Which approach algorithmic trading or conventional trading—is best for you?

 Which approach algorithmic trading or conventional trading—is best for you?

The Indian stock market has seen several changes throughout the years. Cutting-edge technology integration and quick digitization have sped up market activity, decreased settlement times, and given rise to new trading strategies. 

Although conventional trading has been the standard for centuries, technology-enabled algorithmic trading is quickly overtaking the market due to its many advantages. In this article, we compare the two forms of trading and determine which is the most advantageous for investors.

The primary distinction

In conventional trading, participants trade stocks, options, currencies, and other commodities via a manual process. The traders base their choices to purchase and sell on their own research, economic data, and other market variables. When making a trading choice, this strategy only depends on human judgment, intuition, and emotional intelligence.

Algorithmic trading, on the other hand, automates the trading process via the use of sophisticated algorithms and computer programs. After a certain point, it may be built to execute judgments based on historical data, established rules, and market indicators, requiring no more human input.

Based on this distinction, a comparison of three qualities—speed, flexibility, and risk management—can be drawn.

rapidity and precision

Algo trading, without a doubt, executes orders considerably more quickly and accurately than conventional trading. Through the use of algorithms, the whole process of quantitatively analyzing a stock, placing an order against it, and taking advantage of several market chances is automated. As opposed to conventional trading, this allows traders to carry out hundreds of trade orders at once.

Adaptability and personalization

Algorithmic trading enables the customisation of a strategy at the start of a session and then operates in a certain way that enables the capture of trading opportunities in a particular way. It offers the option for traders to switch tactics thanks to its availability of unique algorithms. Traditional trading, on the other hand, moves along at a considerably slower speed, allowing the trader to examine each transaction and tailor it to their own trading philosophy and investing objectives.

management of risk

Algo trading, which enables traders to execute numerous trade orders with little to no human involvement, is characterized by automation. Additionally, it makes it possible to utilize intricate trading and risk management procedures quickly, which lowers the likelihood of mistake. Furthermore, by automatically leaving on a stop loss, algo trading might limit a trader's loss. In this situation, traditional trading may be vulnerable to irrational choices, greed, and fear.

Considering everything

The selection between modern algo trading and conventional trading relies on a number of variables. It may be distilled down to three factors: risk appetite, resources or cash, and trading expertise. Beginners might begin with conventional trading to learn about the nuances of the market, but as they acquire expertise, they must convert to algorithmic trading for better outcomes. 

It is critical to understand that each approach has benefits and disadvantages of its own. As a result, you must choose the strategy that most closely matches your trading objectives and personality since doing so will help you find more profitable stock market possibilities.