In the realm of trading, traders often deliberate between two trading styles: algo trading and manual trading. Algo trading has garnered significant attention in recent years due to its automated approach that executes trades based on set parameters and signals. However, manual traders still hold a dominant position in the trading industry because of their extensive market knowledge, technical analysis acumen, and swiftness in making informed decisions based on market news.
Now, the million-dollar question is, which trading style wins? But, before we arrive at a verdict, let’s dive deeper into a comprehensive comparison between an algo trader and a manual trader.
1. Strategy Development
The foundation of a successful trading career is a well-defined strategy. A manual trader would need to do extensive research, backtesting, and develop their unique strategy because it’s based on their analysis of the market and the technical indicators they interpret. On the other hand, an algo trader utilises pre-developed strategies that have tested the profitability of the strategy under various conditions. In addition, the automation feature of algo trading enables the trader to handle multiple strategies over several markets. In contrast, manual traders can only manage one strategy at a time, which might limit their growth.
2. Backtested Data
The effectiveness of a strategy is known only by testing it on historical data. For example, a Manual trader manually logs their trades and keeps track of all their trades. Still, it’s difficult for them to examine extensive amounts of trading data to make informed decisions. On the other hand, Algo traders use sophisticated backtesting tools to analyse large amounts of data within seconds, which helps develop profitable strategies.
3. Emotions vs Objectivity
One of the most crucial drawbacks of manual trading is that emotions can quickly come into play when making trading decisions. This happens especially when manual trader experiences a losing streak and tend to deviate from their trading plan and make impulsive decisions. While with algo trading, orders are executed automatically based on preset parameters, so there are no emotions involved.
4. Technical Edge
Manual traders have a technical edge over algo traders. This is because they have the ability to incorporate macro events and news into their analysis, which an algo trader would be unable to do. Moreover, manual traders concentrate on market research, technical analysis, and fundamental analysis to arrive at well-informed decisions. As a result, they can adapt to sudden market movements and change their strategy accordingly. An algo trader, on the other hand, utilises pre-defined parameters to make trading decisions, which can make them less adaptable in volatile conditions.
The decision to choose between algo trading and manual trading ultimately boils down to the individual’s trading style, goals, and personal preferences. Both methods come with a set of advantages and disadvantages, and it’s entirely up to the trader to determine the approach that caters to their requirements. For instance, if you’re someone who doesn’t want emotions to affect your trades and prefers automation, algo trading might be your best bet. It not only analyses data extensively but also helps in reducing emotions, making it a go-to for traders who are comfortable with automation. Conversely, manual trading demands intensive research, requires the trader to stay engaged with the market, and provides the flexibility to adapt to the market-shifting trends, making it an excellent choice for those who have time and a keen interest in the market.
Though both methods have proved lucrative for traders worldwide, one cannot overlook the criticality of having a clear strategy, backtested data, detailed journaling, objective trading, and a technical edge in successful trading. No matter which approaches you choose, your chances of succeeding in the trade market are meagre without these essential components. So, weigh your options, apply the necessary components, and go ahead with what works best for you.