Introduction
The way in which financial markets are traded has changed drastically over the last few decades. While manual trading was the dominant practice for a long time, automated trading strategies are now playing an increasingly important role. Technological advances, new data sources and the desire for efficiency have meant that algorithmic trading now accounts for over half of the trading volume in many markets. Nevertheless, many traders still rely on their personal analyses and experience.
In addition to these two classic approaches, a third category has established itself in recent years: specialised tools that support manual trading without completely replacing it.
Let's look at the differences between these three methods to identify their respective strengths and weaknesses - is there a clear favourite?
The Classic Way: Manual Trading
Manual trading describes independent decision-making and order execution by the trader. This is usually based on a combination of technical analysis, fundamental data and personal judgement. Well-known instruments such as chart patterns, indicators or economic news serve as the basis for trading decisions, which can be customised. [1]
A key advantage of manual trading is its flexibility. People can react to unpredictable market changes, interpret news and adapt their strategy according to the situation. Especially in situations where emotional intelligence is required - such as political crises or sudden changes in sentiment - manual trading can offer an advantage. At the same time, research by Barber and Odean, for example, shows that emotions such as fear or greed often lead to wrong decisions. Less experienced traders in particular tend to sell at a loss or realise profits too early. [2]
In addition, manual trading requires considerable time resources. Markets have to be continuously monitored, charts analysed and news evaluated. This is a major challenge for many private investors who trade on the side. Scalability is also limited: A single trader can only effectively keep an eye on a limited number of markets and instruments.
The Modern Alternative: Automated Trading Strategies
Automated trading relies on software programmes that make decisions and execute orders on the basis of predefined rules. These rules can include simple technical signals or complex models based on artificial intelligence. According to a Deloitte study, a large part of the trading volume on US stock exchanges is now handled by algorithms, a trend that is also increasingly continuing on other markets. [3]
One major advantage of automated systems is their speed and efficiency. Algorithms react to market developments in fractions of a second and are able to act around the clock. In addition, emotional influences are completely excluded: An algorithm acts consistently according to the specified rules, regardless of fear or euphoria.
However, even automated systems are not free of risks. Technical errors, such as disconnections or faulty programming, can have serious consequences. The so-called "Flash Crash" of 2010, in which algorithmic systems caused massive price distortions within a few minutes, shows the potential dangers very clearly. [4]
In addition, many systems are based on historical data. In rapidly changing market environments, this can lead to previously successful strategies suddenly failing - a phenomenon known as overfitting.
The lack of situational adaptability also remains a disadvantage. Algorithms follow fixed patterns; although they recognise patterns in data, they do not interpret new events in the true sense of the word. Political upheavals, natural disasters or sudden regulatory changes therefore pose a particular challenge for automated systems.
The Middle Way: Tools to Support Manual Trading
In addition to completely manual or fully automated approaches, a third category has established itself: Hybrid trading tools such as gravitrade, which support manual trading through analysis, market monitoring and signal generation. These systems continuously monitor the market, recognise defined patterns and send trading signals to the user based on predefined rules. Increasing personalisation of trading tools and the integration of AI make it possible to better adapt signals to the user's personal preferences and trading patterns. However, the final decision on order execution remains consciously with the trader.
The great advantage of these tools is that they relieve the trader of the burden of analysing the market without relinquishing control. Erroneous emotional decisions can be reduced by timely, objective indications, while strategic flexibility is maintained. In addition, these systems often offer the ability to efficiently monitor multiple markets simultaneously, giving the trader a broader market exposure without the requirement for constant attention.
On the other hand, there are certain challenges. The quality of the signals depends heavily on the quality of the strategy definition and the software. Hybrid systems that send notifications about trading signals can lead to a flood of information if trading periods are very short. This multitude of signals can quickly overwhelm the person, as the pressure to make a decision increases and important information could be overlooked. Another aspect is the psychological component: Even with the best signal generation, the person ultimately remains responsible for the implementation - which does not completely eliminate emotional errors.
Between Intuition, Technology and Assistance: a Balancing Act
The decision between manual trading, fully automated strategies and supporting tools depends heavily on a trader's individual requirements and goals. Manual trading offers maximum flexibility and individual control, but is time-consuming and emotionally demanding. Automated systems score highly in terms of speed, efficiency and discipline, but can show weaknesses in the event of unforeseen changes. Supportive trading tools, on the other hand, combine elements of both worlds: They relieve traders of routine tasks and give them an information advantage, but still leave the final decision to the user.
For semi-professional traders or ambitious private investors in particular, such tools offer an attractive middle ground: they can benefit from the computing power of modern systems without completely relinquishing human control. At the same time, however, success remains heavily dependent on how well the underlying strategies are defined and how disciplined the user is in dealing with the signals received.
Conclusion
Manual trading, automated strategies and supporting tools are widely used approaches to trading on modern financial markets. Each of these approaches offers specific advantages and brings its own challenges. While traditional manual trading relies on human intuition, adaptability and individual control, automated systems deliver speed, consistency and freedom from emotion. Trading support tools offer a hybrid approach: they facilitate analysis and market monitoring, but leave the final step - order execution - to the trader.
No trading approach is equally suitable for all markets and traders. The successful use of trading methods always depends on the investor's personal situation: his technical skills, his time availability, his risk appetite and his strategic goals. A deep understanding of the respective strengths and weaknesses of all three approaches forms the basis for making an informed decision and finding your individual path to success on the financial markets.
Do you want to stay in control of your trades, but still save time and never miss a signal again? Then register now on www.gravitrade.at and benefit from efficient trading with full transparency!
References
- [1] J. J. Murphy, Technische Analyse der Finanzmärkte, FinanzBuch Verlag, 2006.
- [2] B. M. Barber / T. Odean, Trading is Hazardous to Your Wealth, The Journal of Finance Vol. 55, 2000.
- [3] Deloitte, The Future of Trading: Technology-Driven Transformation, 2020.
- [4] A. Kirilenko, The Flash Crash: High-Frequency Trading in an Electronic Market, The Journal of Finance Vol. 72, 2017.