We are at the cusp of innovation and breakthrough. With technologies such as blockchain and AI, our growth is unparalleled compared to the 1900s. As a cryptocurrency trader, you can also take advantage of the technology.
Artificial intelligence role in the current economy just cannot be ignored. Many studies already show that AI will be taking over jobs. The extent of the takeover is highly debated, but it’s inevitable for some professions. Anything that can be automated will be automated. There is no ifs ands or buts.
Does Artifical Intelligence Play a Role in Cryptocurrency Trading
If you are an experienced trader, you already know the role of technical analysis in trading. Apart from the gut feeling, traders take advantage of the technical indicators including MACD volume, RSI or the Fibonacci tools. Any structured information can help you in making more informed decisions — improving your chances of success.
But what if all of this can be done by artificial intelligence?
Yes, you read it right. Bots can do the trading for you!
It is not a new thing anymore. Go open up any popular freelancing site such as Upwork, Freelancer, etc.; you can easily find clients looking for developers who can build them a trading bot — according to their requirement.
Deep learning plays a crucial role here. And, with tons of big data to feed to these bots, it’s only time that the bots can bring better results than human traders.
In short, using AI bots can improve buy and sell trading signals for your crypto — bringing in more profit.
Shift From Traditional Market To Crypto Market
The role of AI is not new. Traditional markets have been making use of AI from quite some time. Also, the data generated by traditional market makes it more efficient with every passing day.
The results also suggest that these AI-powered trading bots are better than people. They provide better results.
But, does the same apply to cryptocurrency marketing?
The cryptocurrency market is smaller compared to the traditional market. This leads to issues as AI can make more error due to lack of liquidity.
It’s not perfect.
However, as humans, we suffer from emotions — which can lead to undesired results.
With time, algorithms are getting the better of us. Their accuracy improves with each passing day, and you can also find tons of research in the area. An updated algorithm will ensure up-to-date trading signals that can beat the market.
Trading on emotions is the number one reason most of the traders lose their money. Data-driven decisions can help cope with the issue.
The role of artificial intelligence is not only limited to traditional markets but also the blockchain. AI merging with blockchain can solve a plethora of other problems. It can impact the business directly by improving efficiency. However, integration to an already established business process remains the biggest challenge.
Ways in Which AI is Used in The Crypto World
There are multiple ways AI can be used. One of the methods is arbitrage. It relies on multiple exchanges for technical indicators. So, for example, if the value of BTC is higher in one exchange and low on the other, the bot can buy it on the more economical exchange and sell it on the other exchange with a higher value.
There is also High Frequency Trading (HFT). This AI is is suited for traders closest to “the floor” of the trading exchange. The reason it’s important to be close to the source is because it takes time for information to go through the wires and reach the majority of traders. This means that most people get a price that is miliseconds in the past. HFT is basically trading before you receive the information yourself. It’s only miliseconds but that’s an eterinty for High Frequency Trading.
The use of application programming interface(API) is what makes all of these possible. Almost every exchange offer APIs which can be programmed to work with a trading bot. Once the trader sets it up properly and backtests they will then make the bot live.