Trading Forex Options at Forex Trading Guide

Main Trading Forex Options sponsors

Trading Forex Options

Welcome to Forex Trading Guide

Article

Forex Trading System: 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, 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 and founder of a high quality Forex training company.

Trading Forex Options News

trading forex options

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

IMPORTANT: Bing News RSS feed has moved!

Seasoned Forex binary options investors are jumping for joy over the new Forex trading site, AnyOption. Seasoned Forex investors are developing a sophisticated binary options strategy with AnyOption. With the sharp economic downturn that the world has ...

AnyOption, the New Forex Binary Options Strategy Gives People New Ways to Make & Save Money

I assure you that trading the options markets are only as difficult as you make it. The same is true with the forex markets Current market conditions are giving the appearance that currencies are entering a new era where their movements are closely correlated.

The Basics of Forex Currency Options?

Forex or FX for short, foreign exchange trading is one ... currency pairs over other trading traditional stocks and shares while outlining the trading options available as well as how to manage your accounts and the tools which can help to ...

A Beginners Guide to Forex Trading and the US Dollar

These guidelines for trading breakouts from support and resistance or trend lines work well in the forex markets, but are also easily applicable to equities, options, futures, or baseball cards, says Sam Seiden. The key to profiting in any market is to ...

Trading Breakouts in Forex or Anywhere

Money Fair is an event bringing together the leading companies with investment and finance opportunities, options, products ... "Back in 2009, FXOpen was the first Forex broker to launch the revolutionary MT4 ECN trading platform. Today FXOpen still ...

FXOpen ECN MT4 Named "Most Popular Product"

Multitasking Support, get connected and stay connected faster Touch to trade stock, complex options, ETFs, futures and forex(1) Scan multi-touch charts with over 180 chart studies Stream live CNBC Live streaming News from Dow Jones, Midnight Trader ...

thinkorswim Mobile for iPhone

"People are interested in profiting from this uncertainty, so they begin to look at different options in the Forex Trading industry" Although the big banks are heavily involved in the Forex Trading industry, small players can invest small amounts of ...

Forex Trading Growing Rapidly In Popularity

InvestTechFX has a variety of secure funding options available to give peace of mind to the client; so register yourself with InvestTechFX and just watch your investment growing in forex trading. InvestTechFX is a proven leader in the online forex industry.

Secured Online Forex Trading – The Latest Online Security Information

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options ...

Forex Trading Guide - Trading Forex Options Section

Trading Forex Options Navigation

2005 Best Seller!

Best Trading Forex Options products