Algo trading is becoming more popular with the introduction of more improved versions of the software making the complicated trading strategies easier to implement as per the market conditions. Manual trading is already in practice among most of the traders allowing them to make trade decisions as on their past experiences and market situation.

Also Read: Top 10 Different Types of Trading Strategies in Stock Market

Trading in the cash market is easier and less complicated compared to the derivatives market, especially in options trading. However, Algo is making options trading not only faster but also more interesting and more profitable with the right action as per the changing market conditions.

Also Read: What are the Most Popular & Profitable Algo Trading Strategies

However, the question still lies here, Algo or manual trading which one is better, especially for option trading? Both have their own pros and cons, and traders choose the mode of trading as per their ease and affordability. If you are interested in Algo trading, you need to understand the basic differences between them and which one is better for the options market.

Algo Trading vs Manual Trading

The main motive of algo trading and manual trading is to earn the maximum profits from the option market but their mechanism in terms of order placement and execution are different from each other. Hence, you need to understand how they work and make decisions in different market situations, especially in options rapidly changing market conditions.

Also Read: Types of Orders in Option Trading in Algo with Order Placement Tips

What is Manual Trading?

As you know it is one of the common styles of trading done by humans analysing the stocks to buy or sell through a trading platform. All the processes like performing the fundamental or technical analysis, understanding the market trend, finding out the best suitable stock, and best points to buy and sell the stocks with the right trading strategy.

Also Read: Technical Analysis vs Fundamental Analysis: Which is Better

In manual trading, you need extra time and put your efforts into performing all the above-mentioned tasks which is a tedious process. Because you have to consider various factors that can affect the stock market and the price of the individual underlying security. You need to consider economic factors, identify the sector trend and analyse the financials of the company. It is a time-consuming process compared to Algo but works in taking well-informed decisions.

Also Read: What are the Top Factors Affecting the Stock Market in India

Algo or Algorithmic Trading

Algo trading is an automated trading system performed by the computer application that has been developed with certain set of rules and regulations using machine learning algorithms and programming to train the Algo to analyse the various market conditions and consider all types of other factors that can affect the price of an underlying security and then place the order.

Also Read: Six Advantages of Algorithmic Trading with Algo Trading Tips

The Algo are trained to operate in different types of market conditions and use the right trading strategy as per the market conditions. Algo can perform at a very fast speed and can generate a huge volume of trade with the ability to react quickly. However, there is an option for the traders to manually adjust or tune the trading strategy in Algo as per their risk profile.

Also Read: Types of Risks Associated with Investing in the Stock Market

Algo or Manual Trading: Which is better for Option Trading?

Options trading are one of the complex forms of trading in which market conditions keep changing due to volatility and other factors like option Greeks making the option premium highly sensitive towards the price change. But both manual trading and Algo trading can trade in various market conditions using their own resources and know-how to analyse the situation.

Also Read: How to Use Implied Volatility in Options Trading: Strategies

However, compared to humans, Algo can perform at a much faster speed and can do multiple transactions at the same time with the capability to generate a huge volume of trades. Manual traders can make more cognitive decisions as per their past trading experiences to pick the right trading strategy or adjust their positions as per the market conditions.

But the question here is in option trading the market keeps fluctuating and can change its trend rapidly. Which trading style, Algo or manual trading is more capable of taking the right decisions when the market suddenly changes with unexpected moves?

Also Read: How to Identify Trend in Stock Market: 10 Points to Find Trend

What Manual Trading can do better?

Ability to Take Complicated Decisions: Human scan visualize the current situation and correlate the same with past incidences and future results. In unexpected market situations, humans can consider various factors like using suitable technical indicators, company-specific news or events affecting the share price and analyse the impact on the underlying security. Hence, even in complex market situations, manual trading is done with cognitive decisions.

