing is to remain calm and patient and wait for the right to make a move.</p><p>&nbsp;</p><p>Managing an overextended account is never easy, but by following these steps you can give yourself the best chance of success.</p>

DCA bots can quickly fill DCA orders and dry up your funds on a market downturn. If you find yourself in this situation, don't despair. There are a few things you can do to try and salvage the situation.

Automated Trading Basics

DCA bot basics

How to recover red bags

Manage overextended account