2024-11-12
Beginners & Crypto Algorithmic Trading
Lately, I've been seeing more and more people, who have never traded on the stock market, suddenly dive into the world of crypto trading - and not just any trading, but aggressive strategies using robots. Well, I have some news for you, fellow beginners: if you think it's time to make your software earn millions while you sip cocktails on the beach, forget it. If you're tempted to go down that path, first, sit down and study. Let's talk about why algorithmic trading in the cryptocurrency market isn't for newbies, especially not for those who believe their laptop running a chatbot can turn a few hundred dollars into a fortune.
1
Introduction
So, you've read a couple of articles about someone pressing a button on an exchange and buying a Lamborghini the next day. Maybe you've even seen ads for services that promise to "set up a robot in 5 minutes and earn millions while you sleep." And now you're thinking, "Why not?" After all, opening an exchange account and creating a crypto wallet takes no more than five minutes, and it sounds like a great idea! But not so fast! Beneath this apparent simplicity lies a vast number of hidden icebergs that are easy to crash into, especially if you're an inexperienced sailor in the turbulent ocean of cryptocurrency speculation.
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Resources to Drown in Knowledge
Let's start by breaking down a few terms:
Here's your first warning: if you think that learning a few terms and glancing at cryptocurrency exchange rates is all you need for successful trading, you're deeply mistaken. This path leads straight to failure, and here's why.
- Algorithmic Trading - This is the process of using computers and software to automate trading decisions on the market. A program can trade much faster and make decisions based on complex algorithms that a human simply couldn't process in a split second.
- Cryptocurrencies - These are digital assets that use cryptography to secure transactions, control the creation of new units, and verify the transfer of assets. Popular cryptocurrencies include Bitcoin, Ethereum, and many others.
- Backtesting - This is the process of testing an algorithm on historical data to understand how it would have performed in the past. It's important to remember that past results do not guarantee future success.
Here's your first warning: if you think that learning a few terms and glancing at cryptocurrency exchange rates is all you need for successful trading, you're deeply mistaken. This path leads straight to failure, and here's why.
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Oh, These Newbies…
Let me share a couple of stories I've encountered in my practice. I've changed the names, of course, to avoid offending anyone, but the essence remains the same. These stories are classic examples of "how to lose everything you have and end up in debt."
Story 1: Danny and His "Perfect" Algorithm
Danny (not his real name, but you get the idea) was an ordinary guy who decided to try his hand at algorithmic trading. He invested $5,000 and found a free trading robot online that promised a 99% success rate (yes, that's not a joke). He started trading and… in the first month, he made another $5,000! Wow! "I must be a natural trader!" Danny thought and increased his stake to $15,000. But then the market did what it does best - it behaved completely irrationally. Within three weeks, Danny lost everything in just one week. The result: $15,000 in losses and the shock of losing it all so quickly.
Story 2: Mary and Her "Reliable" Robot
Mary (name changed, of course) was convinced she had found the Holy Grail of trading when she read about a new "breakthrough" algorithm on a popular forum. She invested her $10,000, and for the first couple of days, the robot indeed made profits. However, as soon as volatility hit the market (which happens more often than it seems), her robot started making wrong bets. After a month, her balance shrank to $3,000, and two months later, she was left with $500 in her account. The result: $9,500 in losses and closing her account on the exchange with a deep sense of disappointment.
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What to Study Before Diving In
So, what should you do to avoid these scenarios? Let's start with a basic checklist:
- Learn the basics of stock market trading
2. Understand how the market works.
3. Take a course on algorithmic trading.
4. Take a course on algorithmic trading.Master the art of risk management. Learn how to use stop-losses, trailing stops, and other tools to minimize risks. Articles on Investopedia and other educational platforms can help.
5. Get into backtesting. This will allow you to test your algorithms on historical data to understand their effectiveness. Excellent platforms for this are QuantConnect or MetaTrader.
5. Get into backtesting. This will allow you to test your algorithms on historical data to understand their effectiveness. Excellent platforms for this are QuantConnect or MetaTrader.
5
Move to Paper Trading
Now that you realize that simply turning on a robot and waiting for profits isn't the path to success, the next step is paper trading. This is a simulation of real trading but without real money. By the way, this is also called "paper trading."
Simulators and Learning Platforms:
- Binance Futures Testnet. An ideal platform for those who want to learn the ins and outs of futures trading on cryptocurrencies.
- TradingSim. This platform allows you to simulate trading in real-time using historical data.
- CryptoHopper. Another useful tool that offers a demo account and strategy testing.
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Entering the Real Arena
When you finally feel ready (or at least not as scared), it's time to move on to real trading. And here's the key - start small. For example, start trading with minimal amounts, and only after you feel confident, gradually increase your volumes.
Recommendations for Starting:
Recommendations for Starting:
- Use only the money you're willing to lose.
2. Start with simple strategies.
3. Monitor your results and adjust your strategy.
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Conclusion: Expectations vs. Reality
So, let's summarize. From the moment you first decided to get into algorithmic trading to the point where you can actually trade profitably, it could take anywhere from 6 to 12 months. This time includes:
Ultimately, success in cryptocurrency markets will only come from hard work, attention to detail, and a willingness to learn from your mistakes. And if you still think you can do it all in a couple of weeks, remember: don't fall for the illusion of simplicity. Good luck, and may your robots work for you, not against you!
- 1–2 months learning the theory.
- 3–6 months trading on simulators and backtesting.
- 1–3 months taking the first steps in real trading with minimal volumes.
Ultimately, success in cryptocurrency markets will only come from hard work, attention to detail, and a willingness to learn from your mistakes. And if you still think you can do it all in a couple of weeks, remember: don't fall for the illusion of simplicity. Good luck, and may your robots work for you, not against you!