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Let’s Fight Back Against the Bitcoin Trading Bots

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Let’s Fight Back Against the Bitcoin Trading Bots

Introduction

I trade on Kraken, and I have noticed that the order book is increasingly controlled, it seems, by the trading bots. I imagine that is the case on most exchanges.  There are a myriad of very small orders relatively close to the strike price, but the first significant order (to buy or sell) is usually a fair distance away.  Then, after you execute a market order, before you have time to refresh the screen the small orders you just took out are replaced with new mini orders.

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Therefore, I know that if I place a market order the bots will make me pay more dearly than real live humans would.  But if I place a limit order, particularly if it’s a relatively large limit order, the bots will fill the book with small orders in front of mine within seconds.  It’s called front-running when the exchanges themselves do this. If it’s not illegal for exchanges to do this, it should be.  But for other traders, I guess these are the rules of a knife fight.

How to defeat these bots?

My strategy is to take a half-taker half-maker approach when I want to fill an order quickly.  In other words, suppose I want to fill an order quickly, buy or sell doesn’t matter, but I don’t want to give too much to the bots.  If I want to buy 100 coins, for example, I will find the limit price that will buy me 40-50 coins. I enter the limit order at that price.  What usually happens (not always, particularly not if a fast market) is the entire order is filled at my limit price within moments, as the bots kick in.

I share this info because I know the bots are eating you alive too.  Maybe together we can take away some of the bots’ unearned profits.

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Feedback or Requests?

Jim Fredrickson

Jim Fredrickson

Jim has an MBA from the University of Southern California. He has had a long career in both Corporate Finance and IT. Along the way he discovered that trading was a vehicle with great promise, but struggled for a long time without a mentor. After having been knocked down many times and having struggled to get back up, he had an epiphany and realized that geometry was a solution. He shares his experience here. If you do well as a result of suggestions made here, feel free to say thank you :) BTC: 1FUq3GB1Q8zz2JpuBr7YHzVBKnaWoxgmya Follow him on Twitter (@jimfred1276) or email him at jimfred1276 at gmail.

Comments
  • user

    AUTHOR thoth

    Posted on 6:11 am May 18, 2017.

    I gave up trading the bigger markets due to bots, it’s a nightmare, you always get the raw end of the deal. Though someones bot selling newly mined coins is easy enough to trick the price down to better levels but coins like ETH and so on are impossible.

    • user

      AUTHOR Jim Fredrickson

      Posted on 9:50 am May 18, 2017.

      One solution is for exchanges to allow people to place an order to 5-8 decimal places, but only display the 1st three digits after the decimal. Then it would be nigh impossible to edge out orders by .0000001, as you would not know “exactly” where the orders are. If an exchange does that, I will switch to that exchange.

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