The 21st century that we are living in is the most dynamic and developing time so far with the rise of artificial intelligence and the adoption of automation in every industry we could imagine. The advancement of technology has also influenced the trading scene in the foreign exchange market with the emergence of automated trading. Nevertheless, despite the popularity of the best forex trading robots, many traders still prefer the manual way of trading, which raises the question of choosing the better alternative for FX trading.
Let’s take a look at both of the trading approaches and their perks and drawbacks.
Explaining manual trading
Going by the name of the trading approach, this method of FX trading is solely based on personal judgement and the trader alone is responsible for the outcome of a trade. In short, in manual trading, the trader will implement various trading strategies and take care of the activities along with deciding the appropriate time to enter and exit a position.
The result of a trade is dependent on the work put in by the trader that usually involves monitoring multiple currency pairs based on particular indicators. Here a trader can either choose to open a position or can have a watchlist to keep track of the market movements of preferred currencies. In manual trading, the most common strategies include swing trading, buy-and-hold approach and day trading.
Perks of manual trading
Manual trading can give you the edge of having full control over your trading operations which translates into having better control over the profit target that will help in managing the losing trades in a more effective manner.
For beginners, manual trading is comparatively more effective to get experience in the FX trading domain. Since in this type of trading, one needs to perform the operations without any help of automation, for a trader it can be an excellent way to get first-hand experience, get expertise on certain tools, and be able to make prompt decisions based on trading signals.
Drawbacks of manual trading
Manual trading can be time-consuming since the trader is required to take care of all the activities related to trading including research, reviewing past trades and identifying the best potential opportunities
Another drawback with this type of trading approach is the prevalence of psychological biases that may hinder the right trading decisions. Irrespective of the level of experience, a trader may get biased by certain emotions when making a decision.
Explaining algorithmic trading
Automated trading, contrary to manual trading uses software that is backed by a certain pre-programmed algorithm to determine profitable trading opportunities. Automated trading, unlike manual trading, facilitates a hands-free approach to trading by involving minimal human effort. In algorithmic trading, the system that primarily runs on MT4/5 identifies potential entry and exit points based on certain trading signals with the help of automation.
Why many traders are inclined towards relying on automation in FX trading is that, unlike manual trading, where traders are not required to monitor the currency pairs for hours and can focus on other tasks or optimise their strategies in the meantime.
Perks of automated trading
Algorithmic trading eliminates the chances of getting your emotions to come in the way when making a trading decision. Since this type of trading is solely based on trading indicators where the system works on pre-programmed parameters, there is no human bias to deter the trading outcomes to be concerned about.
The FX EAs and bots can monitor multiple market conditions, which enables traders to diversify their portfolios and cover several market conditions.
Relying on automated trading also allows traders to faster executions of orders, which leads to profitable opportunities that may have lacked in manual trading.
Drawbacks of automated trading
Despite the benefits of algorithmic trading, the chances of technical failures may remain that can lead to technical failures at times and may result in significant losses.
While traders may get the benefit of backtesting with automated trading, they are also exposed to instances that seem effective in theory but aren’t always beneficial in live trading scenarios.
It is evident that both of the approaches are efficient in their own way since each of them has separate benefits and drawbacks. The process of deciding which one is better for you depends on your specific trading requirements and financial objective.