"How to Build a Crypto Trading Bot: A Step-by-Step Lab Tutorial"

Are you fascinated by the world of crypto trading? Do you want to take your trading skills to the next level? Then building a crypto trading bot might be just what you need!

In this step-by-step lab tutorial, we will guide you through the process of building a crypto trading bot using Python and the Binance API. By the end of this tutorial, you'll have a fully functional trading bot that can execute trades automatically based on pre-defined rules.

Excited already? Let's dive in!

Prerequisites

To follow along with this tutorial, you'll need the following:

• Basic knowledge of Python programming language
• Familiarity with Binance cryptocurrency exchange
• A Binance account with API key and secret
• Python 3.X installed on your machine
• Familiarity with Git and GitHub

Step 1: Setting up the environment

The first step is to create a new project directory and set up a virtual environment. You can use your favorite IDE or command-line interface for this.

mkdir crypto_trading_bot
cd crypto_trading_bot
python3 -m venv env
source env/bin/activate # or env\Scripts\activate (Windows)

Step 2: Installing dependencies

Next, we need to install the necessary Python libraries. We'll be using the python-binance library which provides a simple interface for accessing the Binance API.

pip install python-binance
pip install pandas
pip install ta
pip install matplotlib

pandas and matplotlib are libraries used in the analysis and visualization of the trading data. TA-Lib (short for Technical Analysis Library) is used for calculating technical indicators that will be used as trading signals.

Step 3: Setting up the API key and secret

Before we can start coding, we need to set up the API key and secret for accessing the Binance API.

1. Log in to your Binance account
2. Click on "API Management" in the user center dropdown
3. Create a new API key with "Read Info" and "Enable Trading" permissions
4. Copy the API key and secret

We'll store these values in environment variables for added security. You can set them up by running the following commands in your terminal:

export BINANCE_API_KEY='your_api_key'
export BINANCE_SECRET_KEY='your_secret_key'

Alternatively, you can set these values directly in your Python code using the os module:

import os

os.environ['BINANCE_API_KEY'] = 'your_api_key'
os.environ['BINANCE_SECRET_KEY'] = 'your_secret_key'

Step 4: Creating the Binance client

Now, let's create a new Python file called bot.py and import the necessary libraries:

import os
from binance.client import Client
import pandas as pd
import ta
import matplotlib.pyplot as plt

We'll start by creating an instance of the Client class with our API key and secret:

api_key = os.getenv('BINANCE_API_KEY')
api_secret = os.getenv('BINANCE_SECRET_KEY')

client = Client(api_key, api_secret)

Step 5: Collecting historical data

Before we can start trading, we need to collect historical data for the coins we're interested in. We'll use the Client class to fetch data from the Binance API and store it in a pandas dataframe.

symbol = 'BTCUSDT'
interval = Client.KLINE_INTERVAL_1DAY
start_date = '1 Jan 2020'

bars = client.get_historical_klines(symbol, interval, start_date)

headers = ['timestamp', 'open', 'high', 'low', 'close', 'volume', 'close_time', 'quote_asset_volume', 'number_of_trades', 'taker_buy_base', 'taker_buy_quote', 'ignore']
df = pd.DataFrame(bars, columns=headers)

df['timestamp'] = pd.to_datetime(df['timestamp'], unit='ms')

df.set_index('timestamp', inplace=True)
df = df.astype(float)

We're fetching daily data for Bitcoin (BTC) against the US dollar (USDT) and collecting data from Jan 1st, 2020. We're also setting the data to be in a pandas dataframe with columns for the timestamp, OHLCV (open, high, low, close, volume) data, and other information about the trade.

Step 6: Calculating technical indicators

Now that we have our data, we need to calculate some technical indicators that will help us make trading decisions. For this tutorial, we'll be using the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators.

# RSI
df['rsi'] = ta.momentum.RSIIndicator(df['close'], window=14).rsi()

# MACD
macd = ta.trend.MACD(df['close'], window_slow=26, window_fast=12, window_signal=9)
df['macd'] = macd.macd()
df['macd_signal'] = macd.macd_signal()

We're using the ta library to calculate the indicators. We're adding columns for the RSI and MACD indicators to our dataframe.

Step 7: Plotting the data and indicators

We can now plot our data and indicators to get a visual representation of how they relate to each other.

fig, (ax1, ax2, ax3) = plt.subplots(3, 1, sharex=True, figsize=(12, 8))

ax1.set_title(symbol)
ax1.plot(df['close'], label='Close')
ax1.legend()

ax2.plot(df['rsi'], label='RSI')
ax2.axhline(y=30, color='red', linestyle='--')
ax2.axhline(y=70, color='red', linestyle='--')
ax2.legend()

ax3.plot(df['macd'], label='MACD')
ax3.plot(df['macd_signal'], label='Signal')
ax3.legend()

plt.show()

We're using matplotlib to generate our plot. We're plotting the close price along with the RSI and MACD indicators. We're also adding horizontal lines at the levels where RSI is considered oversold (30) and overbought (70).

