Automated trading vs manual trading

Jitanchandra Solanki
9 Min read

In this article, we explore the differences between automated trading vs manual trading. While manual trading has been around much longer, automated trading is now more readily available to retail traders which has only intensified the debate on which style is best. Let's dig a little deeper into both!

What is manual trading?

Manual trading is where a trader will make a decision on when to buy or sell an asset and then place the trade themselves via market or pending orders. The manual trader may also scan multiple markets first to actually find an opportunity before deciding to act. In essence, most of the work is done by the trader which means their output is only as good as their input.

For example, an intraday Forex trader may spend the morning scanning through a list of different currency pairs to find combinations of technical trading events using indicators and other types of analysis. They may then either place a buy or sell order themselves or build a watchlist and set alerts to notify them when an asset's price has reached a price level they would consider buying or selling at.

The trader may then make the decision to buy or sell by placing the order themselves. Some traders may also opt to manage trades themselves by moving stop loss and take profit levels as the market moves with them. In manual trading, it is the trader which has to make all the decisions and act.

What is automated trading?

Automated trading is where a pre-programmed algorithm will make all the decisions on what to buy and sell, and when, based on the instructions written in its code. A trader, programmer or 'quant' may code their manual strategy so when certain rules or events occur, the algorithm will automatically take trades.

For example, an intraday Forex trader may hire a programmer to convert their manual trading strategy into an automated trading strategy. After some testing, they may realise the conditions are too loose or too constrictive. After a period of optimisation, the trader may be satisfied with their algorithm and then go and test it using a demo trading account. Even when they go live, the trader may test it on a small account first before allocating more capital.

It is a marked difference to those who believe their manual trading rules will work in an automated trading system. Successful automated traders consistently test, optimise and develop their systems slowly. In this situation, the trader doesn't need to be there to find the trade or execute the trade. They can spend more time optimising their trading systems and building more.

And what is the best automated trading software available? Well, one of the most popular platforms for auto trading and manual trading is MetaTrader. You can download it for FREE today and explore all of its features to trade on multiple asset classes! Click on the banner below to get started:

The World's Premier Multi Asset Platform

Automated trading vs manual trading

When it comes to deciding which style of trading is actually best, there are various factors at play such as experience, time, resources available and more. Below is a list of the pros cons for each type of trading style:

Auto trader pros

  • Completely removes emotion from trading decisions. Most new traders simply struggle to keep on trading a strategy when they have had a few losing trades thereby never achieving a consistent set of trades to allow a statistical edge to work in their favour. Auto trading removes this emotion as the trading robot can execute your trades without any emotion.
  • In this style of trading, traders can build a portfolio of different systems to cover different market conditions allowing for a level of diversification in their approach. As the algorithm can also show all the previous historical trades, traders can quickly identify whether a system has worked historically and gain useful statistics to understand when it will stop working in the future (such as exceeding historical consecutive losses, etc).
  • New traders can start out with a demo account to test different strategies available for free or purchase one from the MetaTrader Market place. This is a useful way to see if auto trading is actually right for them.

Auto trader cons

  • The past does not guarantee the future. Just because a system has worked historically, it does not mean that it will work in the future. Market conditions change, volatility changes, trends change, etc.
  • It is very easy for auto traders to over-optimize their system and change criteria to make their historical results look fantastic. Known as 'curve fitting' among auto traders, it is a very common issue. While traders may find the best variables for their system on historical data, it doesn't mean anything on future price data.
  • There is a cost to hiring a programmer to help code a trading strategy. Any optimisations or changes may also require more cost to investigate and amend. The other option is for traders to learn how to code themselves which for most would be another con.

From the MetaTrader trading platform provided by Admirals users can access the MetaTrader Market place to find free and paid-for indicators, strategies (Experts), libraries and more, as shown below:

A screenshot of the MetaTrader Market place accessed from the MetaTrader 5 trading platform provided by Admirals.

Manual trader pros

  • Through manual trading, the trader has to learn about the market they are trading, the tools they are using and methods of making trading decisions such as technical analysis and fundamental analysis. This is a great way to build knowledge about trading which can then be useful when trying to devise an automated trading system.
  • In manual trading, traders have a bit more control on what to do when. From a mindset perspective, this is powerful. Especially if a trader is trading on live money. Knowing that you have a trade on, inputting the details and seeing the stop loss on the chart yourself can help to feel more settled in managing an account.
  • With manual trading, a trader can actually identify what is working for them and what is not working for them. Typically, most traders struggle with the mindset aspect of trading and even more specifically, taking losing trades which is an inevitable part of the business. But by understanding what is not working, they can work on it to become better.

Manual trader cons

  • Manual trading does take time. The trader needs to perform research, be there to place their orders and spend time reviewing their trades and individual behaviour to try and reach superior performance. Some of these tasks can be semi-automated though. For example, a trader could use pending orders to instruct their broker to close trades at profit or loss at certain predetermined price levels.
  • A disciplined mindset is required to trade successfully. Many traders often let their emotions get to them and start to 'gamble.' It is up to the trader to maintain discipline in risk management at all times, making sure they don't risk too much to allow for losing trades, making sure they actually trade consistently to allow a statistical edge to work in their favour and making sure they focus on their processes rather than all the noise of other people's opinions.
  • Many manual traders struggle with being solely accountable for their trading account and will often blame their strategy, or their platform, or their broker, rather than look internally at their own behaviour and decision-making abilities.

Fortunately, manual traders can access automated trading services to help identify potential trading opportunities! With Admirals you can upgrade and supercharge your MetaTrader trading platform with the Supreme Edition plugin.

This allows you to access the Technical Insight Lookup indicator which gives you actionable trading ideas and insights automatically, as shown below:

A screenshot showing the Technical Insight Lookup indicator from the MetaTrader 5 Supreme Edition platform searching for EURUSD in the search box.

Did you know that you can access this completely FREE?

Supercharge your trading platform today by clicking on the banner below to start your free download:

The exclusive MetaTrader Supreme Edition

Download the most powerful plugin suite for your favourite trading platform!

About Admirals

Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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