Expert Advisor vs Manual Trading: Which is the Right Approach for You?

Expert Advisor vs Manual Trading: Which is the Right Approach for You?

Reading time: 10 minutes

In the grand theatre of financial markets, two protagonists battle for the spotlight: the meticulous Manual Trader, plotting every move with Shakespearean flair, and the stoic Expert Advisor (EA), unfazed by the market’s twists and turns.

Which star should you cast in the leading role for your trading strategy? 

Expert Advisor (EA) 

EAs are sophisticated programs offering a ‘set and forget’ solution to those who cannot spend time assessing spreadsheets, charts and economic indicators. In a nutshell, it is essentially your trading strategy programmed into an algo.

Trading robots are designed to whirr and beep (metaphorically) through market analysis and execute trades based on predefined rules in real-time. With an EA, you’re entrusting your trades to the cold logic of an algo in any trading platform. They’re swift, efficient, and unfazed. They can follow market trends with precision (according to your rules of engagement) and never fall to fatigue or stress. 

The Advantages:

Unwavering Discipline: Expert Advisors are unaffected by emotions. They won't chase losses or double down on a win out of euphoria. Instead, they adhere strictly to the trading strategy they've been programmed to follow, free from the psychological stress that often affects human traders.

Round-the-Clock Trading: While humans catch up on their sleep, these automated trading systems tirelessly scan the markets 24/5.

Speed and Precision: EAs are trading software that can process gigabytes of data in the blink of an eye, executing trading decisions precisely. They can enter and exit positions far quicker than humans, which is vital in a rapidly shifting market.

Backtesting: With an EA, you can backtest your strategy using historical data before entering live trading. It gives you confidence in the strategy's effectiveness (though past performance is not always indicative of future results).

Diverse Strategies: One can employ multiple EAs to diversify strategies across various instruments or time frames, spreading risk and taking advantage of different market conditions.

The Disadvantages

Over-Simplified: EAs follow algorithms and can miss the subtleties a human trader might catch. They can't read the news or feel something's amiss in the markets, sometimes leading to unfavourable trades.

Over-Optimisation: There's a danger of over-optimising an EA to past market conditions, which can render it less effective in the future, a phenomenon known as curve-fitting.

Mechanical Failures: An EA is only as good as its last update, and it can fall victim to connectivity issues, power outages, or platform crashes, potentially leading to missed trades or worse.

Monitoring Requirements: Despite the ‘set it and forget’ appeal, EAs still require monitoring. Software quirks, market anomalies, and unexpected events can throw a spanner in the works of even the most well-oiled algorithmic strategy.

Cost: Good EAs don't come cheap. There’s often an upfront cost for the software and possibly ongoing costs for updates or a subscription. Not to mention, one must ensure that the cost of using an EA doesn't significantly eat into potential profits.

Manual Trading

Manual trading involves a human trader making all decisions, from market analysis to the execution of trades. It requires a deep understanding of the markets, a sound trading strategy, and self-discipline. These traders find joy in the engagement of real-time trading, where each click reflects a personal touch.

The Advantages:

Flexibility and Intuition: Manual traders can adjust their strategy based on the latest news, market sentiment, and other factors an EA can’t understand.

Learning and Adaptation: Manual traders learn from each trade and continuously refine their strategies. Unlike an EA, a human trader can absorb new information and immediately adapt their approach. 

Decision Making: Humans can process complex scenarios in a way that EAs currently cannot, considering factors beyond the numbers, like geopolitical events or upcoming economic policies, to make informed decisions.

Emotional Satisfaction: There are those for whom trading is not just about profits but also the intellectual challenge it presents. Crafting strategies, reading the market, and making decisions provide mental stimulation that many find deeply rewarding.

No Overhead Costs: Besides brokerage fees, manual traders generally don't incur additional costs for trading systems. Their investment goes directly into the market.

The Disadvantages:

Time-Consuming: Manual trading requires time. Monitoring markets, reading news, and analysing charts is a full-time job, and not everyone has the luxury of dedicating that much time to the markets.

Missed Opportunities: Humans need to eat, sleep, and live. This means opportunities can be missed during off-hours, whereas EAs can capitalise on these missed trades.

Slower Execution: A manual trader can only process and react so fast, and in fast-moving markets, a delay of even a few seconds can make a significant difference in the outcome of a trade.

Physical and Mental Stress: Trading is stressful, and doing it manually compounds that stress. It can be physically and mentally exhausting to maintain emotional discipline, especially during volatile market conditions.

Which Approach Suits You Best?

Choosing to trade on your own or use an Expert Advisor comes down to what suits you best. Here are some factors you can consider in picking your approach:

Before fully committing to either approach, it’s wise to test the waters. Consider using demo accounts from FP Markets for manual trading or running an EA to evaluate performance. Start small with either method and gradually adjust as you gain more insight into which style suits your goals and temperament.

The Final Showdown

By reflecting on these aspects, it can be down to picking what works best for you in the investment world: the steady, rule-following Expert Advisors or the hands-on, flexible approach of manual trading. A hybrid approach may also be something to consider; this involves letting the robots handle the routine while you apply a personal touch on key decisions.