Step 8: Defining trading signals

Now that we have our historical data and technical indicators, we need to define our trading signals. For this tutorial, we'll be using a simple strategy that buys when the RSI is below 30 and the MACD line crosses above the signal line, and sells when the RSI is above 70 or the MACD line crosses below the signal line.

df['buy_signal'] = ((df['rsi'].shift(1) < 30) & (df['macd'].shift(1) < df['macd_signal'].shift(1)) & (df['macd'] > df['macd_signal']))
df['sell_signal'] = ((df['rsi'].shift(1) > 70) | (df['macd'].shift(1) > df['macd_signal'].shift(1)) & (df['macd'] < df['macd_signal']))

df['signal'] = 0
df.loc[df['buy_signal'], 'signal'] = 1
df.loc[df['sell_signal'], 'signal'] = -1

We're creating two new columns called buy_signal and sell_signal which use conditions based on the RSI and MACD indicators. We're then creating a new signal column which is set to 1 when there's a buy signal and -1 when there's a sell signal.

Step 9: Backtesting the strategy

Now that we have our trading signals, we can backtest our strategy to see how well it performs. We'll use the cumsum() function to calculate the cumulative sum of the signal column, which represents our position in the market (long or short).

df['position'] = df['signal'].cumsum()

df['returns'] = df['close'].pct_change().fillna(0)
df['strategy_returns'] = df['returns'] * df['position'].shift()

We're creating a new column called position which calculates our cumulative position in the market based on the signal column. We're then calculating the returns and strategy returns based on changes in the close price and our position.

Step 10: Evaluating performance metrics

Finally, we need to evaluate the performance metrics of our trading bot. We'll use the Sharpe ratio and cumulative returns to evaluate the profitability and risk-adjusted performance of our strategy.

sharpe_ratio = df['strategy_returns'].mean() / df['strategy_returns'].std() * np.sqrt(252)
cumulative_returns = (df['strategy_returns'] + 1).cumprod()

print(f"Sharpe ratio: {sharpe_ratio:.2f}")
print(f"Cumulative return: {(cumulative_returns.iloc[-1]-1)*100:.2f}%")

We're calculating the Sharpe ratio using the mean and standard deviation of our strategy returns, and multiplying by the square root of 252 (the number of trading days in a year). We're also calculating the cumulative returns of our strategy and printing the final value as a percentage.

Step 11: Running the trading bot

Now that we've coded and tested our trading bot, we can run it and automate our trading. We'll use a while loop to continuously check the trading signals and execute trades based on our conditions.

from time import sleep

while True:
    bars = client.get_klines(symbol=symbol, interval=interval)[-1]
    timestamp = pd.to_datetime(bars[0], unit='ms')
    close = float(bars[4])

    print(f"Timestamp: {timestamp}, Close: {close}")

    df.loc[timestamp] = [float(bars[i]) for i in range(len(headers))]

    # Calculate signals
    df['rsi'] = ta.momentum.RSIIndicator(df['close'], window=14).rsi()
    macd = ta.trend.MACD(df['close'], window_slow=26, window_fast=12, window_signal=9)
    df['macd'] = macd.macd()
    df['macd_signal'] = macd.macd_signal()

    df['buy_signal'] = ((df['rsi'].shift(1) < 30) & (df['macd'].shift(1) < df['macd_signal'].shift(1)) & (df['macd'] > df['macd_signal']))
    df['sell_signal'] = ((df['rsi'].shift(1) > 70) | (df['macd'].shift(1) > df['macd_signal'].shift(1)) & (df['macd'] < df['macd_signal']))

    df['signal'] = 0
    df.loc[df['buy_signal'], 'signal'] = 1
    df.loc[df['sell_signal'], 'signal'] = -1

    # Execute trades
    position = df['signal'].iloc[-1]
    if position == 1:
        print(f"Buying {symbol}")
        order = client.create_order(
            symbol=symbol,
            side=Client.SIDE_BUY,
            type=Client.ORDER_TYPE_MARKET,
            quantity=100)
    elif position == -1:
        print(f"Selling {symbol}")
        order = client.create_order(
            symbol=symbol,
            side=Client.SIDE_SELL,
            type=Client.ORDER_TYPE_MARKET,
            quantity=100)

    # Wait for next iteration
    sleep(60)

We're using the get_klines() method to fetch the most recent klines data and appending it to our dataframe. We then calculate the signals and trade based on our conditions. We use the create_order() method to execute market orders for buying and selling.

Conclusion

Congratulations! You've just created your own crypto trading bot using Python and the Binance API. This tutorial is just the tip of the iceberg when it comes to building a successful trading bot. There are many more strategies, indicators, and techniques that you can explore to improve your bot's performance.

We hope you've learned something new and exciting in this lab tutorial. Keep exploring and experimenting with new technologies, and don't forget to share your experiences with the community on our website - handsonlab.dev!

Editor Recommended Sites