In the modern financial market environment that is moving at an incredibly fast pace, traders are presented with more opportunities than ever before. Some traders like to trade manually, analyzing the charts and placing their orders, while others prefer using automated trading systems that trade based on certain rules set in the system.
The question that arises here is: what is the performance of each system? In the following guide, we are going to highlight the various differences, benefits, and drawbacks of both forms of trading.
What Is Manual Trading?
The trader conducts all transactions using traditional techniques; therefore when trading manually, every trade performed by the trader or analyst is a result of their analysis and subsequent decision-making.
All trading activity, such as entry or exit points and risk management decisions, are made by the trader and user based upon their judgement and analysis of the market conditions or data.
Manual trading is mostly preferred by those traders who enjoy analyzing the markets. Here are its useful features:
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Decisions are made manually
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Constant monitoring is required
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Forex trading Strategy can be changed easily
Manual Trading Advantages and Disadvantages
Manual trading has many advantages which make it very attractive to many traders. Despite the advantages of manual trading, the system has disadvantages as discussed in the following points.
| Pros | Cons |
|---|---|
| Market Analysis Flexibility: Traders can use multiple forms of market analysis, including: | Emotional Trading: Fear and greed may lead to overtrading, revenge trading, or premature closing of trades. Emotions are one of the main reasons traders experience losses. |
| Easier Strategy Adaptation: When market conditions change, manual traders can quickly adjust their strategies without needing programming changes. | Slow Execution of Trades: Human reaction time can be slower than automated systems, which may result in missed opportunities. |
Most Popular Manual Trading Techniques and Tools
Support and resistance are price zones where the market tends to react. Manual traders observe these zones closely and identify the potential trading opportunities. Manual traders look for increased volume in conjunction with strong price momentum as confirmation of a breakout. Here are the most useful manual trading techniques:
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Trend trading
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Support and resistance trading
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Price action trading
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Breakout trading
Manual traders use sentiment analysis to evaluate the market. The sentiment of the market can be determined using various tools. The tools available to support a manual trading approach may include:
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Charting platforms
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A variety of technical indicators can aid a manual trader include: Moving Averages (MA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and Bollinger Bands (BB)
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Economic calendar good for interest rate decision
What Is Automated Trading?
Automated trading systems offer the following primary benefits:
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Automatically execute trades
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Remove the ability for emotion to enter into trading
Traders that use automated trading systems typically find they are able to:
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Use AI trading bots or algorithms
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Obtain a 24/7 market view
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Have the ability to scale and implement to top trading strategies in Forex market without having to do manual work
Automated Trading Advantages and Disadvantages
| Pros | Cons |
|---|---|
| Emotion-Free Trading: Automated trading systems are not affected by emotions such as fear and greed. | Technical Failures: System crashes, server issues, or internet outages may lead to losses. |
| High-Speed Trade Execution: Trades are executed at very high speeds, which is crucial in fast-moving markets. | Over-Optimization: Some strategies are excessively optimized for past data and may fail in live market conditions. |
| 24/7 Market Monitoring: Automated systems can monitor multiple assets continuously without time limitations. | Lack of Flexibility: Algorithms follow predefined rules and may struggle during unexpected market events such as major news releases. |
| Backtesting Capability: Strategies can be tested on historical data before being used in live trading. | – |
An Example of Automated Trading
An automated trader creates a strategy based on the crossover of the 50-period moving average (MA) and 200-period MA. Once they create an alert for a bullish crossover, they will place a stop loss equal to a certain percentage of the price (this is done to try to minimize losses and protect your account).
To do this, the algorithm will continuously analyze the market and execute trades when defined conditions are met. No human involvement is needed; the algorithm executes trades in milliseconds as soon as the conditions are met.
As an example, if the algorithm receives a bullish crossover trigger for a specific currency pair, it will execute a buy order based on what has been programmed by a human and will continue to manage the trade based on the original fixed risk parameters.
Since the algorithm can analyze multiple markets and execute trades much faster than a human during normal trading hours, it has a competitive advantage over humans.
