Stock trading bots are becoming increasingly popular. They’re being used by everyone from professional traders to casual investors looking for an edge in the market. According to Statista, the global online trading market will reach an estimated $12.16 billion in 2028.
You have reached the perfect place if you are new to bots or auto trading.
But what exactly is a stock trading bot? How does it work? And how do you optimize one for your needs?
Here’s everything you need to know about using bots to make money with stocks.
Table of Contents
What Is a Stock Trading Bot?
A stock trading algorithm sometimes called a ‘trading bot,’ is simply an automated process for buying and selling stocks. The developers coined the term at Ayondo with their first mobile app in 2014. Since then, it has appeared everywhere, from Reddit to news outlets worldwide.
How Does it Work?
The trading algorithm sits in the background of your account while you monitor all your stocks. It doesn’t interfere with your strategy – if you’re a long-term investor, the bot won’t sell anything without your permission.
But every time you check in on the market, it analyzes prices to determine whether it’s the right time to buy or sell. Once it has done that, it gets to work, placing bets in fractions of a second based on its analysis.
The data is then sent to you in real-time to make an informed decision about whether to follow the bot’s action or not.
7 Tips to Optimize Your Stock Trading Bot
With great power comes great responsibility, and that’s no less true with stock trading algorithms. If you are new to bots or auto trading, it should be set up right from the start. Here are tips to optimize your auto trading results.
#1 Don’t Get Caught Up in the Hype
It’s easy to get diverted by the excitement surrounding bots. Every day, you see a new headline about a trader who made thousands of dollars on a single bet. News outlets love this stuff, which is why they’re always looking for the next big story.
The truth is that stock trading isn’t relatively as easy as it sounds. Yes, you can make a lot of money with the right tools – but you’ll lose a lot if you aren’t careful. Keep your head on straight and proceed with caution.
#2 Establish Your Goals
Before you do anything else, consider your reasons for wanting to use an auto trading bot in the first place. Are you a long-term investor looking to make the best possible returns? Or are you a scalper who wants to make as much money as possible from small price fluctuations?
Knowing the objectives will help you pick the right bot. For example, if you want to use it as part of a long-term strategy, you should look into systems that also consider other market factors.
#3 Get to Know the Bot’s Limitations
Every trading bot has its unique limitations. Some trade during certain hours only, while others require specific securities or don’t work with particular exchanges. Ensure you understand things you can and cannot do with your bot before committing to anything.
#4 Start Small, Then Scale Up If Necessary
No matter which bot you choose, it’s essential to start small and see how it performs before making significant investments. After all, there’s no predicting the future – your first trade with a new bot might be your last if you’re using a terrible strategy.
#5 Set a Stop Loss to Protect Yourself Against Failure
A stop loss is a pre-determined price at which your bot will automatically sell a security if you haven’t engaged with it in a while. It can help protect you from losses by preventing overleveraging or other common mistakes.
#6 Apply Money Management Techniques to Reduce Risk
Money management is simply the practice of limiting your losses by following a system. For example, you might only allow yourself to lose 5 percent on any single trade – and if you do this consistently, you’ll outperform most other traders over time.
#7 Track Your Results for Better Insights
Stock trading bots come with some beneficial analytics tools, which you can use to your advantage. By tracking all of the relevant metrics (profit, loss, ROI, etc.), you can make sure that your bot is working in your favor with minimal effort on your end.
Advantages of Using Auto Trading
-It helps you invest faster
-It takes less effort to execute trades
-You can set the bot to work around the clock, so you don’t have to monitor it yourself
-Your bot will adapt to market changes on its own, making it more accurate than static strategies
With Auto-trading, you don’t have to second-guess yourself constantly – turn it on and let your bot do the work for you.
