Automated Vs. Manual trading – it’s a discussion that can divide a group of people into two.
With the rise of the trading market, people have engrossed themselves in finding the right trading method.
Manual trading has been in the market for decades. However, with the rise of automated trading, people are now confused about which methods to choose.
Like any good argument, there are certainly advantages to both. For us, it is impossible to say one is better than the other. We have left this for you to decide.
This article will take you through the pros and cons of both manual and automated trading. Evaluate the two for yourself and decide which work for you’re the best.
Automated Vs. Manual Trading
Given the innate volatility and highly leveraged nature of entities such as the forex market, it’s little wonder that traders are constantly looking for a competitive edge within the sector.
Some will argue that this can be sought through automated trading, which effectively enables you to create predetermined trading algorithms and potentially optimise the number of orders executed on a daily basis.
In this post, we’ll explore the differences between automated and manual trading, while asking which option is best for you.
Automated and Manual Trading Explained
Automated trading utilises a software and algorithm-driven system that automatically executes orders according to any number of predetermined conditions.
Utilising forex robots to drive execution and real-time orders, automated trading is designed to optimise the frequency and efficiency of trades, with this technology underpinning controversial concepts such as high-frequency trading (HFTs).
Another key benefit of automated trading (according to some) is its ability to minimise the risk of emotive trading, which can cause knee-jerk decision making and sizable losses over time.
However, it’s interesting to note that automated trades are often built on human trading strategies and conditions, with these factors also the key driving force behind manual trading.
As the name suggests, manual trading is built on human intervention, as individuals take key decisions pertaining to the buying and selling of assets utilising analytical tools and selected technical indicators.
Traders then manually plan and execute orders, based on the opportunities that they identify and their pre-existing trading strategy.
The Pros and Cons for Each Method
As we can see, there are areas where manual and automated trading overlap, but there also remain unique pros and cons that distinguish each trading method. Let’s start with the benefits of disadvantages of automated trading:
- Pro #1: Automated trading allows you to execute a high volume of orders in a short period of time
- Pro #2: It also minimises the risk of human error and allows for decisions to be made on the basis of analysis.
- Pro #3: When combined with intuitive trading tools such as stop-losses, you can also use automated trading to strike the balance between maximising returns and curbing losses
- Con #1: Automated trading can create a disconnect between human traders and their carefully plotted strategies
- Con #2: For some, automated trading also translates into less control over trades, which can be challenging for those with a hands-on mindset
- Con #3: HFT trading can also be highly volatile and disruptive for the market, especially when utilising inflated amounts of leverage.
But what about manual trading? Here are some of the main pros and cons to keep in mind as a trader.
- Pro #1: You’re afforded a clear sense of control as a manual forex trader, both in terms of the technical indicators that you use and how you manage ongoing orders
- Pro #2: Manual trading is also more flexible in real-time, as you can adjust your strategy in line with market shifts and changes
- Pro #3: With manual trading, there’s minimal risk of causing an over-optimisation effect as a result of back testing
- Con #1: You’re limited to the amount of orders you can realistically execute with manual trading, which can be an issue for scalpers and day traders
- Con #2: Manual or human trading has an emotional bias, which can impede your decision making and efficiency over time
- Con #3: It arguably prevents you from seamlessly copying the successful trades of others, making social trading far harder to implement
The Last Word
With these points in mind, you can begin to experiment with different types of trading to determine which option best suits your philosophy, wider trading strategy and personal circumstances.
However, you should note that many traders adopt a hybrid approach, which involves manual research and analysis of datasets when formulating strategies and automating the execution and management of orders.
This way, you can create viable strategies and techniques built on the insight garnered through research, while making the most of automated systems and their increased efficiency.