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Forex Signals: Auto vs. Manual - Forex Signals - FX Leaders

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Forex Signals: Auto vs. Manual

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A fair game?

We have explained in previous articles how the foreign exchange (forex) industry has evolved through the years alongside the signal industry, especially in the last decade. Even if you are an inexperienced trader you can find numerous services which will provide you with forex trade recommendations or signals that are based on different trading approaches. You have many options you can choose from, some of them being:

  • Automated manual signals from large banks, pension funds, hedge funds, companies, and websites such as fxleaders.com.
  • Manual signals from social networks like Facebook, Twitter, LinkedIn, and forex blogs.
  • Automated manual signals from brokers with social trading networks like eToro, ZuluTrade, etc.
  • Automated signals from trading algorithms (or trading robots) which can be purchased online.
  • Automated manual signals from the MQL network, where you can follow and copy the trades of individual traders, or trades signalled by trading software that has been developed.
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Copy the trades/signals of successful popular investors on eToro’s social trading platform.
As we said above, the automatic signals are issued by trading software that has been developed by a mix of traders, mathematicians, and statisticians. They are based on different technical indicators like price action, moving averages, Ichimoku, stochastics, RSI, etc.
Automated or “Algo trading” as it is often referred to, is usually for short-term trading. The automated trading systems and software is built based on historical data (charts) and back-tested to check how they perform.

Other Trading Approaches include:

  • Following trends- Identifies trends and opens signals in the direction of the trend.
  • Reading price action- Pays much attention to candlestick shapes and patterns which often reveal valuable market information.
  • Entering on pullbacks- Recognizes when the pullback is over and opens a signal in the opposite direction.
  • Picking tops and bottoms-  When the market trades in a range, the software opens sell signals at the top or buy signals at the bottom of the range.
  • Scalping-  Identifies short-term opportunities and opens signals for a few pips target.
  • High-frequency trading is usually scalping.

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The looks of a mighty uptrend – the perfect playground for taking with-trend trading signals!

The automated trading software which you can purchase and implement in your trading platform is called expert advisors (EAs) since they advise you to trade. Some of these EAs use the Martingale method; this method implies that you double your position size after every losing trade for a certain number of times in the hope that an eventual winner will erase all previous losers and deliver a small profit. These EAs can be very profitable when you are on a winning streak but the risks are immense, and you might see your entire account evaporating in only a few losing trades.

Manual signals, on the other hand, are issued by humans. FX Leaders employs a team of financial analysts and experienced traders who conduct market analysis and open trading signals.Maanhaarleeu+for+Forex+Signals+Auto+vs+Manual.jpg

Martingale expert advisors (trading robots) are deadly. Avoid these at all cost!

The signals that you get from social network groups and forex blogs are almost always issued by individual traders, and their credibility is questionable. On the MQL network and with social trading brokers like eToro, ZuluTrade, etc. you can visualize trader performance and choose the most profitable and successful ones.

Now, both types of signals have their disadvantages, and it´s naive to think that you will find a trading system or strategy without any flaws. The forex market changes its behaviour continuously, so no signal provider will be profitable 100% of the time, human or automated. Following this logic, this article’s aim is not to determine which type of signals are the best; there are times when manual signals work better and other times when automated signals are more profitable. We are just highlighting the advantages and disadvantages of both signal types.

