Easy Forex at Forex Trading Guide

Main Easy Forex sponsors

Easy Forex

Welcome to Forex Trading Guide

Article

Forex Trading Systems: Mechanical Vs. Discretionary Systems.

Raul Lopez

There are basically two types of Forex trading systems, mechanical and discretionary systems. The trading signals that come out of mechanical systems are mainly based off technical analysis applied in a systematic way. On the other hand, discretionary systems use experience, intuition or judgment on entries and exits. But which one produces better results? Or more importantly, which one fits better your trading style? These are the answers we will try to answer on this article.

We will first analyze the pros and cons about each system approach.

Mechanical systems

Advantages

This kind of system can be automated and backtested efficiently.

It has very rigid rules. Either, there is a trade or there isn�t.

Mechanical traders are less susceptible to emotions than discretionary traders.

Disadvantages

Most traders backtest Forex trading systems incorrectly. In order to produce accurate results you need tick data.

The Forex market is always changing. The Forex market (and all markets) has a random component. The market conditions may look similar, but they are never the same.

A system that worked successfully the past year doesn�t necessary mean it will work this year.

Discretionary systems

Advantages

Discretionary systems are easily adaptable to new market conditions.

Trading decisions are based on experience. Traders learn to see which trading signals have higher probability of success.

Disadvantages

They cannot be backtested or automated, since there is always a thought decision to be made.

It takes time to develop the experience required to trade successfully and track trades in a discretionary way. At early stages this can be dangerous.

Now, which approach is better for Forex traders? The one that fits better your personality. For instance, if you are a trader that finds it hard to follow your trading signals, then you are better off using a mechanical system, where your judgment won�t play an important role in your system. You only take the trades that your system signals.

If the psychological barriers that affect every trader (fear, greed, anger, etc.) puts you in unwanted scenarios, you are also better off trading mechanical systems, because you only need to follow what your system is telling you, go short, go long, close a trade. No other decision has to be made.

On the other hand, if you are a disciplined trader, then you are better off using a discretionary system, because discretionary systems adapt to the market conditions and you are able to change your trading conditions as the market changes. For instance, you have a target of 60 pips on a long trade. But the market suddenly starts trending up pretty strongly, then you could move your target to say 100 pips.

Does it mean that trading a discretionary system has no rules? This is absolutely incorrect. Trading discretionary systems means that once a trader finds his/her setup, the trader then decides what to do. But every trader still needs certain rules that need to be followed, such as the size of the position, conditions that have to be met before thinking to get in the market, and so on.

I am a discretionary trader. The main reason I chose a discretionary system is that my trades are based on price behavior, and as you already know, the price behaves similar to the past, but it is never identical, therefore the outcome of every trade is unknown. However, I do have rigid rules on my system, certain conditions have to be met before I even think in getting in a trade. This keeps me out of trouble, once my setup is present and in accordance with the rules I have set, then I closely watch the price behavior and finally decide whether it is a good opportunity or not.

Whether you choose to be a discretionary or a mechanical trader there are some important points you should take in consideration:

1. You need to make sure the Forex trading system you are using totally fits your personality. Otherwise you will find yourself outguessing your system.

2. You also need to have some rules and most importantly have the discipline to follow them.

3. Take your time to build the perfect system for you. It�s not easy and requires time and hard work, but at the end, if done correctly, it will give you consistent profitable results.

4. Before going live, try it on a demo account or even on a small account (I will go for the second option, since psychological barriers will be present.)

About the Author: Raul Lopez is a full time Forex trader, his trades are based on a price behavior approach. Raul is also founder of http://www.straightforex.com a high quality Forex training company.

Source: www.isnare.com

Easy Forex News

easy forex

Go to the new RSS page and renew your subscription.]]>

IMPORTANT: Bing News RSS feed has moved!

Markos Solomou, Risk Manager from www.easy-forex.com explains how easy it is to trade forex online. For the novice forex trader, the first question to ask is, "what is forex?" The forex or currency trading market is the largest financial market ...

How to Get Started Trading Forex Online

InvestTechFX forex trading treats the issues of data security, privacy, integrity and backup with the utmost attention and care by offering secure and easy online forex trading. It does not charge any commission and offer guarantee on both limit and stop orders.

Secured Online Forex Trading – The Latest Online Security Information

The key to profiting in any market is to have a simple strategy that has you buying low and selling high. The forex markets, in particular, are a set of markets that allow traders, on occasion, to buy high and sell even higher. The strategy that offers us ...

Trading Breakouts in Forex or Anywhere

If you have a job and can't find time to trade - you must check this out now! Forex While You Work is an easy and simple system that does not need any fancy indicators. You will just need 10-15 minutes daily to trade with this system. Rock-solid profits ...

Forex While You Work System Is A Set & Forget System For Those Traders Who Work During The Day!

In Forex, because of the 24 hour, worldwide nature of the market – Gap risk is GREATLY decreased by the simple fact that there are fewer market closes. Forex Markets can offer deeper levels of volume on the assets you trade A trader ...

Liquidity Differences Between Stocks and Forex

Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. In no way is it a recommendation by easy-forex for you to engage in any trade. The information provided is based ...

Special Report - Pre-NFP data provide mixed signals

David Rodriguez looks at the massive debt probelms of the Euro Zone, and condenses down the euro's myriad issues into a simple synopsis - the Euro ... DailyFX provides forex news on the economic reports and political events that influence ...

DailyFX 2012 Forex Forecasts

Bernanke's easy money damage to the dollar from this morning is being reprised by Fed's Evan's hearty endorsement for more bond buying, but the market is in pre US Jobs report holding pattern mode and simply moving back toward the middle of the day's 0 ...

FX USD/CHF: Weak bounce pre Jobs, Evans stumps for QE3

iChartist is an advanced Stock, Forex and Futures charting and technical analysis app ... iChartist also offers a selection of easy to use drawing tools that you can draw on the charts using your fingers, including various types of trend lines and ...

Forex Trading Guide - Easy Forex Section

Easy Forex Navigation

2005 Best Seller!

Best Easy Forex products