Forex trading takes time and effort. It requires you to sit for long hours in front of the trading screen in order to place positions in the forex market. Due to this, many traders begin to find it tedious over time. They start looking towards automated trading systems or trading robots since those can reduce their workload and stress levels pertaining to trading.
Here, they start wondering as to which system is better, whether they should continue with manual forex trading or begin using an automated system. In this article, we will show you the major variations between these two trading systems, which will help you select the best method for yourself.
What is automated trading and manual trading?
Automated trading is also known as mechanical, robot or robo, algorithmic, or system trading. In this trading type, the trader sets particular strategies, such as when to enter and exit trades and risk management, and then programs the system. This allows the automated system to automatically observe and carry out trades on a computer.
Manual trading refers to trading done by human traders who solely decide whether to enter or exit trades. In this type of trading, the trader has to manually supervise the forex market on their computer, laptop, or smartphone.
Each of these trading types has its own benefits and drawbacks. Let us understand them better on the basis of a few aspects mentioned below.
Decision-making
The decisions in automatic trading are taken by the robot as per the trading rules the human trader coded in the system. Since the decisions are taken by robots that work mechanically, they are not affected by emotions. The system adheres to the trading plan with discipline, which means there would be fewer errors in its decisions.
On the other hand, manual trading entails decisions taken by humans on various things, such as when to enter and exit the market, which trade to do, etc. These decisions are instinctive and spontaneous most of the time. Plus, humans cannot always go as per the trading plan and can deviate from it occasionally.
Analysis
Automated forex systems can analyze currency pairs and charts for several hours without getting exhausted. Plus, they can work throughout the day and all days in a week. This means forex robots can do a thorough study and thus frame better trading rules. The automated system can also look at various currencies and handle several transactions simultaneously.
On the other hand, human traders can get tired while going through and scrutinizing various forex charts. They can sometimes miss crucial details, which can prove to be risky and misleading. Additionally, they can work for only a few hours in a day and that too not every day since human traders have other commitments as well. It also becomes hard for a trader to keep track of several currencies and their respective economies all the time.
Profit-making
Automatic trading is not governed by human emotions and greed. In case you lose in a trade, the system will still work without getting influenced by any emotions, thus helping you defeat your fear that comes from losses. This helps you in earning profits from your trades.
In manual trading, it is possible to receive better profits since it allows you to experiment with your trading using your creativity and mind. You can make changes to your trading strategies as per the latest market trends, which can earn you profits.
Control
Forex robots follow a mechanical system that has stringent rules. Emotions have no place in this trading type. This can eliminate the issues that arise from emotional decisions made by human traders. However, the automated system has full control over your trades, which can be an issue for many traders as they don’t want to renounce all control to an automatic system.
In manual trading, your decisions can be affected by your emotions, such as apprehension, rage, greediness, etc. For instance, you can enter a trade late, exit a trade early, or trade when you shouldn’t.
Moreover, as a human trader, you can defy your money management rules so as to make up for the losses you suffered in the recent past. This can result in additional losses for you. However, in this trading type, you have full control over your trades.
Convenience
Automated trading is definitely easier and more convenient than manual trading. It makes trading easier and alleviates the workload and stress that comes from manual trading. Moreover, it does not require you to sit in front of the screen for several hours, unlike manual trading. This means the forex robot will work even when you are sleeping, doing some other work, or traveling.
On the other hand, manual trading takes time and efforts to properly study things like:
- Signals
- Indicators
- Charts
- Entry and exit points
- Various currency pairs
On the basis of these things, along with others, human traders take a decision to enter, execute, or quit trades.
Risk management
Automated trading can manage risk as it does not involve human emotions. For instance, there can be a fear of missing a trade or a fear of accepting losses, which can make human traders enter inappropriate trades. Since forex robots function on mechanical rules and follow them precisely, they ensure that your trades are started, carried out, and closed at suitable times.
Manual trading involves feelings, like fear of losses and missing a trade, which can affect your risk management strategies. On the brighter side, humans can examine and predict. A manual trader can see when the market has a slow pace and accordingly exit the trade. Humans are more calculative than mechanical systems or robots. Therefore, they can take more sensible risk management decisions, provided they manage their greed well.
Conclusion – Finding a strategy that works
It is always best to first educate yourself about automated and manual forex trading and then make a decision. When you know the advantages and disadvantages of both methods, you can make an informed choice as per your requirements and preferences. The best strategy is to merge the best of both automated and manual trading in order to get optimized results easily without getting affected by your emotions.