Manual Trading

Manual trading is a trading system that involves human decision-making for entering and exiting trades. This is in contrast to automatic trading, which employs programs linked to market data, which are able to originate trades based on human instructional criteria. Manual traders often employ computer programs in order to consolidate information. In some cases, they may also set automated indicators to alert them to potential trading opportunities. However, in all cases, human input is required to authorize trades.

There is an ongoing debate as to whether automated trading is advisable or not. Currently, most traders believe that manual trading is superior since human judgment is required to gauge market trends and control risk. They feel that the proper place for automation is in monitoring data and consolidating it for human interpretation. However, proponents of automated trading argue that this method is superior since it takes irrational human behavior out of the equation. This debate is likely to become even more relevant as programmable trading continues to become even more sophisticated.

In theory, for investment areas requires repetitive tasks, algorithms offer an attractive option to eliminate the many professional and psychological biases and gaps inherent to humans. Automated trading systems, also referred to as mechanical trading systems, algorithmic trading, automated trading or system trading, allow traders to establish specific rules for both trade entries and exits that, once programmed, can be automatically executed via a computer. The question remains: how much intuition is still required in the management of money and wealth?

Time will tell if computers are superior to humans in allocating capital. In the interim, many investors are simply more comfortable with a human executing buy and sell order manually. So-called "flash crashes" are a painful reminder turning over investment decisions to computers is not without risks. The most obvious example is the Flash Crash of May 2010. Over a 36 minute period mid-afternoon, popular indexes including S&P 500, Dow Jones Industrial Average, and Nasdaq Composite collapsed and rebounded very quickly. The Dow fell nearly 9% in a matter of minutes. In the wake of this episode, traders and regulators alike blamed computer-automated trading systems set up to execute rapid-fire buy and sell orders. Since then, investors and money managers have not forgotten the destabilizing market potential of computer-driven investment strategies.