Trading Bots vs Humans: Everything about trading accuracy

• Anshika Bhalla
• June 02, 2021

Over the past decade, we’ve seen the rise of trading bots and Quantitative Funds, and we have also seen the fall of traditional asset managers and Hedge funds. Due to these uncertainties in the market of cryptocurrency trading, trading bots are gaining much popularity. Unlike humans, crypto bots never rest and hence maintain their control over the trading all the time. However, according to certified cryptocurrency expert, it is very complicated to declare one of them as the best assistant than the other as needs and requirements  vary. There are some factors we are going to explore regarding bots Vs. Humans in the field of trading accuracy.

Table of Content

• Different sections for evaluating trading accuracy.
  • Trading bots for retail.
  • Proprietary trading bots
  • Professional (Human) Investors
  • Retail (Human) Investors

• Advantages of trading bots
  • Potential for greater performance
  • Automation
  • Emotionless
  • Scale
  • Speed and Longevity
  • Consistency
  • Strategy Diversity and In-built backtesting
• Advantages of Human traders
  • Less vulnerable to fake news 
  • Subjective analysis of data
  • Black swan events
  • Big free
• Closing thoughts

When we think of trading bots vs humans, the trading accuracy can be evaluated using different settings to carry out a fair comparison. Hence, some sections that we can look through are mentioned below.

Different sections for evaluating trading accuracy:

• Trading bots for retail

These bots are accessible through all the known bot platforms that you can find with a quick Google search.

• Proprietary trading bots

These are developed in-house by established Hedge Funds, jotted down by extremely smart finance statisticians and professionals.

• Professional Investors (Human)

The regular fund managers that you will find on the finance channels lauding their positions.

• Retail Investors (Human)

These are everyone else. In the  Australia and U.K, they can be seen on the CFD trading platforms.

Now, let’s look into what Bots can do for crypto trading and how they are better than humans.

Advantages of trading bots

• Potential for greater performance

The best performing trading bots have shown a performance that is considerably better than the best performing humans. 

• Automation 

Crypto bots can automatically conduct trades when a certain level has been attained at any moment of the day. They work with logic and predictability in statistics and probability theory; this strategy produces more favourable outcomes over time.

• Emotionless

Bots can analyze information without any little emotion. They recognize the importance of a wide range of events and will not get attached to their positions.

• Scale

Bots are proficient in processing considerably more data and in much lesser time-frames. This means they will not skip a valuable announcement on a portfolio company. Also, they can look through more companies and thus fix the risk efficiently.

• Speed and Longevity 

Speed lessens slippage as response time is not required and also offers arbitrage opportunities. Bots can run 24/7, which is helpful for cryptocurrencies. In contrast, Humans need to sleep, eat, and live. A human generally can work up to 40 hours a week, but a bot works 168 hours a week; thus, it can seize 4.2 times more opportunities.

• Consistency

Bots are designed to be consistent when they engage in a portion of data or an announcement they will respond repeatedly in the same manner.

• Strategy Diversity and In-built backtesting

As bots are capable of scaling and running at pace, they can work on various time-frames and with varied techniques that are not correlated, which decreases the risk. This is due to low P&L volatility.

Every strategy followed by bots can be backtested numerous times and in many settings automatically. This ensures that the particular strategy is working and if you should hold onto it or not. This also assists you in managing risks better.

let us see what Human traders can provide for trading accuracy over bots:

Advantages of Human traders

• Less vulnerable to fake news

Sometimes, tweet manipulations can send bots into a mad chase after a specific coin or stock to then be left moving in circles when they find out the news article was not genuine. However, humans are capable of looking into the matter from a reasonable perspective.

• Subjective analysis of data

In some cases, a particular piece of data won’t show the first-degree-thinking conclusion and will require in-depth research to understand the importance. Bots can look at words and overall sensitivity in many cases, but then there can be news events that they cannot respond to.

• Black swan events

Humans can think rationally regarding a situation. When black swan events occur, bots tend to lose millions because it is one of those scenarios they yet have not encountered. Human traders are much better at responding to severe mispricings and even seize advantage from them.

• Bug-free

Bots are vulnerable to errors and bugs. There have been times when crypto bots have effectively made a mistake with trade and ended up inflicting a massive money movement. Bots can also crash trades by leaving them offline for a long duration of time.

Closing thoughts

You need to understand the overall market before going forward with any decision. Factors like ease of use, price, reliability, and security are few things that you must consider before choosing trading assistance. As many trading bots can give you relief, they also can be proved ineffective if you are not knowledgeable about the generation of financial strategies. 

To learn more about cryptocurrency trading  and attain various courses and certifications, check out the Blockchain Council.