To understand the difference between manual and algorithmic trading, you may consider the following aspects:
| Aspect | Manual Trading | Algorithmic Trading |
| Decision-Making Process | Human traders analyse markets, news, indicators, and more for decisions. | Computer algorithms follow predefined rules and criteria for decisions. |
| Execution | Traders manually input orders into the trading platform. | Trades are automatically executed by the algorithm once signals are generated. |
| Emotional Factors | Emotions like fear and greed can impact decision-making. | Emotion-free trading; decisions are based on objective criteria. |
| Adaptability | Traders can quickly adjust strategies based on market changes. | Algorithms execute trades consistently without human intervention. |
| Time Commitment | Requires continuous monitoring during trading hours. | Operates 24/7 without constant human presence. |
| Consistency | Decision-making can vary due to human biases. | Trades are executed consistently according to predefined rules. |
| Speed and Efficiency | Execution speed depends on human capabilities. | Trades can be executed at high speeds, reducing slippage. |
| Backtesting | Limited ability to backtest strategies with historical data. | Backtesting allows the evaluation of strategies before deployment. |
| Risk Management | Decision-making is influenced by emotions, impacting risk management. | Risk management is rule-based and consistent. |
| Learning Curve | Requires an understanding of technical and fundamental analysis. | Requires programming skills and quantitative finance knowledge. |
| Flexibility | Flexibility in decision-making and strategy adjustments. | Limited flexibility once the algorithm is set up. |
There are many reasons to believe that algorithmic trading has some clear advantages over manual trading. However, it is equally important to understand the risks associated with both forms of trading. You can read about things to be cautious about in algo trading here. What are the potential risks or challenges of algo trading?