Manual Signals Advantages

  • Trading tool/indicator- Manual signals, in particular, are a very useful tool for any trader, as they can be considered an indicator which highlights good trading opportunities. You can carry out your own analysis, build your own strategy and use the manual signals as a confirmation of your analysis. There are many good learning materials on the web and you can find such materials here on our site. You can check out our trading course, trading strategies, or the daily, weekly, and monthly market analysis on our blog. With manual signals, you don´t have to follow them all. Instead, you are in charge of your own account, so you can choose to follow the ones that fall in line with your analysis. With manual signals, you can arrange the risk level as well, depending on the market conditions. All the trading functions are carried out by you, so when the market is very volatile you can reduce the lot size and increase it again after the market calms down.
  • Larger take profit targets- Unless the signal provider uses a scalping strategy, the profit targets are usually larger than the automated signals, especially if you take into account the high-frequency signals which target fractions of a pip. Manual signals that banks or large institutions issue to their clients usually target hundreds of pips.
  • Better risk/reward ratios– Since the manual signals have larger take profit targets, they often present better risk-to-reward ratios which are many times better than 1:1.
  • Human intelligence- Computers don´t even come close to human intelligence and I don´t think they ever will, so this is regarded as one of the strongest aspects of manual trading signals. Many experienced traders have a good feel of the market, and they can recognize good buy or sell opportunities that result in very profitable trades – often not detectable by a robot. Since the market is driven by crowd psychology, manual signals are steeped in human logic and can take advantage of the fear and greed of less experienced market participants.
  • Trading the news- This can be very profitable and since few trading robots are able to trade the outcome of the news, these types of signals are mostly issued by manual traders. There are different ways to trade the news, which offer great winning potential.
  • Fundamental analysis- Fundamental analysis is a very important part of trading and shouldn´t be ignored because it can greatly influence the direction of the financial markets. Experienced analysts offer signals based on deep fundamental analysis, which offers great rewards.
  • Adaptability- Manual signal providers can adapt to market fluctuations. Most of the profit in forex is usually made by letting the winning trades run as far as they can. When you receive a manual signal for a trade which seems to be going in the right direction, the signal provider might extend the take profit level and increase the profit dramatically.Bike+Jump+Superman+for+Forex+signals+auto+vs+manual.jpg
Cunning manual signal providers will let their winners ‘ride’ in certain circumstances by extending their profit targets.

Manual Signals Disadvantages

  • Time-consuming- Although you don’t need to perform all the analysis, you still have to open the trading platform and execute the trade.
  • Missed trades- You cannot follow all the manual signals, especially the ones issued during the night or during work hours.
  • Market range- Although many manual signal providers have different teams covering different markets, many providers only concentrate on a few currency pairs, especially the single-person providers. For instance, if a signal provider only trades the forex major pairs, many other financial instruments will be left out (all other currency pairs, commodities, cryptocurrencies, stock indices, etc.).

Automated Signals Advantages

  • Available for new traders- People who are new to the business often struggle in the first few years. Most of them blow their first accounts quite quickly. A signal provider with a good automated system can deliver good results while the new trader learns more about forex.
  • Building confidence- Automated signals can increase the confidence of new traders concerning the market. Many new traders are hesitant to open trades because they´re not confident about their analysis. While using trading signals, they can compare their analysis to that of their signal provider’s, and so learn more about trading while making a profit.
  • Unemotional trading- A robot is senseless, and therefore, the signals you receive are unaffected by human emotions.
  • Backtesting- Automated signals are issued by trading robots which can also backtest the particular trading strategy on historical market data. Such strategies can also be optimised (fine-tuned) to produce even better results. When solid backtesting has been performed, the signal provider and his followers can enter the market confidently because he has a really good idea of how the robot could perform in the future.
  • Execution speed- Automated trading executes trades much faster than any person. This gives you the best chance to get filled at a good price and eliminates your chances of missing a trade.
  • Wide range of markets- A trading robot can issue signals on different financial instruments if certain conditions are met. A robot can issue trading signals on forex majors, minors, crosses, stock indices, bonds, precious metals, other commodities, etc. A human cannot follow all the forex pairs and other financial instruments.
  • Time-saving- You don´t have to be in front of the screen all day long to trade. The trading robot handles all the hard work for you, 24 hours per day.

Automated Signals Disadvantages

  • Inflexibility- Trading robots are programmed to perform specific actions when certain conditions are met. These robots are much less intelligent than humans and can’t factor in fundamental factors and market sentiment. This inflexibility is a notable weakness of trading robots.
  • Breakdowns- Sometimes there might be technical failures caused by viruses or PC malfunctions, which could be fatal for your account. A technical error or a virus in the software might increase the leverage enormously, and you could risk your entire account on a single trade. One such occasion happened in 2012 when Knight Capital, a leading automated trading company, executed voluminous trades which disrupted the NYSE. It happened as a result of non-compatibility between the old and new computer programs and nearly bankrupted Knight Capital.
As mentioned above, our objective is not to pick a winner between manual and automated signals. There are several signal providers, with successful and unsuccessful signal providers on both sides. Automated trading reached a peak in late 2000 but has declined by more than 50%. I prefer manual signals because the winning potential is greater and trading is more secure than with automated execution, but anyone who is looking for signals should weigh the pros and cons of both and choose whatever is most suitable for them. You can also decide to use both in order to maximize the benefits. When the markets are volatile and irrational you might follow automated signals and when markets are more logical you can follow manual signals.