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Man Vs Machine - Putting forex bots to the test against their masters

In recent years, automatic trading has stepped into the limelight in Forex in a big way. The amount of people attracted into the market be it traders, programmers, or developers has changed the landscape of retail Forex, and the general characteristic of the typical trader.

There is certainly room for automatic trading in the industry, but as with every new idea there are those that jump on the bandwagon and flood the environment with subpar products and facilities, keen to take what they can from unsuspecting or naive beginners. There are also those that want an easy life, something to exploit and generate wealth with minimum effort or understanding. These two points alone are areas that can lead to danger in automatic trading if you do not know exactly what you are doing or investing in.

When Automatic Trading Is Good

It is important to understand that not everyone will succeed with automatic trading.  In order to understand what you require an algorithm to do and why, you still need to invest your time heavily in educating yourself about the forex market.  In this respect, automatic trading is a great extension to your toolbox when you know exactly what you want it to do. When you have spent a great deal of time familiarising with the market and trading manually on a platform then automatic trading can bring an edge to your game. When you can identify rules that you would like to follow, to execute trades based on your own understanding and system of trading, having a bot that will do this for you automatically can be magnificently beneficial.

For those that are tech savvy, automatic trading can also be a natural progression, and some may even try their hand at building their own algorithm. The analytical and technical mind is always driven forward with the desire to improve upon existing tools, systems and models. Those that have the mind for it can find themselves with a distinct advantage and edge by creating their own tools.

In some trading models and approaches, trading automatically is necessary. With High Frequency Trading, large volumes of trades are executed very quickly, and this style just could not be contemplated with manual trading. The advantage of speed, efficiency, no hesitation or emotion, no judgement or second guessing all come into play with automatic trading, but giving up such power and control carries a great deal of risk and requires an abundance of faith. Getting it right is critical.

When Automatic Trading Is Bad

As I mentioned at the start of this article, there are those that want an easy life, and to make lots of money very quickly with minimum effort. Knowing that there are systems and bots out there that will trade automatically for you is very appealing to people of this mind set. In all honesty thought, nothing could be further from the truth.

There are plenty of vultures out there waiting to take your money off you with the promise of providing a bot, EA or algorithm that is a dead cert. There are the good amongst the bad don’t get me wrong, but they are getting harder and harder to spot each day.

Automatic trading is not, and should not be treated as, a lazy alternative to manual trading. Do not expect to make any money in Forex, manually or automatically, if you cannot be bothered to put the effort into your education. If you do so, and invest in a managed account or in a bot without any understanding of the market because you cannot find the time or will to educate yourself in Forex, then you might as well take a match to all your cash. The more disconnected you become to your money and what its doing, or the more you rely on others to manage it, the more risk you apply to it. If and when it all goes wrong, unless you understand the market, you will never know why, you will never be able to control or pull the plug on something you don’t understand. You won’t even see the loss coming.

In this respect, automatic trading is a very bad move for anyone looking for a quick lazy buck, with no understanding of trading, or with no understanding of when, why and what their bot is doing. There is no easy or quick money and no alternative to learning the market if you truly want to succeed.

Why Manual Trading Is Good

Regardless of if you eventually want to trade automatically or not, the only true starting place in Forex is to roll up your sleeves and get stuck in manually. Manual trading is your natural starting place in the industry. By reading charts, spotting trends, understanding all the tools at your disposal, finding and measuring the markets ‘heart beat’ you can learn a great deal about the market, and yourself. Over time, your understanding develops and evolves, you mature as a trader.

Manual trading keeps you firmly in control over when you enter and when you don’t. It gives you control over every single aspect of every single trade you place. This is demanding for time and effort but keeps you close to the money. With a manual trade, you can gut a loss quickly or let a profit run, you can take advantage of volatile movements and unexpected impacts.  Wherever you decide to take your trading, understanding how it works at ground level is essential.

Why manual sometimes doesn’t suit

While learning the ins and outs is essential for both automatic trading and manual, the latter is very demanding. There is no alternative to market education, and no getting round the time it takes to do this. However, some people just cannot commit the time required to continue trading manually day in day out. There are those that are in full time employment, and trading as a secondary income, or those that travel frequently and would miss multiple opportunities to trade if they stuck to it manually. In these instances machines have man pinned.

Manual trading can also be hard hitting to those with a nervous constitution, or the emotionally sensitive. Emotional trauma is particularly symptomatic in those that day trade or scalp. Emotions can cause you to trade when you shouldn’t or to over react, to enter a state of alarm or indifference and ultimately get in the way of your trading. In these scenarios manual trading again is at a disadvantage to the automatic alternative.

There are clear advantages and disadvantages to each approach. Machines don’t have man beat completely. Manual traders will always have more control however, automatic trading allows opportunities to those that are technically or analytically minded, or those that are time deficient that would previously have been unable to take advantage of the market place.  


This post was written by Daniel Lindsay, a full-time private forex trader based in London and forex blogger over at MahiFX

You can also follow him over at G+ and on twitter for more chat about currency trading.

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