Traders use different approaches in their trading. There are always advantages and disadvantages of different systems. Majority of successful traders use self developed mechanical trading systems. The majority of unsuccessful traders depend on discrete trading method. 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.
The significant advantage of these computer programs is that they generate signals. These signals 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 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. It also doesn’t 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.
1. It should allow for the maximum adjustment to any traders psychological character.
2. The trading system should depend on trading methods that are universal. It should not depend on a particular market condition at any moment of time.
3. It should be simple, logical and depend on understandable ready to use elements and units.
4. The trading system should provide specific price signals for the trader to open and close positions at the levels chosen 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. The trading system should adjust 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.
No one trading system can fulfill all these requirements. Change of market conditions could lead to negative results from a previously effective trading system. 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.
You need to develop your own trading system overtime. Using someone else’s trading system won’t help if you really want to become a successful trader. At one point in your trading career that might come soon rather than later, you would want to switch over to a mechanical trading system. Using a mechanical trading system not only helps traders to make decisions and increase profits but it also provides great psychological comfort to the traders. You will also have to develop a systems approach to your trading. You will find most of the traders using a trading system approach to trading. You will realize the necessity of switching over to the system trade in order to lower the psychological pressure experienced when making every market transaction. Some of the traders may use a discrete trading system while others prefer a mechanical trading system. Trading without a system can be stressful.
Once you have a mechanical trading system you can easily develop it into an automated trading system. The mechanical trading system set of rules may be translated into a computer program for automated trading. However, the mechanical trading system lacks fundamental analysis capacity. With the advancement in computer programming, these automated trading systems have the capability of entering or exiting trades automatically without human intervention. The creator of such a mechanical trading system then becomes just another user of the trading system monitoring the computer generated signals. The trading system then generates trading signals that can be used by traders having access to the trading system.
Developing these automated forex trading systems is the name of the game these days. These automated forex trading systems are also known as forex robots. These trading systems may be taken as grey and black boxes. Their prices might vary from a few hundred dollars to hundred of thousands of dollars. Many traders over their trading careers develop their own trading systems. Besides the traders using their own trading systems, there are now many actively developed trading systems for sale as computer programs. One way is to develop these forex trading systems and use the trading signals generated by them in your trading. The most significant thing about these programs is that the traders should be able to accomplish transactions in accordance with the signals generated by the trading system. The other solution is to completely automate these forex trading systems. Sometimes theses trading systems are developed for big banks and corporations.
However, it is very difficult for a mechanical trading system to cope with different market conditions. This is the most serious flaw in these trading systems. When the market conditions change, these trading systems start generating erroneous trading signals. Majority of the successful individual traders use self developed mechanical trading systems. Change of market behavior leads to negative results from a previously effective trading system which obviously would require replacement. For example, many trading systems that are satisfactory in trending conditions become highly ineffective in nontrending environment. How do you deal with the challenge of changing market situations? This is the most serious challenge that automated forex trading has to solve. One way is to use a diversified forex trading system.
These automated trading systems require thorough testing under different market conditions before they can be used in actual trading. One of the ways is to backtest them with the historical market data. Backtesting is now an integral part of any mechanical trading system’s performance evaluation. However, there is no substitute for live performance test. The most common disadvantage of these trading systems is the negative balance between he profitable and unprofitable trades. Many trading systems now depend on complex mathematical formula which is not understandable by the trader if the trader is not the author of the trading system. What you need is a trading system that is profitable in the long term. In other words, it gives more winner than losers. Obviously the trading system can only be profitable in the long run if the ratio of the profitable trades is higher than the non-profitable trades. In other words the average profit of each profitable transaction is greater than the average loss of each unprofitable transaction.
However, as a user of a mechanical trading system your options are limited. The trader must accurately and unconditionally follow the trading system without making any attempt to adjust it to the market conditions. Making correction in any mechanical trading system in the process of the trade is almost impossible until and unless you are the developer of that trading system. This is one of the reasons why you need to develop your own trading system. Discover the 25 best trading systems. These trading systems have been developed by each person and have ROIs like 2000-3000% per month.
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