Automated Trading vs Manual Trading

Both automated and manual trading have their own perks. While manual trading involves rational human decision-making, automated trading is free from emotional bias. 

If you are a trader who wants to monitor the market yourself, manual trading is more suitable. Whereas, if you do not want to spend too much time on the same, automated trading is just the thing!

In this article, we compare automated vs manual trading so you can find out which one is better for you.

What is automated trading?

Automated trading uses automation programs that execute pre-set rules to enter or exit a trade. With automated trading, you combine technical analysis with pre-decided parameters to take forex positions, like open orders, stop losses, trailing stops and more. 

You do not have to monitor the market in real time constantly, and you can focus on any other tasks that you may have. The automatic execution ensures that all your trades are based on market facts and figures and not human emotions. 

What is manual trading?

In manual trading, all buying and selling decisions are made and executed by you (the trader) on your own. Therefore, you need to monitor the markets carefully in real time, identify the market trends and place orders accordingly. Most of the work in manual trading is done by you and not the system, including placing stop-loss orders and taking profit orders.

Difference between automated and manual trading 

Emotions 

Automated trading

Automated trading is free from all types of human biases like fear, greed and over-excitement. Since a robot executes your orders without any emotions, you are able to continue in the market trade even if the trades do not exactly platform as per your expectations. This helps you stick to your trading strategy irrespective of temporary market conditions. 

Manual trading 

Manual trading involves the implication of human emotions while trading and is influenced by human behaviour. This may lead to making irrational decisions at a time when greed/fear takes over facts and figures. However, at times, involving emotions in trading is an added advantage. When psychologically you strongly believe that a trade is going to do well in the future, combined with technical analysis, your emotion of hope of a better market can help you place successful orders, too. All it requires is the right balance.  

Time

Automated trading

Automated trading is less time-consuming as the system is able to complete trades within milliseconds. It does not spend time on monitoring or analyzing the market right before the trade, as all of that is done well before the tie. The same order that an automatic trading system places in a minute may require an entire day for you to do it manually. This is suitable if you are a full-time or part-time trader.

Manual trading

Manual trading is more time-consuming as you require to research the market yourself, review the markets, and analyse the price movement before placing an order. Manual execution requires you to sit in front of the fluctuating market for as long as possible and then place orders. This is only suitable when you are a full-time trader.

Back-testing/Forward-testing

Automated trading

Back-testing is one of the best capabilities of automated testing. With this feature, the system is able to apply automatic trading rules to the previous market data and determine the right trading strategy. Hence, whenever you select an automated trading strategy, the system ensures that the strategy is tested multiple times before executing any rule. This reduces the possibility of unsuccessful trade execution. 

Manual trading 

You can forward-test your trading strategies with manual trading instead of back-testing them. This allows you to test your trading strategy in real-time by comparing it to the current market prices and identifying how effective your current strategy is. This helps you identify ideal price levels in the current scenario and make any changes to the current strategy if required. 

Number of order execution 

Automated trading

Automated trading has a higher rate of order execution as it allows you to execute extremely large trading volumes in one go. You can trade multiple accounts, multiple assets and even multiple markets simultaneously with automated trading. The trades which may take several trades to be executed manually are executed in only a few seconds with algorithmic systems. 

Manual trading

The number of manually executed orders is much lesser in manual trading compared to automated trading. Even a scalper, who executed several orders every day to profit from the minor price movements, is only able to place a few hundred trades every day. Whereas with automated trading, you can execute thousands of the same. 

Control 

Automated trading 

Since automated trading is based on pre-filled information and algorithms, you have less control over the orders executed. However, you do not lose full control over the trade as you can turn on precise exit, entry, stop loss and various such rules. You can also change trading rules and algorithms whenever you wish for the trades to be executed as per your current trading strategy.

Manual trading

Manual trading offers more control over order execution as you place all orders in real-time. Hence, you can decide what to do at what time. This is helpful when trading live money as you can start and change stop loss and take profit orders on the chart whenever you want. This also leads to managing losing trades in real time without waiting for the next market movement to take place. 

Conclusion 

Both manual trading and automated trading have their own benefits. But they are not mutually exclusive. That means you can use both manual and automated trading to some extent, depending on the current market conditions and your availability.