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The Cybersecurity Side of AI Crypto Bots: What Users Need to Know
Many crypto investors remain sceptical about using AI in their trading. They are aware that the technology exists,…
Many crypto investors remain sceptical about using AI in their trading. They are aware that the technology exists, but they are unsure of how to initiate it or whether it’s safe to use. Here, we look at the most effective ways traders can use AI to generate a better ROI safely.
****AI in Crypto Trading****
Artificial intelligence (AI) refers to computer systems that can think and learn in ways similar to humans. Since they are machines, these systems can process information much faster than people can, which opens up numerous possibilities for AI applications.
The cryptocurrency market is highly volatile, and price changes occur swiftly; therefore, technology that can keep up with it is necessary to trade profitably. Traders can use AI in different ways to profit from the crypto market, including:
- Automate Trading
According to OANDA, a crypto trading platform and fintech provider of crypto market data, one of the main advantages of using AI is the ability to make trades with almost no stress. AI bots operate independently once you set them up with strategies to trade assets based on market conditions. This saves the time that you would have spent watching multiple assets and tracking news events for each one.
For example, 3Commas is a popular trading bot that connects to major exchanges. Users can set up automated strategies such as grid trading or dollar-cost averaging. The bot watches the market 24/7 and executes trades based on the rules you create
- Manage Crypto Portfolio
Beyond trading cryptocurrencies directly, artificial intelligence can also help track prices and manage investors’ portfolios. You gain a comprehensive view of your assets through real-time data, which displays portfolio value, asset distribution, and past performance across various exchanges and wallets. These data let traders make smart investment choices without having to manually track everything themselves.
AI-powered trackers can also spot and alert you to inconsistencies between your recorded transactions and the actual blockchain data. This includes differences in fees, token amounts, or transaction timing. This feature helps keep your portfolio records accurate.
Another useful feature is automated labelling, which goes beyond basic summaries. The system automatically sorts transactions into categories like staking rewards, airdrops, or trades. Some tools even function as tax calculators, offering relevant data and downloadable reports. This becomes especially helpful during tax season when you need to follow local regulations.
Keep in mind that using AI for crypto trading through these applications may have costs. Basic features are often free, but advanced options like tax-harvesting tools and premium services such as priority customer support usually require a subscription. You should compare the costs with the benefits to decide if paying for these tools makes sense for your situation.
To use a crypto portfolio management application, you typically create an account and enter your exchange API keys. This gives the tool access to your portfolio data so it can track your holdings and performance across multiple platforms.
- Forecast with Predictive Analytics
Predictive analytics is a powerful application of AI in cryptocurrency trading because it examines past price patterns and market sentiment data to forecast where prices might head next.
Machine learning (ML) is one of the core technologies here, and the way it helps generate profits in crypto trading is straightforward. ML models, such as Neural networks and Decision trees, can analyse complex data relationships and detect hidden patterns without requiring specific statistical assumptions.
Building effective ML models for crypto trading requires considering several factors: input data, model selection, and output type.
Many trading platforms now include predictive analytics features built directly into their systems. Services like TradingView allow traders to apply advanced techniques through customizable indicators without needing to write any code. For traders with technical skills, libraries such as TensorFlow and PyTorch enable building custom predictive models, though these tools require programming knowledge.
More sophisticated platforms, such as Glassnode and Santiment, aggregate on-chain data and social sentiment to produce insightful deductions.
- Understand Market Sentiment
Sentiment analysis utilises AI to analyse opinions, emotions, and attitudes expressed in text data, such as news articles, social media posts, and online forums. This information helps you gauge the overall market mood, indicating whether it is bullish or bearish.
Because the crypto market is speculative and driven by sentiment, this analysis type proves particularly valuable for finding short-term opportunities. Natural Language Processing (NLP) is a common AI-powered feature people frequently use. It helps interpret textual data by:
- Understanding forum discussions.
- Processing news articles related to cryptocurrencies
- Examining social media and community posts to determine the overall sentiment about a specific cryptocurrency
NLP identifies keywords, sentiment scores, and trends from all this data so traders can decide if they should buy, sell, or hold their funds.
A sudden increase in positive sentiment around a cryptocurrency may signal a potential price rise, and the opposite is true as well. For example, positive news like a major company adopting Bitcoin can trigger a rapid price increase.
Similarly, rumours or regulatory announcements can cause panic selling. Traders using sentiment analysis can anticipate these changes and position themselves accordingly. Platforms like LunarCrush and Santiment specialise in providing such features.
- Risk Detection
AI tools work well for finding risky trading situations because they can process large amounts of information and notice small changes. You can teach trading bots like Cryptohopper to recognise patterns in candlestick charts. These bots will notify you when they see specific chart formations that could signal upcoming market movements.
The best bot for your needs depends on how you trade. All AI bots can check for possible risk warnings as they happen and suggest actions based on the information they find.
****How to Safely Trade Crypto with AI****
AI offers many benefits in various situations, but traders must still use these tools carefully. This is because once the parameters have been defined, there is limited control over what happens next.
Therefore, participants should always apply risk management strategies, such as stop-loss and diversifying investments across multiple assets. It is also crucial to stay informed about market trends and news that may impact cryptocurrency prices.
(Photo by Eftakher Alam on Unsplash)