What is a Trader

What is a Trader?

In this case, a trader is a software program that tracks the price of (crypto) currency 24/7 and is able to generate buy and sell orders for that (crypto) currency within user-defined limits.

The theory behind the trader

The trader works according to the so-called MACD method. The MACD indicator stands for Moving Average Convergence Divergence and is a momentum indicator that is calculated by multiple moving averages. The indicator shows the direction of the trend and the strength of this trend. In addition to these data, the indicator occasionally issues a buy or sell signal. The MACD indicator consists of two lines, both of which are calculated differently. First of all, the MACD line, it is calculated by subtracting the moving average of the past 26 days from the average of the past 12 days. The second line we encounter in this indicator is the signal line. This is the exponentially measured average of the past 9 days. Both lines form the MACD indicator. Not only the direction of the lines gives a signal, also when the lines intersect the indicator gives a signal.

The MACD (red line) first indicates the direction of the trend. With an ascending MACD line, the trend is positive, with a downward line it is negative. In addition to the direction of a trend, the indicator also issues buy or sell signals. If the MACD line crosses the signal line upwards, this is a buy signal. Conversely, when the MACD crosses the signal line downward, the indicator issues a sell signal. Finally, the indicator says something about the strength of the trend. The greater the distance between the two lines, the stronger the trend. The MACD is thus a trend-following system based on the moving average.

As soon as the blue line crosses the red line, there is an upward trend. The trader will then initiate a purchase. As soon as the blue line dips below the red line, there is a downward trend. The trader will then initiate a sale for all pockets with sufficient returns.

How does the trader work

The trader is thus able to recognize and output buy and sell signals.

How does that work?

First of all you need an account with one of the following exchanges: BL3P, Bitvavo, Binance or Bitstamp. Once you have activated that account and deposited funds on it, you can link the trader to the exchange.

The trader and exchange are in contact with each other via a so-called API link: The meaning of API stands for Application Programming Interface.

An API is very easy to explain by means of two everyday objects: a lamp and a plug block. If you want the lamp to turn on, it must be connected to the power strip. If the lamp plug fits into the socket, the lamp will turn on. The lamp then communicates with the power strip and electricity is exchanged. Quite simply, that is the meaning of an API connection: it exchanges data between two software systems. The trader can communicate with your Exchange account via the API link and pass on purchase and sales orders to your account.

NB The trader cannot transfer currency to third parties. The trader can only change the composition of your account (Euro / Bitcoin ratio). Only you can transfer currency from the Exchange account to your own bank account or cryptowallet. As soon as the link with the stock exchange has been established, and the trader has also been activated, the trader will collect trading data.

As soon as the link with the stock exchange has been established, and the trader has also been activated, the trader will collect trading data. After a positive trend is identified, the trader issues a purchase order. This order covers approximately 10% of your euro investment in the exchange (so if your account with the exchange has a balance of € 1,000, the trader will in principle trade with pockets of approximately € 100 (a pocket is a standalone order) The order is executed by the exchange and the euro / bitcoin ratio of your account is adjusted. The trader remembers this transaction and continuously compares the current exchange rate with the purchase price of the pocket.

This has been made visible in the screen: "purchase transactions". By default, the trader works with a minimum return of 2.5%. This means that the trader does not generate a sales order for your pocket if no 2.5% return is achieved on it. You can adjust this setting in the settings / traders screen. As soon as the trader detects a negative trend and the return on a pocket is > 2.5%, the trader will send a sales order to the exchange for the number of bitcoins in the pocket and thus secure the profit. At the moment the commission for the trader is also deducted from the credits.

In the Sales transactions screen the sold pocket is displayed and the achieved return is made visible. The results are also made visible in the dashboard. The trader's strength lies mainly in a volatile market. Bitcoin is a volatile currency, making it ideal for trader software.