Advantages of Mechanical Trading Systems
Jul 19, 2009 Real Estate Properties
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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.
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 is used by many traders. They depend on their experience and instincts in trading. It is like an artist trying to adapt to different market conditions and using flexibility and tactics corresponding to the particular market condition.
In case of a discrete trading method, the traders mood and health can greatly affect the outcome of each trade. The main disadvantage of the discrete trading approach is due to the stress factor influencing the trader, the unstable trade results.
A mechanical trading system prevents the trader from quick adjustment of trade tactics and strategies under changing market conditions. However, it almost completely removes the influences of the stress factor. It also reduces the negative pressure on a trader which is obviously a big plus.
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. A trading system should allow for the maximum adjustment to any traders psychological character and makeup.
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 for entry and exit positions 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 so that different traders can use the same method with different account sizes and different risk/reward appetites.
Change of market conditions could lead to negative results from a previously effective trade system. 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.
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