Manual vs. Hybrid vs. Automated Trading Systems

Manual vs. Hybrid vs. Automated Trading Systems

In previous years, those who wanted to trade the markets were forced to manually do so.  They needed to read the tapes, make decisions, learn market strategies, place their orders, and track (and exit) their trades according to the rules and tactics they discovered and decided to employ.

In recent years this has all changed.  Computers, software, and networks are now sophisticated and speedy enough to allow enterprising individuals and companies to develop trading algorithms that will automatically make trades according to a pre-programmed set of instructions.

The promise of algorithmic or automated trading systems is enormous…and so are the claims and marketing materials used to promote these services.  The ability to put money to work without any personal involvement or a deeper understanding of the markets is very appealing but dangerous and traders are encouraged to continue exercising caution as they begin to employ these techniques.  

Automation is now being used by the banks making a market in Forex. 

It’s estimated that about 75% to 80% of trading volume is being done through some sort of automated means. 

Banks are motivated to automate to reduce costs for two big reasons.  First, computers and their algorithms are much less expensive to maintain than some trader making a fat salary pushing a button somewhere.  Second, computers can do the work of offsetting any risk the banks take on as they make a market far more quickly than a human can.  These two big reasons reduce the overall expense and risk to the bank for making a market.  

Individual traders looking to incorporate any form of automation into their trading should also have a basic understanding of the strategy employed by that automation.  Automation may come in the form of computerized robot traders, trade alerts, or advisory services which all promise big gains on a high percentage of trades with little to no effort on the part of the user.

For these systems to work for the individual trader, two things must be embraced:

  1. Not all trading systems work for every temperament.  Individual traders should take some time to understand what level of risk they can live with before they select a system.
  2. Individual traders must be prepared (and financially capable) of taking every trade suggested by these systems in order for them to have a chance of working as advertised.  If a system provides 10 signals a week, the best results will come when taking all 10 signals and not trying to pick and choose between the signals.  

Trading success is all about consistency. A consistent market approach, a consistent level of risk per trade and consistently taking all the signals your chosen system provides.

Maintaining consistency can be difficult during periods of market volatility which causes the automation to provide less consistent returns.  Therefore, traders should work to develop confidence in their chosen automation to make it easier for them to embrace the trade recommendations as they come each and every time.


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