In the modern world of trading, two distinct methodologies exist: manual trading vs algorithmic trading. Both these approaches aim at the same goal - to optimise profit and minimise losses in the financial markets. However, they vary significantly in their operation, the level of involvement required, and the nature of decision-making processes. In this FXOpen article, you will find the key differences between the approaches and their advantages and limitations that may help you to choose the right approach for you.
Definition of Manual Trading
Manual trading signifies the traditional approach to trading. In this method, a trader is actively involved in all aspects of the process. This includes conducting market research, analysing market trends, making buying or selling decisions, and placing trades. The manual approach relies heavily on the trader's skills, knowledge, and experience.
The manual trader uses various tools and methods, including technical and fundamental analyses, to make informed decisions. These methods involve studying past market data, economic indicators, company financials, and market news to predict future market movements. Despite being time-consuming, many traders prefer this approach as it allows them to control their trading activities and make adjustments based on their instincts and experience.
You can test manual trading at the free TickTrader platform.
Definition of Automated Trading
In contrast to human-based investing, automated trading, also known as algorithmic or robo trading, involves the use of computer programs or algorithms to analyse markets and place trades. These algorithms are designed to make trading decisions based on predefined rules and conditions. They can process large volumes of market data, identify market opportunities, and place trades quickly and precisely, something beyond human capability.
Robots can be programmed to follow various strategies based on technical analysis, quantitative analysis, and other principles. These algorithms are typically developed using programming languages and require a high degree of technical expertise.
However, many platforms now offer user-friendly tools for creating and testing algorithms, making auto-trading more accessible to the average trader. Also, some traders ask program developers to create a robot based on their requirements.
Advantages and Disadvantages of Manual Trading Systems
Despite being more traditional, manual investments hold their own advantages and disadvantages.
- The primary advantage of manual trading is the trader’s experience and ability to analyse markets. Unlike robotic systems, human traders can make intuitive decisions based on their experience and understanding of the market. In this case, the results of a duel between robot trading vs manual systems would end up beneficial to humans.
- Another advantage of the manual approach is the flexibility it offers. Manual traders can adjust their strategies and risk tolerance levels based on the changing market conditions, economic news, and their personal comfort level. The manual approach also provides a deeper understanding of the markets, as traders are actively involved in trading.
- Self-trading is not without its challenges. It necessitates a substantial commitment of time and focus. Manual traders need to monitor the markets continuously, conduct thorough market analyses, and make decisions. Manual execution of trades may also be emotionally taxing; emotional decisions can often lead to poor trading outcomes.
- In addition, human error can impact trading results. Unlike automated systems, manual traders cannot process large amounts of data quickly and accurately. This limitation can lead to missed trading opportunities or inaccurate decision-making.
Advantages and Disadvantages of Automated Trading Over Manual Trading
- Automated trading offers several advantages over the manual variety. Some of the most significant benefits are speed and accuracy. Automated systems can analyse market data and place trades in milliseconds, which is impossible for humans. Also, algo trading allows for 24/7 activity, as human factors like fatigue or emotions do not constrain it. In this case, the algorithms win in a duel of algo trading vs manual trading.
- Automated systems can handle multiple markets and securities simultaneously, allowing traders to diversify their portfolios more efficiently. By removing the emotional element from speculation, automated systems can help traders stick to their plans and avoid impulsive decisions.
- However, the automated approach also has its disadvantages. One of them is the need for a high level of technical expertise to set up and maintain the algorithms. Auto systems also have the risk of over-optimisation, where a system is fine-tuned to perform well based on past data but may not perform well in real market conditions.
- Another challenge with automated trading is its inability to adapt to sudden market changes that a human trader could intuitively understand and respond to. For instance, traders may adjust their strategies accordingly in case of significant economic news or events, but an algorithm might not be capable of such adaptability.
- Lastly, automated systems also carry the risk of technical glitches or system failures, which can lead to significant losses. It is, therefore, essential to regularly monitor and update automated systems.
Does Algo Trading Beat Manual Trading?
The question of "Does algo trading beat manual trading" is a matter of debate. The effectiveness of each trading method depends on various factors, such as the trader's skills and experience, the nature of the market, and the specific strategy used. Some traders may find success with robotics systems due to their speed and accuracy, while others might prefer the control and adaptability offered by manual solutions.
In the world of manual trading vs automated trading in forex, it's essential to consider that FX markets are highly volatile and operate 24/7. This nature of forex markets makes them ideal for automated investing. However, the use of automated systems in FX also requires careful consideration of factors such as market volatility, liquidity, and technical glitches.
Ultimately, the choice between manual and automated investment boils down to personal preference, goals, risk tolerance, and technical expertise. Both methods have their own merits and challenges, and understanding these may help traders make informed decisions.
Whether you are interested in manual or automated trading, platforms like FXOpen provide a robust and user-friendly environment for both.
To get started on your investment journey, you can open an FXOpen account. Regardless of your trading method, remember that success requires a well-developed strategy, continuous learning, and effective risk management. So, keep learning, keep improving, and happy trading!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.