Also Read: Best Technical Indicators for Option Trading in TradingView

Flexibility of Adaptiveness in Trading: Manual trading is highly adaptive in nature with the flexibility to adjust or change the trade positions as per the changing market conditions. More humans can be deployed in overload market conditions or traders can switch over towards the most suitable trading strategy as per the changing market conditions. Hence, humans are more adaptive towards unexpected events that can affect the movement of the market.

Also Read: Short-Term Trading Strategies that Work in the Stock Market

Capable to React in Changing Market: The market dynamics keep changing, as there are many factors that affect the price of the underlying securities and manual trading is highly adaptive to such changing market conditions. Even in extreme market conditions like when the market is highly volatile, manual trading can react quickly making the right decision.

Also Read: How to Trade in High Volatile Market: Best Trading Strategies

What Algo Trading can do better?

Quick Analysis Capability: When there is a huge volume of trade taking place in the market or you need to deal with large amounts of datasets to analyse the market conditions, then Algo-based trading software can do it in a better way. Apart from this, Algo has the capability to handle large amounts of data with statistical calculations with zero errors. This capability provides a faster data analysis process to make faster decisions with quick responses.

Also Read: Why is Fundamental Analysis Important for Investing in Stocks

Emotion-Free Trade Decisions: In manual trading, the trade decisions can be influenced by human emotions that can affect the profitability of trades. And many times, emotionally inclined decisions can be wrong making your trade position unprofitable. Algo is free from such emotions and can make unbiased decisions using the logical factors and statistical data-based dynamics affecting the market conditions to make the right trade decisions.

High-Speed Multiple Transactions: The Algo is an automated trading software that can perform multiple numbers of transactions with high-speed execution of trades in different types of underlying securities at the same time. This high-speed transaction can generate a huge volume of trades like in Arbitraging where quick and accurate transactions are required.

Which one can make quick decisions in option trading?

The Algo-based computer software is designed and developed to perform at very high speed with the capability to execute millions of transactions in a few seconds. Hence, it can make faster decisions if an accurate and right amount of data is provided to the system to analyse the situation timely and make the right trade decisions based on the market conditions.

No, doubt Algo can react at a much faster speed and can make quick trade decisions, but only when the data or current market conditions its without its scope of analysis. This means if Algo is not aware of new market situations or its machine learning model is not trained with such situations, then how Algo can make the right decision to handle unknown market conditions?

The option market is highly volatile, and when the volatility is high, the market movement is unpredictable making it difficult for Algo to make the right and quick trade decisions. In such an unprecedented situation Algo can take the wrong decisions.

On the other hand, in manual trading, humans can take some time to analyse the new market situation and based on their past experiences they can make a well-informed decision. As per the new market conditions, humans can decide to exit from trade positions or adjust their trade positions to minimize their risk exposure in a better way.

Also Read: How to Decide Best Entry & Exit Points in Intraday Trading

Conclusion

There is no doubt Algo has the advantage of taking much faster decisions due to the capability to analyse larger data at high speed with better accuracy. Manual trading decisions need more time and can be influenced by human emotions might take biased decisions.

The response time of Algo could be much faster than humans maybe millions of times faster depending on the capability of Algo programming and the efficiency of the hardware system. However, still there are probabilities of unexpected market conditions that can affect the performance of the automated trading system making Algo sceptical to take wrong decisions.

Also Read: Why Choose Algorithmic Software for Options Trading: 10 Reasons

Nevertheless, a human-backed manual trading system can take more time to react to changing market conditions. But humans can make well-informed decisions balanced with their experiences while considering the various factors like the latest market situation, their risk profile and expected returns from the market choosing the right strategy that can work best for them, at that point in time to get the best results in such unexpected market conditions.

Also Read: How to Choose the Right Option Strategy in Algo Trading

If you are looking to try the Algo foroption trading, you can choose Moneysukh providing the best Algo trading platform – Trade Radar with the best Algo trading strategies for different market conditions. You just need to open a demat account and you will get free access to the best online trading platform with the facility to trade with Algo at the lowest brokerage charges.