Trading Concepts

This guide explains the core concepts behind automated cryptocurrency trading to help you understand how the system works.

What is Automated Trading?

Automated trading uses computer programs (bots) to execute trades based on predefined rules and market analysis. Instead of manually watching charts and placing orders, the bot:

1. Monitors market data continuously
2. Analyzes price patterns using technical indicators
3. Makes trading decisions based on strategy rules
4. Executes trades automatically when conditions are met

How Trading Strategies Work

Technical Analysis

Trading strategies use technical indicators to analyze price movements:

• Moving Averages: Smooth out price data to identify trends
• RSI (Relative Strength Index): Measures if assets are overbought/oversold
• Bollinger Bands: Show price volatility and potential reversal points
• MACD: Identifies trend changes and momentum

Entry and Exit Signals

Strategies define specific conditions for:

• Buy signals: When to enter a trade (e.g., “buy when price crosses above moving average”)
• Sell signals: When to exit a trade (e.g., “sell when RSI indicates overbought”)
• Stop-loss: Automatic exit to limit losses if price moves against you

Available Strategies

This project includes several proven strategies:

NFI (NostalgiaForInfinity)

• Type: Advanced multi-indicator strategy
• Approach: Uses sophisticated technical analysis with dynamic risk management
• Best for: Experienced traders who understand letting the strategy manage exits
• Risk management: Built-in protection mechanisms, uses strategy-specific exits

ReinforcedQuickie

• Type: Short-term momentum strategy
• Approach: Captures quick price movements on 5-minute timeframes
• Best for: Active trading with frequent small profits
• Risk management: Traditional stop-loss and take-profit levels

SMAOffset

• Type: Trend-following strategy
• Approach: Uses simple moving average with offset for entry/exit
• Best for: Beginners learning strategy mechanics
• Risk management: Clear stop-loss rules

BbandRsi

• Type: Mean reversion strategy
• Approach: Combines Bollinger Bands with RSI for reversal trades
• Best for: Range-bound markets
• Risk management: Defined exit points based on indicators

Risk Management Approaches

Traditional Risk Management

• Fixed stop-loss percentages (e.g., 2-5%)
• Position sizing limits (e.g., 1-2% of capital per trade)
• Maximum number of open trades

Strategy-Driven Risk Management (Advanced)

• Strategies like NFI manage their own exits using sophisticated logic
• Position adjustments allow averaging into positions
• Dynamic protection based on market conditions
• Requires understanding and trusting the strategy’s internal mechanisms

Key Trading Concepts

Timeframes

• 1m, 5m: Very short-term, high-frequency trading
• 15m, 1h: Short-term momentum trades
• 4h, 1d: Longer-term trend following

Market Conditions

• Trending: Clear upward or downward price movement
• Range-bound: Price moving sideways between support/resistance
• Volatile: High price fluctuations and uncertainty

Performance Metrics

• Profit/Loss: Total returns in percentage and absolute terms
• Win Rate: Percentage of profitable trades
• Drawdown: Maximum loss from peak to trough
• Sharpe Ratio: Risk-adjusted returns

Choosing Your Approach

For Beginners

1. Start with SMAOffset or BbandRsi
2. Use traditional risk management
3. Trade small amounts to learn

For Experienced Traders

1. Consider NFI with strategy-driven risk management
2. Understand the strategy’s internal logic
3. Monitor performance across market cycles

Next Steps

Ready to set up your environment? Continue to Requirements Setup.

Want to understand the project structure? See Project Reference.