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Last Updated on August 27, 2022 by Henry Chikwem
Recently, trading robots are gaining more and more popularity. Many people try to buy a miracle mechanism for money. Someone is trying to develop it on their own. Not every trader wants to sit at the monitor all day, trading manually. It is much easier to launch the program and make it bring money. But in reality, not everything is so simple.
When it comes to manual trading vs automated trading I personally prefer manual trading. It has a number of undeniable advantages over automated trading. More on this below.
📌AI trading removes emotions from trading decisions.
📌Manual trading gives the knowledge that can be useful when developing an automated trading system.
📌Discipline is required
What is Manual Trading?
Manual trading involves an intraday trader spending the morning looking through a list of different currency pairs to find combinations of technical trading events using indicators and other types of analysis. They can then either place a buy or sell order themselves, or create a watchlist and set alerts to notify them when the price of an asset has reached a price level at which they would consider buying or selling.
The trader can then decide to buy or sell by placing the order themselves. Some traders can also manage trades on their own by moving the stop loss and take profit levels as the market moves with them. In manual trading, the trader must make all decisions and act.
What is Automated Trading?
Automated trading is when a pre-programmed algorithm makes all decisions about what to buy and sell and when, based on the instructions written in its code. A trader, programmer, or “quantum” can code their manual strategy so that when certain rules or events occur, the algorithm automatically opens trades.
For example, an intraday trader might hire a programmer to transform his manual trading strategy into an automated trading strategy. After some testing, they may find that the conditions are too harsh or too harsh.
After a period of optimization, the trader can be satisfied with their algorithm and then go and test it using a demo trading account. Even when they are launched, a trader can test it first on a small account before committing additional capital.
This is a noticeable difference for those who think their manual trading rules will work in an automated trading system. Successful automated traders consistently test, optimize, and slowly evolve their systems. In this situation, the trader does not need to be present to find a trade or complete a trade. They can spend more time optimizing their trading systems and creating new ones.
Automatic Trading Versus Manual Trading
When it comes to deciding which trading style is actually better, there are various factors such as experience, time, resources available, and more.
Pros of Auto Trading
- Removes emotions from trading decisions.
- Traders can create a portfolio from different systems by diversifying their approach.
- Traders can determine if a system has worked historically and get useful statistics.
- New traders can start with a demo account. This is a useful way to find out if automated trading is right for them.
Cons of Auto Trading
- The past does not guarantee the future. The fact that the system has worked historically does not mean that it will work in the future.
- It is very easy for auto traders to over-optimize their system and change benchmarks to make their historical results look fantastic.
- Hiring a programmer to help develop a trading strategy, optimizations, or changes cost a lot.
Pros of Manual Trading
- With the help of manual trading, a trader learns the market in which he trades, as well as the tools and methods of making trading decisions. This knowledge can then be useful when developing an automated trading system.
- More control over the situation.
- A trader can actually determine what works for him and what does not.
Cons of Manual Trading
- Manual trading takes time. The trader needs to do research, place their orders, and spend time analyzing their trades and behavior. However, some of these tasks can be performed semi-automatically (for example, pending orders).
- Discipline is required. Emotions often take over, leading to bad decisions and losses.
- Many manual traders are reluctant to take responsibility and often blame the platform or their broker.
Which one is better to use for Forex trading – automatic or manual trading? You can answer this question by comparing some indicators of both trading directions.
- Risk – when using AI, it is definitely higher, since the risk of failure of the program itself and the lack of constant control over its operation are added to the market risks. Very often, due to the failure of the script authors, the trader discovers a drained deposit instead of the long-awaited profit.
- Profitability – it cannot be said that manual trading is more profitable than automatic trading, or vice versa, everything depends on the trader’s qualifications, and the quality of the program itself, as well as the built-in settings.
With a low qualification of a trader, sometimes only automatic trading is the only chance to make a profit, while scalping professionals achieve up to 1000% profit per month.
Therefore, it is difficult to say which is more profitable manual or automatic trading, each independently evaluates his training and capabilities.
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- Time-Consuming – even from the name it is clear that manual trading will take much more time from you than automatic trading.
Moreover, this applies to all the types, for example, when trading on third-party signals, it is not at all necessary to sit in front of the trading terminal, the signal to open a deal can come to an email or mobile phone, and the deal itself can also be opened on a mobile device.
- Additional Costs – when trading with the AI, you need not only to replenish the deposit, but also to buy the program itself, paid AI can cost from 50 to 1000 dollars, there are, of course, free options, but most often they are less effective and do not have technical support. Also, for the uninterrupted operation of the AI, you need a constantly working computer or VPS server, the rent of which costs from $20 per month.
As for other types of automated trading, when copying trades, you pay a percentage of the profit, but you will have to pay for a subscription to signals immediately.
- Drainage of the Deposit – if we compare the success of automatic trading and that of novice traders, the latter are definitely more likely to lose deposits due to their inexperience. Since in most cases, AI use elements of money management, and deposit leaks often occur due to technical failures.
Frequently Asked Questions (FAQ)
1. Is Algorithmic Trading Better Than Manual Trading?
It is impossible to say for sure which is better: manual or automatic trading, it all depends only on the trader and his trading strategy. But there are some tips that can help you make your choice. You need to decide:
- How many trades do you plan to open during the day;
- How much time are you willing to spend on trading;
- What trading volumes you want to work with.
2. Does Automated Trading Actually Work?
3. What is a Manual Trade?
Manual trader to place a buy or sell order themselves, or create a watchlist and set alerts to notify them when the price of an asset has reached a price level at which they would consider buying or selling.
Despite some bias towards automatic trading, it is more suitable for a beginner trader to use AI trading than manual trading, especially if you approach this issue correctly:
1. Do not use AI based on risky strategies.
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2. Test programs on demo.
3. Constantly monitor the work of the AI, do not leave It on weekends and holidays.
4. Use semi-automatic trading to improve work efficiency (third-party signals or copying trades).
At the same time, you should not give up on manual trading, the time saved due to automatic trading should be spent on training and developing your own trading strategies, this is necessary if you decide to make trading your own profession, and not just a means of temporary earning.
At the same time, if you are already trading profitably, it is better to direct all your efforts to increase the profitability of trades than to start using elements of automatic trading in your work.