Discretionary vs Mechanical Forex Trading Systems
Forex Trading Systems
Are mechanical Forex trading systems really any better? Can Automated Forex systems outperform discretionary Forex systems? Let’s find out.
Some people prefer mechanical Forex trading systems while others prefer a more discretionary approach. My personal approach lies somewhere in between. Let’s look at each of them closely:
Mechanical Forex Trading Systems
By definition, a mechanical or manual Forex trading system provides well defined entry and exit criteria and clearly describes trade setups and execution. Such trading systems can be quite easily transformed into automated trading systems which can aid back testing, research and analysis.
The merit of such Forex systems lies in the fact that the guesswork is taken out of equation and trader only needs to follow clearly defined set of rules. It helps to avoid emotions coming into the way of trading and with little discipline such systems can be easily be followed. Not only that but it also helps in reducing stress factor which is a bonus.
On the negative side of mechanical Forex trading systems we got problems with changing market conditions. No set of rules can cover all market conditions and there will be times when such systems would fail miserably. Situation could become worse if the market conditions do not change for a sustained period of time. Automated Forex systems written based on such trading methods will be unable to cope with unpredictable market conditions.
Discretionary Forex Trading Systems
These Forex systems bring out the artistic characteristics of traders. This is where the logic gets fuzzy and experience becomes paramount in making trading decisions. A typical discretionary Forex trading system would use chart patterns and trend lines, which by a means are not determined by exact set of rules.
Adaptability and customization are two big advantages of any discretionary trading system. Such Forex system can easily adapt to changing market conditions and rules can easily be changed to accommodate any unforeseen market scenarios. Experience and intuition are the cornerstones of any discretionary Forex trading systems and they can never be programmed into an Automated trading system.
On the flip side, such trading systems are hard to back-test and have unstable trade results caused mainly by emotions and stress level. Such systems require much more trading experience and higher degree of discipline.
Discretionary vs Mechanical Forex Trading Systems Summary
In my opinion, anyone new to Forex trading should start off with mechanical trading systems, it helps to develop discipline and gain experience. It takes time to develop feel of the market and it then becomes easier to move towards more discretionary trading systems. My current method has clear set of rules that identify potential trades, I them use my experience to narrow down and chose the ones that I see fit for the current market conditions. With more work and analysis I hope to improve over time.
Mix of both is the best for me because it really define the term "diversification"
nice article.
But i’m of the view for beginners to start off with discretionary methods of trading first before going mechanical. The reason being that they would be exposed to a lot of scam mechanical and non performing EAs which advertise false and bogus claims. A lot of beginners tend to fall prey to this mechanical systems either because of greed, laziness and lack of discipline.
Discretionary methods helps a trader either a beginner or pro to get the real feel of the monster (FOREX) and if you can deal with it, then mechanical methods would only serve as supplimentary tools.
Moreover, i think it’ll be senseless to try to drive a car for the first time without knowing the rudiments and skills of driving. So it is picking up a mechanical method or EA without understanding the basics of forex or how these tools operate in it.
I quite agree that automation of some discretionary methods of trading or some sections of it would be worth it. But a mix of it would be the best option.
Lastly, hardwork, discipline, self control, continuous study and perseverance is very neccessary to succeed in Forex. These characters can only be built in an individual who trades with discretionary methods
100% Check
Regards
Ed
From my results, I should use a robot. But I use both. Most of my wins are from mechanical trades. The free alerts that you send out are really helping my percentage. But I still want to know how to profit from my own knowledge. That is after I learn a system.
I am glad I could be of any help to you.
I think in long run everyone should work on their own system, trading is more like an art form than a science.
I having very bad trading experience with my broker — GCI Trading. They do not respect STOP LOSS and do not hesitate to close orders well above STOP LOSS. Very high spreads for gold today: up to 6.00. Anyone can suggest me a good and honest broker? Admin, can you suggest me a broker please? thanks. Sorry about this off-topic comment.
If I where you go with a ECN broker and not a Market Mover. As much as I hate to say this FXCM has something called Active Trader and it's %100 ECN. However to save my self a headache with FXCM. I joined a broker called ATC-Brokers. You have to advantages with them:
1. FXCM require you to have 25k to open an account with their active trader ECN. ATC brokers will let you use the same exact platform with the same spreads and you only need $5000
2. Commissions on FXCM is $10 per 100k ( Roundtrip). ATC Brokers give you a break on that. They only charge you $8.00 per 100k.
3. The spreads are amazing on ECN's you are talking about 0.2-0.5 on EUR USD.
Or if you want an ECN but you are playing with smaller numbers, MBTrading will open an account for $500 minimum.
One thing to realize with ECN is that the broker is never closing your position, so there is never any guarantee of what close price you will get. Price can often blow right by your stoploss, and then it will give you as close to that as is available in the instant it closes, and you do have to be aware of that.
But they will not arbitrarily go in and close them unless you are at a margin call.
Hopefully helpful – -
I've personally used TradeStation, Dukascopy, MB Trading and FXCM Active trader and never had any issues with them
I am so happy to see that there is still some good content to find out there. I’m so tired of google delivering me garbage.
Good article,
But run a spell checker will ya. (them = then?)
" I them use my experience to narrow down and chose the ones that I see fit for the current market conditions."
I’ve been considering the exact same exact thing myself recently. Glad to determine an individual on the identical wavelength! Great post.