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Algorithmic vs Manual trading January 05 2021Algo Trading

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We are living in the 21st century which is subtly dynamic and developing every single minute. Artificial Intelligence has taken over manual activities of human kind. This has a lot to do with trading reforms in the modern era. Manual trading is over taken by the so-called Algorithmic trading. Algo trading also known as automated trading system is a significant reason behind the increased discussion on Algo vs Manual trading.

There are Tons of Forex trading robots out there, and almost everyone claims that overnight they can turn small accounts into huge amount of money.

We are past the point of these ludicrous statements being believed. We shouldn''t allow these EA scams to steal the authenticity of actual algorithmic trading systems. The reality is that it can work with automated trading. Highly optimized trading robots are used by many large investment firms to take money out of the market, so there is a way of making money using these robots.

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Advantages of Algo trading

· It''s literally the essence of making a robot trade for you. It is accurate, perfectly disciplined and makes no mistakes (if programmed correctly).

· The willingness to be patient and stick to the plan is one of the greatest issues trader’s face. You can be confident that the robot will be fully disciplined and adhere to the trading plan you set up by automated trading, also known as algorithmic trading. It is also the willingness to stick to the strategy that separates a profitable trader from an unprofitable trader.

· Not only can a robot adhere to the plan and be disciplined, but proper execution will always be performed by a robot. When it can take a sale, a robot will not take a purchase.

· The robot can not only trade with better discipline, better execution, and more range, but a robot is not tired either. The trading robot will be grinding away at the markets 24 hours a day as you pick the few hours that fit best for you. That''s 3, 4, maybe 10 times the amount traded by a manual trader on the market.

Alright, alright. The human trader was sufficiently beaten up. It''s time for him to strike back.

The only thing a human forex trader has is a brain that a robot doesn''t. Where a robot can only perform decisions based on the situations programmed into it, all that is going on can be taken into account by a person and interpreted together.

Advantages of Manual trading.

· A human being can take into account fundamentals that happen unexpectedly (like a hurricane in Japan).

· An individual can see that the industry is moving uncomfortably slow or unreasonably volatile and take out his trades.

· A person can decide whether he has enough profit and when he feels the momentum can continue in his favour.

· A human being can get a sense of the market—he can get in the zone.

Examples

Algo trading

Let us take example of a trader named Rahul who uses algorithms while executing trades.

Rahul uses moving averages as technical measures and only buys a company''s stock if the 30-day moving average stock price goes above the 180-day moving average stock price and similarly sells the stock when the 30-day moving average stock price goes below the 180-day moving average price.

As a computer program, this requirement can easily be fed into software.

This Algo will only purchase a certain number of shares of the given company if the moving average of 30 days is greater than the moving average of 180 days. For Rahul, the programmed software will work, as he has specified the program''s time, price and volume with the help of algorithm. Rahul does not need to keep track of the business opportunities and changes as the algorithm does for him.

Another simple example of Algo trading

Purchase 100,000 Apple (AAPL) shares if the price falls below 200. Buy 1,000 shares for every 0.1 per cent rise in price above 200. Offer 1,000 shares for every 0.1 per cent drop in price below 200.

It is very common and extremely easy to implement moving average trading algorithms. The algorithm buys a stock if its current market price is below its average market price over a certain period of time and sells a stock if its market price is above its average market price for a certain period of time. Here we are considering a moving average trading algorithm of 20 days.

Apple Stock price vs 20-days moving average


The blue line on the graph indicates price and orange line indicates 20-days moving average.

If the current market price is less than the 20-day moving average, the algorithm buys shares of  Apple (AAPL) and sells Apple shares if the current market price is more than the 20-day moving average. The green arrow suggests a point in time where shares would have been purchased by the algorithm, and the red arrow reveals a point in time when shares would have been sold by this algorithm.

Lets look for an example of Manual trading

Mike is a trend based trader. He searches for openings around the 100-day moving average (MA) to enter strongly trending stocks, and then uses the 100-day MA for his exit as well.

As there is some subjectivity involved when he joins a deal, this includes manual trading. Subjectivity does not translate so well into an automated program.

Mike for instance, always likes to see a rising stock fall below the 100-day MA, but only marginally, and then rise back above the long trade trigger. If he''s in the market, when the price crosses back below the 100-day price, he leaves.

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