First off, it is a mistake to see algo-trading and manual trading as two opposing choices. In fact, the two are very similar. Both involve buying and selling of stocks according to certain rules or criteria. There may be nuances that differ between the two but at their core they are both forms of stock exchange which require an assessment of value in order for one to profit.
Manual trading relies on a human’s ability to make decisions about when and what or how much to buy/sell. It is time consuming, requires extensive research and might not always be a good idea as we, humans, are subject to errors in judgement often times governed by our emotions.
Algorithmic trading, on the other hand, is interesting because it relies on computers to make decisions and therefore removes this uncertainty. It has been around for a while now and many people have already made good profits utilizing it.
Algorithmic trading makes trading the markets more efficient. It helps to provide a fair price for the shares of companies, which in turn means that it is easier for people to make money if they invest wisely and don’t buy shares at too high prices. It also removes human emotions from the decision making process, helping to prevent bubbles in different markets or companies.
Algos do not hesitate. They provide the potential to make a lot of money for those who are willing to pay, as they instantly buy and sell stocks based on their predictions.
Time is of the essence
The main difference between algo-trading and manual trading is the time frame. Manual traders can trade very quickly but still have to rely on their ability to correctly interpret market conditions, which is a skill that takes years of experience before one gains true expertise. Algo-trading on the other hand has no “human” element to it. It is a purely mechanical system of buying and selling which relies solely on its programming in order to make decisions.
The advantage of algo-trading is that it can execute trades at the speed of light. For example, if a human trader decides to trade on his own judgment and buys shares in ABC Corp., then he must rely on his ability to correctly gauge market conditions before deciding whether or not ABC Corp. is a good buy.
A human trader can be slow to react because he or she requires time to decide on what action is best. The same goes for algo-trading. However, the algo-trading system will execute trades much quicker than a human trader because it does not rely on human thought and judgement.
Therefore, at the end of the day when an algo-trader looks back over his trading results he will see that he has made more money in less time. Are you ready to join the company of smart algo-traders?
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The AOB team