Forex Trading System: Mechanical and discretionary

There are two basic types of Forex trading system, mechanical and discretionary systems. Trading signals from mechanical systems, based on technical analysis, a systematic. On the other hand, discretionary systems use experience, intuition and estimates for inputs and outputs. How to get the best results? Or, more importantly, what kind of system fits your trading style? In this article we will try to answer these questions.

To begin to analyze the pros and cons of each approach, each of the systems.

Mechanical systems

Benefits

This type of system can be automated and effectively tested on historical data.

Such a system has strict rules. And if there is a deal, and if it does not exist.

Mechanical traders are less susceptible to emotions than discretionary traders.

Disadvantages

Most traders spend incorrectly back testing forex trading system. In order to produce accurate results, you need to make notes.

The Forex market is constantly changing. The Forex market (and all markets) has a random element. market conditions may look similar, but they never repeat exactly.

The system worked successfully in the past year, it will not necessarily work well in this year.

Discretionary systems

Benefits

Discretionary systems are easily adaptable to new market conditions.

Trading decisions are based on experience. Traders learn to understand which trading signals have a greater chance of success.

Disadvantages

They do not lend themselves to automation, or back testing, because you should always make their own decisions.

It takes time to gain experience needed to trade successfully and track trades discretionary manner. In the early stages it can be dangerous.

So, which approach is better suited forex traders? The one that is right for you. For example, if you – the trader, for which it is difficult to follow their trading signals, you’d better use a mechanical system in which your evaluation will not play an important role. You participate only in those transactions, which indicates your system.

If the psychological barriers that affect every trader (fear, anger, greed, etc.) provoke you provided in unwanted situations, you do not need to use mechanical trading systems, as you will only need to follow the prompts of your system (to take a short position, long or close the deal). Other solutions do not need to take.

On the other hand, if you are a disciplined trader, you’d better use a discretionary system, because discretionary systems adapt to market conditions, and you can change the terms of trade during the movement of the market. For example, you have planned 60 pips on a long trade. But the market suddenly starts to move on the increase, then you can change the target figure, for example, 100 pips.

Does this mean that trade using a discretionary system is carried out with no rules? No, this is not true. Trading with a discretionary system is that since the trader has found its setting, he decides what to do. But every trader needs rules that must be followed, for example, the size of the position, conditions that must be met before you enter the market, and so on.

I consider myself a discretionary traders. The main reason why I opted for a discretionary system is that my trades are based on price developments and, as you already know, the price vary similar to the previous way, but never identical to him, therefore, the outcome of each transaction is not known . However, in my system, there are strict rules and certain conditions that must be met before I start to think about the beginning of trade. This allows me to get away, when my system is set up and in accordance with the rules that I set, I carefully watch price developments and make decisions, good or not it is an opportunity.

Whatever system you choose, mechanical or discretionary, there are several factors that you should pay attention:

1. You need to make sure that the forex trading system that you have selected, fully fit for you personally. Otherwise, you can catch yourself thinking that trying to outsmart your system.

2. You also need to have some rules and most importantly, the discipline to follow them.

3. Take the time to build the perfect system for you. It will be difficult, time-consuming and hard work, but in the end, if you did everything correctly, you get a steady and profitable results.

4. Before testing the system for real, test it on a demo account or a mini account (I am for the second option, as will be present and psychological barriers.)

maroon

Deals with Financial market for 15 years, now in risk management and Asset Trading.

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