Automated trading is a recent development, while manual trading has been around for much longer. The Dutch East India Company was the one which first issued a share certificate back in 1602. That’s how old manual share trading is, and it is still going well.
With more people evincing keen interest in an automated trading system, it is readily available to traders today. However, with many automated systems available in the market, the debate still rages about which trading method has more advantages.
What Is Meant By Manual Trading?
Manual trading, as the name implies, is dependent on human intervention. A trader has to make decisions like buying or selling a particular asset. The trader then places the order manually through the markets.
In manual trading, the trader will first study multiple markets and look for opportunities to seize before trading. All the leg-work has to be done by the trader, and the result will depend on the effort and research put in by them.
For instance, if the trader is into intraday Forex trading, they will have to analyze many currency pairs and possible combinations that will generate profits, based on the market analysis. The trader then proceeds to place a buy or sell order or create a watch-list that triggers alerts indicating the right price to buy or sell.
The traders have to manage the trade themselves, setting appropriate stop loss and sell or buy when the price is favorable. This calls for constant monitoring, and even a split second’s miscalculation can result in huge losses. When it comes to manual trading, it is up to the trader, who has to make the right decisions at the right time.
What Is Meant By Automated Trading?
Automated trading is a system where human intervention is reduced to a minimum. Human emotions have no place in an automated trading system as all the buy or sell decisions are taken by the system, following the instructions written in the code.
Even in an automated system, the trader codes the manual strategy and leaves the decision making to the algorithm, which will automatically decide and execute trades.
For instance, a Forex trader specializing in intraday trading may want to convert the manual trading into an algorithmic trading system. They may have to use a demo trading system initially before getting to understand how the algorithm works. Even after going live, the trader must be cautious and test the system by trying out small trades before going for bigger transactions.
As traders working with an automated trading system, they need to understand that the rules applied in manual trading will not apply or work in this system.
Automated Trading vs. Manual Trading
When a trader wishes to automate the trading system, they need to consider various factors like experience, available resources, time, etc. Here’s a detailed list of pros and cons for automated and manual trading systems:
Manual Trading Pros
• Manual trading exposes traders to real-time situations and helps them make prudent trading decisions and gain experience. A trader becomes adept at technical and fundamental analysis.
• Manual trading allows better control of what can be done in a situation.
• It is easy to identify what works in their favor when traders use a manual system of trading. Determining what doesn’t work in their favour helps avoid that in the future.
Manual Trading Cons
• Manual trading is a time-consuming affair. Traders need to conduct intense research and be physically available all the time to place orders and make sure they are executed.
• Manual trading calls for a disciplined mindset. However, traders tend to get emotional and imagine huge profits and make decisions that often go wrong, resulting in losses.
• Manual traders have themselves to blame if things go wrong and are accountable for all their actions.
What Makes Automated Trading A Better Choice?
• All trade-related decisions are devoid of any emotion. Unlike manual trading, there is no need to struggle with the trading strategy, and there is no question of incurring a loss. Traders will be able to achieve consistency in trading as the statistical edge works in their favour as the trading robot displays no emotions while executing trades.
• It is possible to build portfolios featuring different systems covering various market conditions. Such diversification allows having a balanced basket. Moreover, the algorithm can pull up data related to historical trades and determine if the historical gains will work in the future.
• First-time traders should start trading with a demo account and experiment with different strategies before settling for one that suits them.
Summing It Up
Traders planning to go for algorithmic trading need first to identify a reputable company with all the necessary authorizations and licenses. It is advisable to create a demo account and get the feel of automated trading before trading full time in a live account.