Cryptocurrencies have become a popular asset class for active traders. With platforms like Coinbase Pro, traders can access many different markets with low fees and an extensive application programming interface, or API. These APIs enable expert traders to automatically execute trades based on certain criteria without having to manually place them.
While many expert traders use trading systems, they’ve only recently started to become a possibility for novice and intermediate traders. CryptoHopper and other trading system platforms sync with exchanges through these APIs, but provide easy-to-use visual strategy builders that don’t require coding knowledge.
Let’s take a look at why traders may want to consider automating their trading systems, as well as some tools that can simplify and streamline the process.Automated trading systems have only recently become available to individual traders looking for ways to improve their consistency and performance. Click To Tweet
Why Automate Your Trading?
Automated trading systems account for most trading on U.S. stock exchanges. By establishing rules for buying and selling, trading systems enable traders to achieve consistent results by removing emotion from the process. Backtesting lets them fine-tune their trading systems to control risk, compare different strategies and maximize potential returns.
There are many reasons to use a trading system:
- Consistency: Preset trading rules and instant order execution translate to better consistency than manually placing trades — especially since it removes emotion from the process.
- Breadth: Automated trading systems enable traders to analyze more opportunities than manual analysis, as well as trade across a wider range of markets without extra effort.
- Risk: Backtesting enables traders to control risks by simulating outlier events and building rules into trading systems to prepare for them in advance.
There are also some drawbacks to consider:
- Over-Optimization: Backtesting makes it easy to over-optimize trading systems (e.g. fit them to past performance) and may provide a false sense of security.
- Mechanical Failures: Automated trading systems rely on technologies that may experience failures. For example, if the platform is down, no trades will be placed.
- Constant Evolution: Most trading systems must be constantly tweaked to remain functional as the market changes, which means that they will never be a ‘set and forget’ tool.
How to Use CryptoHopper & QuantConnect
There are many different ways to build automated trading systems. Some platforms require you to write code to define trading rules, while other platforms have a wizard that enables you to build trading systems without code. There are benefits and drawbacks to each of these platforms and the right decision depends on your coding abilities and preferences.
Let’s take a look at two of the most popular trading system platforms in crypto — CryptoHopper and QuantConnect.
CryptoHopper: An Easy-to-Use Platform
CryptoHopper lets you build trading systems using more than 130 different technical indicators and candlestick patterns in an easy-to-use strategy designer. If you’re not comfortable developing your own trading system, you can subscribe to trading systems that others have built, including signals, strategies and templates to use for your own systems.
The company’s paper trading feature makes it easy to test out new strategies prior to committing any real money. Unlike backtesting, paper trading makes it easy to see how a trading system is performing in the real, live market. You can also use the platform’s backtesting feature to see how it would have performed using historical data.
CryptoHopper is compatible with many different exchanges, including popular exchanges like Coinbase Pro and Kraken. The price of the service depends on the number of coins and triggers (rules), as well as the time interval between running each analysis to find opportunities. The cheapest account starts at $19 per month and it goes up to $99 per month.
QuantConnect: A Tool for Power Users
QuantConnect is a popular trading system platform for equities, futures, forex and option markets that recently expanded into cryptocurrencies via an integration with GDAX (Coinbase Pro). Unlike CryptoHopper, QuantConnect lets you build a trading system in a variety of different programming languages and test it with a robust collection of tools.
While the platform requires programming knowledge, it’s much more flexible than CryptoHopper when it comes to defining specific trading rules and building trading systems. You can access free market data from tick to daily resolution to build complex trading systems across multiple timeframes without issues like survivorship bias.
QuantConnect works with the Coinbase Pro GDAX exchange and the price depends on CPU usage. For example, the $20 per month Prime subscription includes two parallel backtests, 12 GB of RAM, and a 512 MB live server, while the $250 per month Professional program includes unlimited parallel backtests, 16 GB of RAM and two 1024 MB live servers.
Automating Your Taxes, Too
Automated trading systems can generate hundreds or thousands of trades each month. With already-uncertain tax status, the sheer number of transactions can make it extremely costly and complex to file for taxes each year. Each transaction must be converted to U.S. dollars and reconciled to come up with the capital gain or loss over the reporting period.
ZenLedger makes it easy to automate your crypto taxes by connecting to exchanges, aggregating transactions and auto-filling common IRS forms. Unlike many competitors, we also provide complete transparency in how the cost basis and other factors are calculated, which provides tremendous support in the event of an IRS audit or any other issues.
The Bottom Line
Trading systems have become ubiquitous in most financial markets. With specific entry and exit rules, they enable traders to generate consistent results without emotion clouding their judgement. CryptoHopper and QuantConnect are two of the most popular trading system development tools addressing everyone from complete beginners to seasoned experts.
When building trading systems, it’s important to remember to backtest the strategy across a wide range of conditions and paper trades to see how it performs with live data. The same is true when using trading systems developed by others. The upshot is that having a trading system can add a lot more consistency to your trading performance.