Many market participants are depending on a combination of manual and algorithmic trading to access the forex markets. As a result, the market is progressively advancing toward the maximum level of trading automation, which involves autonomously operating trading systems that can combine and digitize every phase of a trade life cycle, from data processing to decision-making to order execution.
Both manual and automated trading strategies have their advantages and disadvantages. The route that you take can depend on how much free time you have to dedicate to forex trading and what your risk preference is. Nowadays, there are plenty of automated trading solutions, but many would still argue that nothing can beat learning how to trade manually by yourself. Here we will take a look at both options to help you decide which is the best route for you to take.
What is manual trading?
Unlike automated trading, which is carried out by systems that carry out trades based on certain algorithms, manual trading involves a trader manually opening and closing positions. Trading terminals are used by those who conduct manual trading to compile all the data. To ensure they don’t pass up profitable possibilities, they can also set up alerts. Nothing happens without the trader’s approval.
How to evaluate a manual trading approach
You must experiment with different strategies and techniques in order to establish your best manual trading strategy. Trading professionals advise opening at least 200 transactions and carrying them out in accordance with your plan for testing. It would take longer than a year in real time. It won’t take more than two to three hours when using a strategy tester in manual mode.
Advantages of manual trading
- All transactions are controlled by the trade. Nothing happens without the trader’s approval.
- The market environment is taken into consideration when deciding when to open and close positions.
- A clearer picture of the financial market. Although they are frequently monitored by bots, traders can evaluate news and other external factors that could affect the asset price. Additionally, they can forecast how the market will act following the disclosure of the new information.
- Rapid response to shifting market circumstances. A trader can quickly identify significant changes in the market trend and modify his approach. On the other hand, a bot’s algorithms cannot be automatically changed in such circumstances.
Drawbacks of trading manually
- The powers of humans are constrained. Too many assets/pairs and too many indicators make it impossible to keep track of them all.
- It is impossible to monitor the market constantly. Unavoidably, certain price fluctuations and trading chances are overlooked.
- It calls for a lot of dedication. Manually managing all trades and analyzing indicators takes a lot of time.
- Not appropriate for some trading philosophies. Some tactics, like scalping, don’t work well with this strategy (very short-term trades).
What is automated trading?
Automated trading, or algorithmic trading, starts and closes positions in response to market indications. Software that is preprogrammed to open and close trades automatically based on predetermined algorithms is known as a trading bot. The analysis of data by bots includes looking at indicators, price changes, pricing histories, chart patterns, etc.
A combination of various parameters is the foundation of an algo trading strategy. Algorithms are typically developed by bot suppliers. For instance, the MetaTrader trading platform also provides a marketplace for trading bots. Users can modify the maximum number of open trades, strategy, base trade size, safety trade size, and other parameters.
Additionally, traders with programming expertise can make hand-made bots. These bots’ owners manually adjust the parameters, and the trader’s strategy is used to manage positions. The trader’s influence decreases when a bot’s set of adjustable parameters grows smaller.
Multiple data sources can be analyzed using bots. The bot will place an order when the data matches the owner-set indicators. Some extremely sophisticated bots assess dozens of indicators at once.
But does the quantity of parameters a bot analyzes affect the efficacy and profitability of trading? No, not always. Whatever program you use, it’s critical to comprehend its internal workings and the functioning of the studied indicators.
Benefits of auto trading robots
- Always available. A bot will never forget to make a trade or give in to feelings. As soon as it is deployed, it operates according to a predetermined algorithm. The user is relieved of that burden.
- The capacity to interpret data quickly. A computer program that can perform complex computations is called a trading bot. Automation can assist you if your trading strategy calls for either processing big amounts of information quickly or carrying out trades in a flash.
- Multiple assets being traded simultaneously. With a number of exchange-traded assets, bots profit. Manually analyzing multiple coins at once is challenging. Some signals may be overlooked or even misunderstood if they begin to arrive at the same time. Any quantity of specified assets can be traded by a bot.
- The potential to use more indicators. Bots can be employed in conjunction with the primary strategy if a user wishes to incorporate more market signals into the trading process.
Drawbacks of automated trading bots
- News complexity and basic data processing. Trading bots are not intended for news trading, and they frequently misinterpret fundamental indications for which they must conduct secondary research. Bots are susceptible to mistakes since they can not comprehend the socioeconomic or historical origins of news.
- Incorrect impression of market micro-changes Your bot might perform well when there is an uptrend or high volatility, but it might not be effective enough when the market is in a sideways phase. The bot’s settings must be changed frequently to prevent losses. Additionally, it ought to include capabilities for managing risk and finances. You need to stop a bot from continuing to place losing transactions.
- Opaque algorithms. Programs using illogical algorithms are a mystery. They might be effective at first, but after a few market changes, they can become unprofitable.
Which is Better – Manual Trading vs. Automated Trading
Manual trading is appropriate for all traders whereas automated trading should be better for those who know what they are doing. By placing traders in realistic situations, manual trading helps traders gain experience and make better trading judgments. A trader develops a natural instinct for both technical and fundamental analysis. Trading manually gives investors greater control over what they can do in a specific circumstance. When a trader is employing a manual approach, it is simple to determine what is in their favor. Manual trading, however, necessitates a disciplined outlook. In this situation, beginners frequently become emotional, see enormous riches, and make mistakes that frequently lead to losses.
Due to the statistical advantage in their favor and the trading robot’s lack of emotion when executing deals, traders using automated trading will be able to maintain consistency in their trading. Unlike manual trading, there is no question of suffering a loss and no need to battle with the trading strategy. As a result, this is a tempting option for newcomers who have no idea how to begin trading. You can use automated trading systems to some extent in your trade. However, using automatic trading methods really only works with manual control and you need to be aware of the risks involved before you start.
You should try to combine a technical perspective with knowledge of the market’s drivers with an understanding of why the market is heading in that certain path. The road to effective trading is nor a short one. If you want to achieve, you must work hard, adopt a disciplined mindset, and establish clear guidelines. If you work hard and are passionate about what you do, you will eventually succeed and establish your financial independence.
There is no one right strategy, as demonstrated by a comparison of trading systems; in fact, combining the two strategies might help you reach your goals.
Each trader should adhere to a certain plan, but because the market is dynamic, the trading strategy must also be flexible. These modifications may be global (asset correlations, responses to specific statistics, etc.) or local (volatility adjustments, level responses, breakout/rebound patterns, etc.).
A trading bot that used to function well might no longer be as effective as previously due to the fact that small adjustments might add up and have a bigger effect than anticipated. As a result, timely changes are required for both human and automated trading techniques.
Keep in mind that no computer program can ever fully replace a trader. You cannot rely on a bot and unsupervised trading terminal. Yes, a bot can speed up repetitive tasks, but a trader must still monitor the process and continue to analyze the market (albeit less thoroughly).
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.