Why You Need Mechanical Trading Systems?

By Ahmad Hassam

Currency traders use different approaches in their trading. Some use discrete trading system and others use mechanical trading systems. Majority of successful traders use self developed mechanical trading systems that they developed themselves. There are always advantages and disadvantages of different trading systems. The majority of unsuccessful traders depend on discrete trading method that depends on their experience and technical knowledge.

Besides the many traders using their own developed trading systems, there are many actively developed trading systems for sale as computer programs also known as Expert Advisors or Robots. Theses robots vary widely in prices from a few hundred dollars to a few hundred thousand dollars.

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

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

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.

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

1. A good trading system should allow to any trader for the maximum adjustment according to his/her psychological character and makeup.

2. The trading system should depend on trading methods that are 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. It should provide specific price signals for the trader to open and close positions at the levels chosen some time in advance.

5. It must allow some room for the traders creativity.

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

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

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

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

Trade systems based on these requirements could be complex and adjustable. The only way of satisfying these conditions is through developing a diversified trading system. It can consist of a set of systems. These systems can be used as the basis for specific trade tactics at any given moment. - 23217

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in trading stocks and forex. Know These Forex Training Secrets. Learn Forex Trading.