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Let's say that Bisq releases their API (which seems imminent) tomorrow. Now, we can automate talking to Bisq to trade between Bitcoin and whatevercoin.

If I do the following:

  1. Manually put 0.01 BTC into my Bisq account.
  2. Start my bot loop which connects every minute or something similar to the Bisq API to check the price of Bitcoin.
  3. Note the current price of Bitcoin.
  4. Wait a minute.
  5. Check the price of Bitcoin versus whatevercoin.
  6. If the difference to Bitcoin's benefit is larger than arbitrary small amount, buy predetermined arbitrary small amount of whatevercoins for Bitcoin.
  7. If the difference to Bitcoin's benefit is smaller than arbitrary small amount, buy predetermined arbitrary small amount of Bitcoin for whatevercoins.
  8. If the Bitcoin price goes up too much in a too short period of time, pause trading until it's become stable again.
  9. Regularly send out some Bitcoin profits from Bisq to my normal wallet, always keeping at least 0.01 BTC in there.

This logic seems way too basic and naive to ever work. There must be something I'm missing. Would this not guarantee constant profits since, with the exception of steep bull runs (which this bot would detect and pause for), the price goes up and down all the time during the day?

Even including "expensive" offers (not exactly market price), and Bisq trading fees, that could easily be accounted for to determine if it's meaningful to buy or if it has to wait another minute, etc.

Would this not guarantee constant profits? In what scenario would this not guarantee that your coins slowly but surely increase all the time?

Is this exactly what will happen when they release the API? Should I be not wasting one second right now but instead get to work to actually code together this script to be one of the first to take advantage of it when it's released? Or have I missed some basic point which would quickly drain my 0.01 BTC?

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What goes wrong is that you make a profit on every trade, but you are holding lots of bitcoin when it goes down and lots of whatevercoin when it goes down. Adverse selection causes you to take huge losses when you aren't trading! When bitcoin is going down, everybody wants you to take theirs. When bitcoin is going up, everybody wants yours.

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  • Sorry, but I don't understand what you mean.
    – Cleaver
    Commented Feb 18, 2021 at 23:03
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    When you aren't trading, the value of the assets you hold is changing. You will find that when bitcoin goes down, you are holding a lot of it and when it goes up you are holding much less. Ditto for every other asset you hold. (People want to sell bitcoin when it's going down, so you wind up buying to from them. They want to but it when it's going up, so you wind up selling it then.) This causes you to suffer a net loss that is not due to your trades. This is called "adverse selection".
    – David Schwartz
    Commented Feb 19, 2021 at 0:57

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