Manual Trading vs Algorithmic Trading
Manual Trading vs. Algorithmic Trading: What's the Difference? Dive into the pros and cons of each approach to trading and find out which one suits your inve...
TRADING
Javier González-Barros, CFTe
1/1/20223 min read
That trading has undergone significant evolution over the past few decades, thanks to technology, is an undeniable fact. One of the most notable transformations is the transition from manual to algorithmic trading. While both approaches aim to capitalize on market opportunities, they differ in many aspects.
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Which is the Best Option for You?
Manual trading, as the name suggests, requires a human to make all buying and selling decisions. If operating in stocks, manual trading may still be the preferred option, but for other types of assets, it's worth thinking twice.
Intuition and Emotion: In manual trading, decisions are based on intuition, technical and fundamental analysis, and are often influenced by human emotions like fear and greed.
Limited Speed: Human traders have limitations in execution speed, which can lead to delays in decision-making and trade execution.
Diversity of Strategies: Manual traders can employ a wide variety of strategies, from day trading to swing trading, depending on their preferences and styles.
Flexibility: Manual traders can quickly adapt to changing market conditions and adjust their strategies accordingly.
Algorithmic Trading
On the other hand, algorithmic trading relies on algorithms and computer programs to make investment decisions. Here are some of its distinctive features:
Speed: Algorithms can execute trades at much higher speeds and with millimeter precision, minimizing slippage and reducing human errors.
Automation: Once an algorithm is programmed, it can operate autonomously 24/7, allowing you to take advantage of opportunities at any time, exploiting opportunities that the human eye cannot observe as quickly.
Quantitative Strategies: Algorithmic trading is based on quantitative strategies that use historical data and market patterns to make objective decisions. Though more methodologies can be added, that would lead us into more complex fields.
Various Approaches: There are different types of algorithmic trading, such as arbitrage, market making, and trend following, that adapt to different objectives and market conditions. The most accessible path is trend following.
Choosing the Right Approach for You
The choice between manual and algorithmic trading depends on your personal preferences, trading goals, and technological capability. But let's be clear about one thing. Only 10% of humans will die saying they have won in the stock market.
The key is to combine and diversify across all types of investments, seek the best in each field, and allocate a percentage of our capital to it.
The decision between human intuition and precise automation can make a difference in your results. Seek the best of both worlds. As for algorithmic trading, you're in the right place. Welcome to liderbot.
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