Manual Trading vs Automated Trading

We’ve all read stories of traders who started with almost nothing and became millionaires or even billionaires. It is indeed possible but it requires perfect self-control, excellent skills and a little bit of luck.

Today we are going to look at another way of trading, less spectacular and less flattering for the human ego that we are, but just as effective.

We’re going to talk about algorithmic trading and its main differences from manual trading.

Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.

What is manual trading?

It is the simplest way to trade and it consists of buying or selling a security (stocks, bonds, futures or even cryptocurrency). To do this, the user goes to an exchange platform, such as Binance in the case of cryptocurrency.

After funding your account you can buy your first crypto! Congratulations you have just traded manually.

What is automated or algorithmic trading?

Behind this word is simply the fact of automating the taking of positions. A trading algorithm is a program that constantly monitors the market and applies a strategy to the latter. As soon as the parameters are right, the strategy will open a trade automatically without you having to do anything.

What are the advantages of automatic trading?

  • Passive Income

If you leave your account trading for long enough (at least a year), the strategy you use can earn you a passive income stream. In fact, it is necessary to let your capital work for a while because we can observe a divergence between expected and actual returns over time. This is called drawdown and it is quite normal in a trading strategy.

  • No experience needed

This is one of the main advantages of using algorithmic trading. Unless you want to design your own strategy, in which case you will need a lot of training, no experience is required to use an automated strategy.

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  • Free of stress / Emotional trading

This advantage is only valid if you resist the temptation to interfere with the bots. Indeed, if you use an algorithmic strategy but you can’t stop yourself from staying on your screens all day, you will be subjected to emotional trading. This can lead to poor performance due to premature closing of a position, for example.

  • Higher efficiency

Since your strategy trades 24/7, you are exposed to the market at all times, so there is no risk of missing an opportunity.

  • Rigorously backtested

Even if you have to backtest your strategy for manual trading, it may still be visual and/or not very accurate. In the case of an algorithmic strategy, there are many software tools available to assist in backtesting.

Tips on how to make the best use of trading algorithms.

  • Diversification between several Bots/strategies.
  • Long investment horizon.
  • Do not interfere with bots.
  • Have reasonable expectations in terms of return.
  • Trade with money you can lose eg. your disposable income
  • Detach yourself emotionally 
  • Do not use it as a get-rich-quick tool or scheme

Conclusion

Two of the most common mistakes that people make when utilizing automated trading is the inability to quit interfering with bots and not allocating a longer time horizon (at least a year). Understandably, due to the fast pace of the crypto market (24/7), it often leads newcomers to have the illusion that quick gains can be made.

The 4C Trading SMART Bots have been helping investors and traders achieve an additional revenue stream over the years. You may wonder why do traders utilize the SMART Bots? Don’t traders solely manual trade? Well, adding the SMART Bots to traders’ portfolio is a powerful tool! After all, why would anyone say “no” to extra income? Combining both manual and automated trading helps to diversify your risk and maximize your gains! 

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