Why Manual Traders Should Go Algo: 6 Key Benefits

Are you a 9 to 5 employee, who wants to engage in the most liquid market in the world, yet you lack the time? Are you feeling overwhelmed by the pressure of manual trading? Do you find yourself jumping from one trading strategy to the next, only to get caught in losing streaks? Do you miss great trades out of fear, while engaging in bad ones out of greed? Well you are not alone! Manual trading can be exhausting, inconsistent and overwhelming. But I have the solution for you: algorithmic trading! In this post, we will share the six main reasons why you should transition from manual to algorithmic trading and how it can transform your trading experience.

Consistency

Manual trading often lacks consistency due to various inefficiencies. Human emotions, fatigue, and distractions can lead to impulsive decisions and deviations from your trading plan. For example, a manual trader might hesitate to enter a trade due to fear of loss, or might close a position too early out of greed, resulting in inconsistent results. Additionally, the physical and mental exhaustion from monitoring the markets continuously can cause mistakes and missed opportunities.

In contrast, algorithmic trading is the ultimate solution for maintaining consistency. Meta Trader Expert Advisors bots are software programs that execute trades based on predefined rules, eliminating emotional and impulsive decisions. Unlike human traders, EAs do not get tired or distracted, and they operate without emotions, ensuring that every trade follows the strategy without deviation. This disciplined approach provides a level of consistency that is difficult to achieve with manual trading.

Efficiency

Manual trading is time-consuming and requires constant attention. You might miss trading opportunities due to other commitments or time zone differences. For instance, consider a trader who lives in Japan but wants to trade the EUR/USD pair, which is most active during the London and New York sessions. This means the trader would need to stay up late at night or wake up very early to catch the best trading opportunities, leading to exhaustion and potential mistakes.

With algorithmic trading, this challenge is eliminated. EAs can operate 24/7, allowing you to capture trading opportunities around the clock without the need to be physically present. The EA will monitor the markets and execute trades automatically based on your predefined strategy, regardless of the time of day or your location. This means you can take advantage of global market movements at any time, even while you sleep, significantly increasing your trading opportunities and efficiency.

Psychology

Emotional decision-making is a major drawback of manual trading. Imagine a trader who has a losing streak of 5 trades. What do you think his level of trust in the strategy he is developed, while placing the sixth trade? It would likely be full of doubt and fear. This trader might hesitate or even decide not to place the trade at all, only to discover a few hours later that it could have been a winning trade. Such emotional turmoil can lead to missed opportunities and inconsistent results.

With algorithmic trading, this emotional factor is eliminated. EAs execute trades based on predefined rules without being influenced by previous losses or the fear of making another mistake. They are cold, emotionless machines that stick to the parameters no matter what. This ensures that trades are executed purely based on logic and strategy, helping to avoid mistakes driven by fear or greed.

Backtesting

Imagine you are a manual trader who has decided to trade a trend-following strategy on EUR/USD on the 15-minute timeframe. Rules are set, nicely written on a piece of paper or a word document. You wake up early in the morning prepare a huge cup of coffee, ready for the mission to backtest your new strategy on EUR/USD for the past six months.

After four hours of manually backtesting, you realize the strategy is not performing well. But, during the process, you notice that changing the moving average period could potentially improve the results. Next day, you go back to the charts, spend another four hours testing the new parameters, and finally get excited because it worked. Thinking you have found a winning strategy; you decide to apply it to the previous six months. The day after, you dive back in, another four hours pass, only to discover that the strategy was a total disaster for that period. You have spent 12 hours, over a period of 3 days, on a losing strategy, on one pair for a period of 12 months. This is a typical backtesting routine for a manual trader—tedious, time-consuming, and often frustrating.

Now, imagine if you had this strategy programmed into an algorithm. This whole process will be crunched to one minute. Not only that, you can also apply it to way more years of historical data across different currency pairs and assets. You can even test various moving average periods to find the best one for your favourite asset. Algorithmic backtesting is not only faster and more efficient but also allows for extensive testing and optimization that manual traders simply can't achieve.

Unfortunately, backtesting is often overlooked by both manual and even some algorithmic traders, which is  a significant missed opportunity. Utilizing the power of algo trading for backtesting can provide crucial insights and significantly enhance your trading strategy.

Diversification

With algorithmic trading, you can trade as many assets as you want, on as many terminals as you can, using endless trading strategies, all at the same time, without the need to execute a single trade manually. This level of diversification is nearly impossible to achieve with manual trading.

Manual trading limits your ability to manage multiple strategies or assets simultaneously. The sheer amount of time and attention required to monitor various markets, analyze different assets, and execute trades makes it an extremely challenging task. You might find yourself overexposed to certain assets or missing out on opportunities in others due to the limitations of manual trading.

This ability to manage a diversified portfolio can significantly enhance your trading performance by balancing risks and increasing potential returns. By leveraging EAs, you can achieve a level of diversification that is both efficient and effective, something that manual traders can only dream of.

Precision

Precision in trade execution is one of the most significant advantages of algorithmic trading. Imagine a scalper trading the 5-minute time frame. Suddenly, five different trading opportunities present themselves almost simultaneously. For a manual trader, it is nearly impossible to engage in all these trades at the same time. The manual process of analyzing, deciding, and executing trades can lead to missed opportunities and errors due to the speed and precision required.

In contrast, algorithmic trading excels in this scenario. EAs are designed to execute trades based on predefined rules with incredible speed and precision. They can monitor multiple assets and trading signals simultaneously, and when the criteria are met, they execute trades instantly. This ensures that no opportunity is missed, and trades are executed at the exact desired entry and exit points.

The precision of algorithmic trading eliminates the delays and mistakes that human traders are prone to. Whether it's a volatile market condition or a sudden spike in trading opportunities, EAs handle the execution flawlessly. This level of precision is crucial for strategies like scalping, where timing and accuracy are everything. By leveraging algorithmic trading, you can ensure that every trade is executed with pinpoint accuracy, maximizing your potential for profit and minimizing the risk of error.

To recap, transitioning from manual to algorithmic trading can offer six key benefits: consistency, time efficiency, emotion-free trading, backtesting capabilities, diversification, and precision. These benefits can significantly enhance your trading performance and experience, making your trading more efficient, reliable, and profitable.