It is the fact that human capacity is limited when shared by Xiaobian that motivates people to use cryptographic transaction algorithms. Because humans need to rest and sometimes make wrong decisions, our actions are often guided by emotions rather than logic. In trading, encryption or other areas, this can be a detriment to those who wish to take advantage of every opportunity offered by the market. This article will talk about what is the encryption transaction algorithm? Why use it?

1、 What is the encryption transaction algorithm?

A key component of cryptographic algorithm trading involves direct communication with cryptocurrency exchanges. The algorithm is much more accurate than manual transaction, fast, efficient, and not affected by emotion. In addition, if you are trading in the cryptocurrency exchange, you need to use API credentials to provide the crypto account with access to algorithmic trading software. Similarly, permission for system transactions can be revoked at any time. In trading, cryptocurrencies or other areas, this can be a detriment to those who wish to take advantage of every opportunity offered by the market. To put it simply, the working mode of the encryption transaction algorithm is to follow the following steps:

1. Designated signal

This is the first stage. You need to code the algorithm to create the incoming and outgoing signals. Trading strategies are used to generate signals. In addition to stock trading techniques (mean reversion, momentum, etc.), you can choose from a variety of cryptocurrency trading strategies, including Ichimoku cloud method, calendar exception strategy, and divergence strategy.

2. Risk allocation

The process of allocating risk according to the established parameters and guidelines of traders is called risk allocation. The amount and allocation of capital is then determined by the programming system.

3. Transaction execution

This is the last step in the cryptocurrency trading process. Use pre configured or preset trading signals or strategies in the execution steps. These signals are converted into requests for encrypted exchange of understandable API keys, and then the exchange starts the process.

2、 Why use encrypted transaction algorithm?

Encryption algorithm transaction or algorithm transaction; It is a well-known strategy used by a large number of traders in the global financial market. Learning algorithm trading is a one-time investment of time and energy, but the return is considerable. There are many advantages in using algorithms to trade cryptocurrencies, mainly to bypass our inherent human weaknesses:

1. No emotional transaction

The main advantage of bitcoin algorithm trading is that it does not need emotions, because the trading program lacks human emotions. Human emotions can lead to errors in judgment and decision-making, thus increasing the possibility of significant losses. Sometimes it is difficult for human traders to control their emotions, especially during periods of volatility. If it is an algorithmic transaction, the situation is different.

2. Faster decisions

Because the algorithm can react in milliseconds, Bitcoin transactions can make decisions much faster than manual transactions. The system only runs quickly according to the pre programmed instructions it receives. The algorithm system can also perform millions of calculations and transactions simultaneously across time zones and markets. Even before human traders may consider manual purchase or sale, the programmed algorithm has completed many judgments and transactions for traders.

3. Analyze past data

Retrospective testing of historical data is one of the most important processes in the algorithmic trading system to ensure that the forecast is 100% correct. Because "predicting the future" is obviously not everyone can imagine, the backtesting does not "predict the future" Even so, it at least improves the probability that the performance of the stock or underlying assets meets the expectations.

4. Risk management

One of the most important aspects of algorithmic trading is risk management, whether it is cryptocurrency or other financial markets such as stocks and commodities.

For example, concerns about Bitcoin's performance caused its price to fluctuate. However, if you insist on portfolio optimization, hedging, stop loss and other risk management techniques, you can ensure the safety of your investment funds. In addition, during extreme fluctuations, the cryptocurrency exchange will see too many trading orders executed, which will cause the website server to go offline while the API continues to run.

summary

What is the encryption transaction algorithm? And why use encrypted transaction algorithms? The answer to these two questions. In general, algorithmic trading in cryptocurrencies involves writing execution instructions for trading instructions. The system is programmed according to the input/output instructions you want, and then it executes your trading instructions according to your instructions without your manual intervention. A key component of cryptographic algorithm trading involves direct communication with cryptocurrency exchanges. The algorithm is much more accurate than manual transaction, fast, efficient, and not affected by emotion.