Why You Need Mechanical Trading Systems?

Posted by Dave Nettles on July 19, 2009 under Forex Trading | Be the First to Comment

Ahmad Hassam

Currency traders use different approaches in their trading. Majority of successful traders use self developed mechanical trading systems. There are always advantages and disadvantages of different trading systems. The majority of unsuccessful traders depend on discrete trading method.

Many traders develop their own trading systems. There are many actively developed trading systems also known as Expert Advisors or Robots for sale. Theses robots are basically computer programs that are based on some mechanical trading system. It can vary widely in prices. The prices can be from a few hundred dollars to a few hundred thousand dollars.

The significant advantage of these programs is that they generate signals that can be used by the trader for trading. Sometimes these computer programs are developed for a certain bank or a corporation.

The discrete trading method used by many traders is like an artist trying to adapt to different market conditions and using flexibility and tactics corresponding to the particular market condition.

The traders mood and health can greatly affect the outcome of each trade in case of a discrete trading method. The main disadvantage of the discrete trading approach is the unstable trade results due to the stress factor influencing the trader.

Using a mechanical trading system almost completely removes the influences of the stress factor. It also reduces the negative pressure on a trader which is obviously a big plus. However, it prevents the trader from quick adjustment of trade tactics and strategies under changing market conditions.

There are eight requirements that any ideal trading systems should fulfill. A mechanical trading system also doesnt allow the quick customization of the trading system in cases like the change of the account size. These conditions are:

1. It should allow for the maximum adjustment to any traders psychological character.

2. It should be universal and does not depend on a particular market condition at any moment of time.

3. The trading system should be simple, logical and understandable comprising of ready to use elements and units.

4. The trading system should provide specific price signals for the trader for entry and exit positions some time in advance.

5. The trading system must allow some room for the traders creativity.

6. Without violating its main principles and elements of the trading system, there should be some flexibility to modernize and adjust the trading system in accordance with the changing market conditions.

7. The trading system should relieve the trader from emotional and psychological stress in trading.

8. It should be customizable so that different traders can use the same method with different account sizes and different risk/reward appetites.

A previously effective trade system could lead to negative results from change of market conditions. No one trading system can fulfill all these requirements.

The only way of satisfying these conditions is through developing a diversified trading system consisting of a set of systems that can be used as the basis for specific trade tactics at any given moment. Trade systems based on these requirements could be complex and adjustable.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in trading stocks and forex. Know These Forex Training Secrets. Learn Forex Trading.