Introduction

Freqtrade is a free and open source crypto trading software. With Freqtrade, you can create fully customizable trading bots, make backtests, etc… The software is developed in python and is compatible with Windows, MacOS and Linux.

Tutorial’s goal : install Freqtrade and perform a backtest with a basic strategy

This tutorial is intended both for people wishing to create their first crypto trading bot and for curious people wishing to discover how Freqtrade works. Freqtrade does not offer a graphical user interface, and it is rather reserved for users with technical knowledge. If you want to easily and quickly create crypto trading bots, take a look at our platform Botcrypto. The registration is free!

Prerequisites

This tutorial has been realized on a Ubuntu 20.04 server.

We will need python3 and git.

• To install the various prerequisites, run the following command:

sudo apt install git && sudo apt install python3 && sudo apt install python3-pip && sudo apt install python3-venv

Freqtrade’s installation

• First, we will clone the git repository by executing the command below:

git clone https://github.com/freqtrade/freqtrade.git

• Once the download is complete, we will go to the freqtrade folder:

cd freqtrade

• Then we will execute as administrator the installation script setup.sh :

sudo ./setup.sh --install

For both downloading development dependencies and resetting the git branch, press the <Enter> key to choose the default value (which is ‘no’ in both cases).

Freqtrade’s configuration

• In order to use Freqtrade, you need to activate his virtual environment :

source .env/bin/activate;

You can now use the Freqtrade commands. First we will choose different parameters for your first robot.

• Execute the command freqtrade new-config -c config.json

For each question, press the <Enter> key to choose the default value.

Freqtrade’s usage

• To create a strategy called test, simply execute the following command:

freqtrade new-strategy --strategy test

A strategy with default values is then created. We will see in a future tutorial how to customize this strategy.

Now we will use this strategy in a backtest, a test in the past. We will need the old market data.

• Execute freqtrade download-data to download old market data.

Downloading market data can take a few minutes.

• Once the download is complete, run :

freqtrade backtesting --strategy test

Once the backtest is complete, you will see a summary of its results.

We can see from the results of my bot that it was not very efficient:

-36.32% in a month in which the market lost only 10.2%. My bot made me lose 3.6x more money than if I had just invested…

We notice that the robot has 20 winning trades against 7 losers which questions us on the reason of the final result. We notice via the Worst day value that one day the robot lost 28.54%, which is considerable. If we had personalized our strategy by better managing our risk, this would not have happened. And that’s the subject of our next article 😉 [Tutorial] Create your own trading bot strategy with Freqtrade. In the meantime, you can consult our guide about trading bots to learn more about trading bots.

Trading bots are the object of many fantasies, but what is a trading bot really? For the first article in our guide about trading bots, we believe it is essential to define them, to put an end to all speculation (no pun intended).

What is a trading bot?

A trading bot is software that trades, i.e. buys and sells assets with the aim of making a profit. There are trading bots for all types of assets: for cryptocurrencies such as bitcoin or ether, but also for shares, currencies, etc. Just as a trader will monitor the markets to find the best opportunities, a trading bot will monitor the markets and react to conditions with actions.

For example, a trading bot will monitor the bitcoin/dollar market (BTC/USD), and as soon as the price of Bitcoin exceeds $12,000 (this is the condition), it will sell 1 BTC (this is the action).

All these conditions and actions are pre-programmed by traders (maybe you soon 😉). Of course, conditions and actions can be much more complex, using technical analysis tools, artificial intelligence, etc.

What is the purpose of a trading bot?

Trading bots are generally used to generate profits, but they can also be used to invest more efficiently (e.g. with the Dollar Cost Averaging strategies wel will discuss later), or even to protect your capital.

Of course, a distinction must be made between trading bots for individuals and for companies. The needs are not at all the same, and neither are the budgets… We will speak very little about high frequency trading and arbitrage for individuals since these activities require specific infrastructures.

How does it work?

For anyone interested in knowing how it works, here are some explanations. Without going into technical details, we are talking about a software that:

• retrieves market data
• checks conditions (if the price of bitcoin exceeds X €, if the exchange volume increases by Y%, …)
• execute actions (sell Z BTC, …)

And that’s it! Thanks to a dedicated interface, called an API, a trading bot can send orders on your behalf directly to your preferred exchange. For this reason, you generally need to provide API keys to all services that use an API. This is simply to identify and authenticate you.

Finally, a trading bot must be operational 24/7, otherwise it loses much of its interest. This is why they are usually deployed on servers in the cloud. We strongly advise against hosting your trading bot yourself without having the skills and the time. If you want to know more about this, join our Discord server to discuss with our team. We will be happy to discuss this with you.

---

Now you know what a trading bot is, and even how it works! Now you want to know what the real advantages of trading bots are? That’s good, that’s the subject of the next article!

Welcome to the second article of our guide about trading bots! Trading bots are becoming more and more common, especially in cryptocurrencies markets. They are attributed many qualities. Some people think they are THE solution to get rich easily and quickly (spoiler, it’s not so easy and fast). Others think, on the contrary, that it is a scam and that there is no point. After 3 years of working on Botcrypto, we are convinced that trading bots have real advantages, but also limits. That’s why we will see in this article what you can expect from trading bots, and what you can’t.

The 4 real advantages of trading bots…

1. Trading bots are operational 24/7.

Unlike us, trading bots are operational 24/7. This is particularly interesting for cryptocurrencies like bitcoin, where markets are continuously open. This means you no longer need to monitor the prices of your cryptocurrencies in the evening, at night, at the weekend, at work, etc. You save time.

2. Trading bots offer new opportunities

Between their permanent presence on the markets and their ability to process a lot of data simultaneously, trading bots offer new opportunities that humans would not be able to seize. Taking advantage of the best prices at any given time, analysing large amounts of data instantaneously to determine entry and exit points, everything is possible for trading bots that bring the benefits of IT. You gain in efficiency.

3. Trading bots don’t give in to their emotions

Emotions are the trader’s worst enemies. And a trading bot, since it is a bot, does not give in to his emotions. He doesn’t panic (neither up nor down) and applies rationally what he was designed for. This avoids the risks of FOMO, Fear of Missing Out, i.e. the fear of missing an opportunity. You gain peace of mind.

4. Trading bots react quickly

For the same reasons, trading bots react quickly. Very quickly. Not to mention high-frequency trading, which is another subject, trading bots can analyse a lot of data and act accordingly much faster than a human. They will have no hesitation. In highly volatile markets, such as with cryptocurrencies, the ability to react quickly is a considerable advantage. You also gain in efficiency.

… and their limits !

First of all, remember that trading bots only do what they are told. There is no magic. You have to pay particular attention to the configuration, and provide safeguards. Risk management is essential. And as usual, you should not put all your eggs in one basket.

First of all, remember that trading bots only do what they are told. There is no magic.

We can also talk about other limits:

• Cost. Trading bots always involve costs. Regardless of the model (subscription, commission, profit, …), these costs must be taken into account in the results. The rates vary from a few euros to several hundred or even several thousand euros per month.
• Security. In order for a trading bot to use your funds, you must give it access to your account on a trading exchange by sharing your API keys. Of course, sharing your API keys is not trivial. There are good practices to follow as we have explained in this article on API keys. You must carefully select your service providers to keep your funds safe, and in particular respect our 3 rules to avoid being fooled by trading bots (article currently only in French).

---

You now know the difference the true and false advantages of trading bots. In the next articles, we will learn how to use them correctly to get the most out of them. Do you see other advantages and limits to trading bots? Tell us about them in comments! ✍️