How Do Bitcoin Trading Bots Initiate a Buy or Sell Signal?

October 9, 2019 BitcoinTalkRadio 0 Comments

There are several methods traders use to initiate buy and sell signals.

They are divided into pre- and post-breakout/breakdown techniques.

While some traders use momentum indicators to identify moves before they happen, others wait for confirmation before initiating a trade. Both methods have their drawbacks and advantages.

One other trading system that has recently become more popular is the use of trading bots. These are bots programmed with a certain code that identifies a defined set of indicators and/or price movements in order to pinpoint a profitable trade.

Crypto trader @cryptogainz1 identified a potential buy signal created from his bot for the price of Bitcoin.

The buy signal was triggered on October 9 at a price of $8171.5.

However, the bot did not specify a target for this possible upward move.

Looking at the chart above, we can see that it is likely that the trade will remain open until the bot issues a sell signal.

The chart also shows previous trades, from which we can see that this is likely a scalp (short-term trade) with the goal of gaining a few percentage points of profits.

Judging by its past performance, it is possible that the bot will issue a sell signal today or tomorrow.

What Triggered The Buy Signal?

Judging by the price of the buy signal and the time the tweet was sent, the buy signal was triggered at the 15-minute candle outlined below.

Therefore, after a breakout from the wedge/channel, the Bitcoin price returned to validate the previous resistance line. This likely initiated the buy signal.

This is a method of trading in which a trade is initiated after a move has already occurred. While the risk is lower, since the move has already occurred and the price is likely to continue in the same direction, the asset sometimes does not return to validate the line from which it broke out. Therefore, this might sometimes leave a trader without an open position.

Comparing it to buying pre-breakout, it offers a lower risk of losing money but also a lower potential profit, since we are likely initiating a trade at a higher-than-pre-breakout price.

Looking at the 15-minute moving averages (MA), we can see that the signal was triggered shortly after the 10- and 20-period MAs made a bullish cross.

However, the same MAs just made a bearish cross and, as of the time of writing, the bot has yet to issue a sell signal.

Therefore, while it is possible that the bot uses moving average and decisive moves outside of a trading pattern in order to create a signal, we do not yet have confirmation that it does so.

Future signals will likely confirm or reject our hypothesis.

Original story: https://beincrypto.com/how-do-bitcoin-trading-bots-initiate-a-buy-or-sell-signal/