Algorithmic trading bots versus manual trading – which is better? (2024)

In the trading world, automated algorithmic trading is becoming an integral part of processes. The world of cryptocurrencies is of course no exception.

Most of the world's leading stock exchanges have integrated internal bots into their own systems. Many third-party services offer their own bot designers or trading bots for connecting to any of the existing exchanges. Algorithmic trading has ceased to be a novelty, and has become a powerful tool integrated into the everyday life of traders.

Advantages of algorithmic trading

The main advantage of automated bots is obvious – these bots separate trading from the emotional influence of the trader. Operations are performed according to the specified algorithms, without the slightest influence of the human factor – indecision or emotional reactions to market fluctuations. This lack of emotions becomes a reliable barrier against the occurrence of FOMO (Fear of missing out). This allows traders to make decisions more objectively and strategically, based on calculations and analysis, and not on emotions.

The second key advantage is the speed and accuracy of the reaction. Automated bots instantly analyze the data stream, taking into account all aspects embedded in its algorithms. This speed of reaction allows you to open and exit positions in time, responding to market changes.

Also among the advantages should be included the possibility of automatic management of risks and monetary capital. Algorithms set stop-loss parameters that are optimal for the chosen strategy. This avoids exceeding financial limits and ensures effective risk management.

In addition, automated bots allow traders to test and optimize their strategies on historical data. By conducting back-tests of trading algorithms over long periods, a trader can assess the strength of a given strategy and its chances of survival in real conditions.

Cons

The disadvantages of algorithmic trading are actually derived from the advantages. Almost every point can be interpreted in its own way. An automated bot works exclusively on given algorithms, and does not have the flexibility that the human factor can provide. Thus, they may be ineffective in situations that require adaptation to changes that have occurred in the market.

You should also take into account what was said in the materials about technical analysis. Any market behavior in the past does not guarantee its repetition in the future. Thus, the backtest, which significantly increases the strength of the strategy in various conditions, is still not a 100% guarantee of a positive result in the future

Well, another minus is, of course, the technical side. There are various unforeseen or force majeure circ*mstances that can cause the bot to lose communication with the exchange or a technical error of the bot that can lead to losses. And although the current offers on the market are quite reliable, this risk factor must be taken into account when choosing an automated bot.

Instead of a conclusion

When building your own automated trading bot, we recommend putting the main emphasis on backtesting on historical data. Carefully check how the test strategy will perform under various conditions. The best strategy is a universal one that will withstand and give profit in any market behavior – both falling and growing. . For example, in the Manimama trading product, we carefully backtest each trading strategy based on the last three years of data. And although even this does not provide an unequivocal guarantee of a positive result, it significantly reduces the risk factor of losing one’s own funds. And as you know, the protection of one’s own assets is one of the main factors of investment, especially in such a not yet fully explored and unknown cryptocurrency world.