How to train an AI bot to day-trade crypto

Learn the essential steps to create and train your own AI bot for day trading cryptocurrencies and potentially automate your trading decisions.

Crypto trading algorithms and bots are common tools in cryptocurrency trading. The emergence of generative artificial intelligence (AI) has added new capabilities to these tools, creating AI crypto trading bots and spurring further interest in their use. 

For investors who take advantage of these tools to augment their day-trading strategies, effective AI bot training is critical to their success.

What is an AI crypto trading bot?

AI crypto trading bots, algorithmic trading tools, or automated trading bots are software programs or platforms that use AI, machine learning or algorithms to monitor crypto markets and automatically execute crypto trades. Trading bots automate trading tasks such as choosing, buying or selling a cryptocurrency based on certain parameters and a trader’s chosen strategy.

Crypto traders use these tools to take advantage of sudden crypto price movements to buy and sell their digital assets without constantly monitoring the cryptocurrency markets or jumping into an exchange or trading platform to manually make trades when they see an opportunity or a risk.

It’s worth noting that non-AI algorithmic trading tools have been around for a while. Similar tools have developed but become more sophisticated with the addition of AI. This article focuses on AI trading bots and how to train an AI bot to day-trade rather than just algorithmic trading.

What are the benefits of training an AI bot?

Training an AI bot, or in this case, setting up an AI crypto trading tool, is a risk management technique that helps crypto traders mitigate the risks of AI and crypto, minimize losses and hopefully maximize profits when using these tools.

Off-the-shelf AI crypto trading bots or platforms allow crypto traders to set their own parameters and order execution strategies. These can include setting stop-loss orders, specific day trade strategies, portfolio diversification and more.

Step-by-step process to train an AI bot to day-trade crypto

Investors and traders who use AI trading bots must first have a thorough understanding of crypto trading and in-depth knowledge of AI bot features and capabilities. The following steps for how to train an AI bot to day-trade crypto are relevant to ready-built bots and platforms and can vary depending on a trader’s strategy and choice of software.

Step 1: Carefully choose an AI trading bot

Numerous AI trading bots are available, with many emerging or developing capabilities as AI has advanced in recent years. Traders should use a secure and well-reputed tool with the required features and cryptocurrency support.

Step 2: Create an account and connect to a cryptocurrency exchange

Crypto traders should choose a cryptocurrency exchange to connect to the trading bot using the application programming interface (API) keys provided. It’s important to ensure the process is secure and to check what permissions the API is granting the bot.

Step 3: Set up and customize trading strategies

This is the vital part of training a pre-built AI bot for day-trading. Many AI crypto trading bots allow traders to choose from predetermined strategies or build their own. Crypto traders consider the markets and risk tolerance, setting parameters for trading positions, stop-loss, take-profit levels and trade frequency.

Trading strategies can be customized to follow arbitrage or scalping strategies, so traders should understand the approach they want to take and the options available and make their customization choices appropriately.

With the right platform and knowledge, a trader can train an AI trading bot more precisely by identifying patterns in candlestick charts to alert traders to potential market changes.

Step 4: Perform thorough backtesting strategies and use trading simulation

The backtesting feature offered by AI trading bots is critical. It allows traders to apply their set strategy to historical data and conduct a performance evaluation before applying bot settings and strategy to real assets.

The best AI trading platforms will also have a demo trading feature that allows traders to practice applying their strategies again without using real assets. These tools allow traders to familiarize themselves with a bot’s functions and features, spot flaws and mitigate risks in their chosen trading strategies.

Step 5: Monitor markets and performance and adjust settings or strategy

Although AI trading bots are designed to save traders time monitoring markets and allow them to make faster decisions, they are certainly not infallible, and neither are traders’ settings and strategies. Therefore, crypto traders should monitor their bots’ performance when they first start using the tool and make appropriate changes. Traders should also monitor market fundamentals and adjust their strategies accordingly.

Savvy crypto traders will continue to test, evaluate and improve AI trading bot performance to ensure success as their expertise will grow over time and because the cryptocurrency markets and AI bot capabilities can change quickly.

Why are investors using AI for crypto trading?

Traditionally, traders have relied on their human skills of pattern recognition and analysis, a deep understanding of trading and the ability to perform technical and fundamental analysis. AI provides a new way to analyze and take action in the cryptocurrency market.

AI analysis combined with human decision-making can be a powerful combination. Some traders are going all in on AI and using AI bots for trading, and the approach has increased risk. But first, what are the benefits of AI for crypto trading?

Once “trained” or set up effectively, AI trading bots can require very little human intervention and have the potential to respond to market moves and trading signals around the clock and much faster than human crypto traders. These bots can monitor markets, social media and traditional media, perform market data analysis on huge amounts of information, identify patterns in seconds and carry out trading actions. This saves crypto traders significant amounts of time and effort, enabling them to quickly take advantage of potentially lucrative trading opportunities.

A further benefit is that AI bots will stick to predefined rules and conditions and not respond emotionally like their human counterparts, which can help prevent reckless decision-making.

What are the risks of using AI for trading?

Cryptocurrency trading is inherently risky, and AI has its own risks as a new, somewhat unrefined and unregulated technology. This means there are substantial risks to using AI for trading. AI bots are not always accurate and certainly not immune to making decisions that work out poorly or lead to losses.

Although AI bots can operate with little human intervention, it’s important to train them correctly and monitor and analyze a bot’s activities and success rate. As market conditions change, crypto traders should adjust parameters and portfolio optimization strategies based on their knowledge and risk tolerance.