Algo trading is trading by means of an algorithm which opens, maintains, monitors and closes the trades for you. In some cases algo trading is also called bot trading or trading with a robot, this is the same principle. A trading bot is also just an algorithm which trades for you.
By putting a script on your charts, you can completely automate your trading. This script consists of all kinds of algorithms which have been made in such a way that for instance when a certain movement is being made, when an indicator reaches a certain level, when several indicators together reach a certain value, when a certain trend is being broken through, etc., a trade is being opened or closed.
You can buy, rent or find free algo trading bots in all sorts and sizes. However, it is quite difficult to find a good algorithm that also works in reality and not only in backtesting.
There are many advantages of algo trading. For instance, if you are trading manually, you cannot continuously monitor all markets and spot all opportunities. If you are using a trading bot, this will not be a problem at all. By simply letting your algortime run on a VPS server, your algo trading system will be running 24-7.
Making emotional decisions in trading is a very big pitfall. If you made a loss, you want to make up for it as soon as possible. Or when you made a profit, you feel like you can handle the world and you might take decisions which don't fit into your trading plan. With algorithmic trading this will not happen. The trading bot will only take trades at the moments for which it has been programmed.
For me personally, a big advantage of algo trading is that I do not experience any stress and am not busy trading full time. Personally I'm not good at trading from 9 to 4 and then leaving it all behind me. If there are still open trades, I can't leave them, I need to know what happens with the prices. This way my other activities come to a halt and I can spend less time on my businesses which also need to be run. That's why I chose algo trading, to let me do the trading and to trust my trading bot with my money.
Many trading bots have been adjusted in such a way that the losses which are made, yes every trading bot also makes losses, are not very big. This also means that the risk your algo trading bot is taking is small and consequently the possible profits as well. Depending on the system and the risk which you run on your account, you'll be able to book bigger profits manually.
Example of an Algo Trading system: WS907