Automation has been the main driving factor behind the expansion of the crypto market in the financial world. Contemporaryauto trading software is incredibly powerful, affordable, and efficient when it comes to working with digital assets in an environment that works around the clock.

There are many reasons why retail traders employ automation in their investment strategies, namely, the ability of bots to work 24/7 and the consistency of their performance. What many people struggling to make ATS (automated trading systems) work are lacking is the understanding of the importance of technical analysis.

The principle behind algorithmic trading

Why do we call an automated system algorithmic? The simplest answer is that it uses a set of rules enacted when certain inputs are in place. For example, when price action changes or trading volume reaches a user-defined threshold. An algorithm is just a sequence of actions executed according to specific instructions.

Modern trading strategies employing finely tuned algorithms do not have anything overly complex in their architecture. If you throw away all the technicalities of how the web architecture and technology works, the principle is quite straightforward:

1. A user writes a script that incorporates certain instructions and must react to specific inputs.
2. The script receives inputs from a provider like TradingView or other terminals.
3. The script executes orders according to its instructions when conditions of the algorithms are met.

Even an untrained eye will quickly notice that the whole thing relies heavily on the correctness of inputs. If something goes wrong, it means that the input generator is at fault. However, TradingView and similar platforms do not have automatic systems that generate trading signals for everyone. They merely have a set of tools that investors can use to create these signal generators.

It is here we must start talking about indicators and complex algorithms (we will call them trading strategies) that make or break any automated trading system.

How to make a good strategy

Any retail trader who wants to engage in auto trading with indicators wants to achieve two main goals:

1. To create a consistent strategy capable of averaging good outcomes over a long period.
2. To hedge against specific risks in their portfolio by building a custom hedging mechanism.

The second is a complex approach that many retail traders rarely use. It means that if you have very reliable low-risk investments like staking or debt-backed tokens on DeFi platforms, you should create an aggressive algorithm that incorporates a hefty risk premium. On the other hand, a portfolio full of riskier investments should be balanced out by something more consistent.

Let’s take an example of preset bots offered by WunderTrading. DCA and GRID bots can be customized to be very safe with smartly placed take-profits and stop-losses. It may be used as a hedging mechanism against the risks associated with other investments with a more dangerous risk profile. It is all about risk management and portfolio diversification.

Building a consistent algorithm with appropriate indicators is a much more challenging task that often becomes the culprit for many beginner retail traders who simply do not pay attention to the minutia of technical analysis methods they are using.

Picking the right set of indicators

There are many examples of various indicators that you can use to a great success. However, choosing the best of the best is never easy. Many retail traders face several distinct difficulties when it comes to creating an efficient trading strategy:

• The lack of know-how. Using indicators can be quite hard. For example, some traders simply use MACD in conjunction with three moving averages. They may look pretty on the chart, but these two tools do virtually the same thing preventing you from seeing the whole picture and generating many false-positives for your bots.
• Not learning how indicators work. Many retail traders fall victim to the sweet talk of financial influencers and fake gurus promoting their “1000% reliable systems” on social media. You cannot use a tool without understanding how it works and where it can be applied. Blindly trusting people who are just hustling is never a good idea. Do your own research!
• Following the latest market trends. The next hot thing appears in the world of crypto every other day. It can be a new token, a decentralized platform, or an indicator. You cannot use technical analysis tools that were not yet tested by the community and heavily scrutinized against the market history as well as its current environment.

Considering all of the above, we can give you several important tips:

• Learn how to use an indicator. TradingView gives you a host of ways to test how any tool on the platform works. You can also backtest any automated trading system with the help from WunderTrading.
• Combine different indicators for multiple confirmations of signals. Use trend indicators like MACD and moving averages together with Volumes, Ishimoku, Relative Strength Index, and other tools that measure trading volumes.
• Read about the experiences of other retail traders. Join forums and talk with users on TradingView to check whether you should use a new tool. People leave feedback and passionately discuss these instruments creating plenty of food for thought!

The right strategy will make your automated trading system a reliable source of actual cash yields. A poorly constructed one will create a gaping hole in your portfolio within a couple of months. You must be very careful with choosing the right strategy! Educate yourself at every opportunity and spend enough time researching!

The main takeaway

Successful retail traders use highly specialized automation tools to build sophisticated algorithmic trading systems that deliver consistent performances when compared to human traders. However, these systems are founded on complex technical analysis techniques that were carefully tuned to make bots look good.

While it is important to work with a reliable automation vendor, choosing a good strategy that produces more true positives than false ones is truly crucial for the success of your investments in automated cryptocurrency trading!