Type of Trader vs Type of Settings
Unveil the impact of bot settings on crypto trading success. Learn how tailored configurations align with your trading goals for optimal returns.
How can the same strategy lead to totally different results? Why do returns differ so much between traders for the same market conditions? Why are some traders more successful than others in automated trading? one word: Settings.
One of the most FAQ amongst the crypto-trading community is: what are your settings? The configuration of your trading bot is not only the rudimentary process of setting up a stop-loss, take profit and shutting down your laptop.
Properly configuring your trading bot is a crucial step that ensures your bot makes informed decisions and, equally important, avoids making costly mistakes.
First and foremost, before configuring a trading bot, you have to ask yourself what are your objectives.
Before delving into the intricate world of trading strategies and bot settings, it's crucial to define the type of trader you aspire to be. This initial step will guide you through the process of configuring your trading bot effectively.
Why is it important to define your trading objectives? Many crypto traders often configure their settings based on social media advice or sheer faith without a clear strategy in mind. This can lead to inconsistent results and losses.
As an investor with a preference for medium to long-term investments, your settings would naturally differ from those of a day trader. Your risk appetite and other factors will also play a significant role in shaping your settings.
To understand the settings commonly used by different types of traders and their trading styles, let's categorize them into three groups: Day traders, Swing traders, and Position takers, representing short, medium, and long-term approaches, respectively.
Day Trader
Day traders are known for their high trading frequency, often making numerous trades in a single day. Given the daily price volatility, they typically target smaller returns, typically ranging from 0.5% to 5% per trade.
These considerations already provide us with insights into the values we should consider for various settings. Now, let's delve into some of the essential settings that every automated trading strategy should carefully consider:
Take profit → As mentioned earlier, day traders aim for relatively small returns per trade, usually within a range of +-5%. Therefore, setting take-profit levels around these percentages aligns with the typical day trading approach.
Stop-loss → Day trading involves low-duration trades with modest returns. To maintain a good risk-reward ratio, it's advisable to set relatively tight stop-loss levels. This ensures that your potential losses are limited and offset by your average positive trades.
Selected coins → Day traders require a high volume of trade opportunities. Therefore, you should be very careful here to select currencies that have a decent volume, otherwise, you will incur a lot of slippage. Slippage can eat into your profits just as much as trading fees.
Trade size → Even the most successful traders have a finite amount of capital to invest. As a day trader, aiming for a high volume of trades often means each trade will have a smaller size. This can also be a strategy for diversification purposes.
Trailing stop-loss → Similar to take profit, trailing stop-loss should align with your average trade percentage. For example, if your trades typically aim for an average return of 2%, a reasonable trailing stop-loss could trigger just before reaching that average percentage.
Max open time Buy/Sell → In the fast-paced world of day trading, delays in executing trades can significantly impact your returns. The "Max Open Time Buy/Sell" setting determines how long a limit order remains pending. For quick in-and-out trades, it's essential to keep this value relatively low to avoid buying at peak prices.
By considering these settings and aligning them with your day trading strategy, you can optimize your trading bot for the best results. Remember that every trader may have unique preferences, so it's essential to adapt these settings to your specific goals and risk tolerance.
Swing Trader
Now, let's delve into the settings suitable for swing traders, who fall into the medium-term trading category. If we were to analyze their preferences, we'd find that their settings typically strike a balance between those of long-term investors and day traders.
Here are some approximate settings that work well for swing trading:
Take profit → Swing traders typically aim for returns per position in the range of 5% to 20%, as that is a realistic target that can be achieved within a few days.
Stop-loss → Determine your stop-loss percentage based on the average return of your successful trades. Strive for a stop-loss level that maintains a favorable profit/loss ratio.
Selected coins → Swing traders enjoy more flexibility in coin selection compared to day traders. While diversification is still essential, slippage concerns have less impact on your strategy.
Trade size → Swing trading allows for larger trade sizes when compared to day trading. This approach enables you to capture more substantial price movements while still managing risk effectively.
Trailing stop-loss → Your trailing stop-loss (TSL) should be tailored to your profit objectives, which are typically based on your average profit per position. The TSL value should correlate with your chosen take-profit level and reflect how quickly you aim to secure profits.
Max open time Buy/Sell → Since swing trading spans a medium-term horizon, you can set a moderately longer time span for max open times. However, keep it somewhat lower than what you'd use for long-term trades.
These settings will help you fine-tune your trading bot for successful swing trading. Remember that the ideal settings may vary based on your specific analysis and risk tolerance.
Position Taker
Are you wondering if a "position taker" is the same as a "holder"? Well, they're not. A position taker follows a specific buying and selling strategy. They don't just hold coins and hope for the price to rise.
So, what makes this strategy "long-term"? Essentially, it aims for a high return over time. For instance, don't expect your strategy to make more than 20% in just a few days. But you would rather wait to to get 150% in two months
These returns are based on anticipating long-term trends in an asset, so it'll take some time to achieve those high returns.
If you see yourself as a position taker, your automated strategy settings should align with this trading style.
Take profit → In long-term strategies, the goal is to achieve a high return. Setting your take profit level is crucial. Position takers usually set the take profit above around 50% or even higher.
Stop-loss → Long-term positions take time to reach their objectives. This means we allow the price to fluctuate widely until the take profit is triggered. So, you should have a very low stop-loss, but still aim for a good profit/loss ratio, at least 2:1.
Selected coins → Unlike day traders, long-term traders don't need to focus on a large number of assets. It's better to thoroughly analyze a small group of cryptocurrencies and take larger positions in them.
Trade size → Long-term strategies often require a significant amount of resources for each trade since you will have less open positions. This means you'll have fewer open positions, and the trade size is usually quite large.
Trailing stop-loss → This is a way to close profitable trades. Typically, it's set around halfway to the profit target with a wide trailing stop-loss percentage to allow the price to continue its course.
Max open time Buy/Sell → Just like the moon won't move much in the first hour of a rocket launch, with long-term trades, it's not crucial to open a position within the first 30 minutes or an hour. However, waiting too long can reduce your potential profit. So, find the right balance.
Bottom Line
It's crucial to determine your trader identity even before crafting your strategy. This involves analyzing yourself as a trader and conducting thorough strategy testing. Doing so will boost your chances of navigating the highly volatile world of trading successfully. So,make sure to explore who you are as a trader and backtest your strategy for a smoother ride in any market condition.
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