Comparison of Automated Trading and Manual Trading Systems
Both methods provide traders with certain advantages depending on the trader’s experience, strategies and level of risk tolerance. Here are their clear differences:
| Options | Manual Trading | Automated Trading |
|---|---|---|
| Making Decision | Humans make decisions | Algorithms make decisions |
| Speed | Slower execution | Very fast |
| Emotions | High emotional influence | No emotional influence |
| Market Monitoring | Requires constant monitoring | Can monitor markets 24/7 |
| Strategy Flexibility | Very flexible | Limited by programmed rules |
| Skill Requirements | Requires analytical and trading skills | Requires programming knowledge or system setup |
Which Is More Beneficial, Manual Trading or Automated One?
The debate over whether the manual trading strategy or the automated trading strategy is more beneficial cannot be conclusively determined. The success of both the strategies is dependent on the trader’s level of expertise, trading style, availability of time, and technical knowledge.
Although both strategies are profitable when applied properly, each strategy has its benefits in different situations. As a lot of professional traders have found out, having a manual and automated trading strategy working together gives them the best chance to succeed. Manual trading may be more beneficial for:
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New traders who are still trying to learn how the market acts in different situations.
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Traders who use news and fundamentals to assist their trading.
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Traders who want more direct control of their trades.
Automated trading may be more advantageous for:
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Quantitative traders look to make decisions based on math and algorithms rather than by observing the market.
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Those developing trading strategies and testing them out.
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Traders who use multiple instruments simultaneously.
Hybrid Trading, Combining Manual and Automated Trading Strategies
Many experienced traders will actually use both types of trading systems (hybrid) to cover each method before making a final decision. An increasing number of traders are now using a combination of manual and automated trading.
This combination allows for both human intuition as well as algorithm-based speed. This may include:
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Automated systems finding potential entry points.
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Confirmation of those entry points through manual verification.
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Bot management will manage both exit and reward risk.
Choose the Right Trading Style
Selecting the right trading style is perhaps the most critical decision that a trader must make. The success of a trading strategy is not only determined by whether it is automated or manual but also its compatibility with your experience level, lifestyle, trading goals, and risk tolerance.
A good trading style for a given trader does not guarantee the same for another. In case of choosing the right option, you have to consider below items:
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Your Trading Experience
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Your Available Time
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Your Technical Skills
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Determine Your Trading Style
Best Trading Platforms For Manual and Automated Forex Trading
While choosing a strategy is important when developing a trading strategy, successful strategies can only be executed on an appropriate trading platform. A professional trading environment will typically provide the following features:
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Advanced charts with multiple timeframes.
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Fast execution times for entries and exits (minimum of one second).
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Ability for automated trading through API integrations.
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Strong liquidity access (e.g., through STP and other accounts).
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Risk management strategies and tools to assist traders in minimizing the potential loss of capital through various methods.
Platforms like STP Trading offer traders an environment that is suitable for both novice traders and seasoned professionals. Some of the advantages include:
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Quick execution with high liquidity provided by STP
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Ability to execute both manual and automated trading systems in various account types
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Ability to trade in various markets like Forex, commodities, indices, and metals
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High-end trading tools like STP trading indicators and professional trading platforms like meta trader 5
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Secure trading environment via different services such as anti margin call and hedge in the negative margin
The Conclusion of Manually vs Automated Trading
Manual trading versus automated trading is not about choosing the better option. It is not about choosing the option that is going to make you money. It is not even about choosing the option that is easier.
It is about choosing the option that is right for you. Automated trading allows a trader the advantage of speed in executing orders, the ability to maintain discipline while following a trading system and to continuously monitor the markets.
Many successful traders utilize both approaches in order to maximize their total potential. But regardless of your preferred system, what is important is that you use the right trading platform.
And that is exactly what we at STP Trading offer. With us, you get professional-grade trading tools that can help you succeed in your endeavors. Sign up at STP Trading and start trading to take your trading to the next level.
FAQ
Which one is safer?
The use of the manual system of trading may seem safer for some traders. The reason for this is that the trader is in full control of the trade at all times.
Do trading bots guarantee profit?
No trading bot guarantees profit for the trader. The automated system of trading uses rules that are set in the algorithm. The performance of the algorithm is dependent on the strategy that the trader uses and the market at the time of trade.
Can the automated system of trading be used by beginners?
Yes, the automated system of trading can be used by beginners. It is recommended that the beginner first learn the basics.
Can traders switch from manual trading to automated trading strategies?
Yes, it is possible to switch.
Is it possible to use automated trading 24 hours a day?
Yes. The machines do not need to rest.
