One way to avoid taking emotional-driven decisions in trading is to follow the mechanical trading process. The mechanically generated decisions give you fewer opportunities to make erroneous decisions. The system helps remove biases and personal judgment from the trading process.
A consistent process is ensured with this system. When you use the mechanical system, there is a contingency plan for covering all probable scenarios as it has completely codified trading rules. So, any decision taken is predetermined and is not influenced by emotional factors.
The objective of the System
The mechanical format is aimed at accomplishing two important objectives, namely identifying trends early on in the process and avoiding being whipsawed. If you can achieve these two objectives, your chances of success increase.
While the two objectives do not work well separately, finding a balance between the two will help you develop a better system. For instance, spotting trends early can result in faulty decisions, while focusing on not falling prey to whipsaws will let you miss many of the trades.
What you need to do is to spot trends early on and, at the same time, know how to detect the real and faulty signals.
Choosing the System
There are various strategies in mechanical trading. The improved algorithms and advanced technologies make them predict robust trading signals. The strategies help replace most of the effort a trader exerts towards discretion and research with precise determining criteria.
Choosing a specific system should be based on the results it had brought previously and the testimonials from users. Since the rules and methodologies differ, the results are not the same either. So, if you are aiming at an effective system, you need to look into forums, blogs, etc. to find unbiased views on the effectiveness.
Benefits of the System
The mechanical system of forex trading offers multiple benefits, such as:
- It effectively eliminates emotional and biased decisions that traders are prone to.
- It requires simple adherence to the rules of the system chosen.
- A consistent decision is assured due to codification and is not affected by the emotional state of a trader.
- Executing the system requires a very short span, so a trader need not spend long hours on trading.
- And, last but not least is in the case of a loss, you can always place the blame on the system rather than your decision-making skills. This may not sound very constructive, but will definitely save you from being too overwhelmed and even depressed.
Not All Traders Benefit from the System
Amateur or newbie traders, as well as expert traders, find the mechanical trading process more suitable than other traders. This is because it offers an ultimate strategy eliciting consistent results continuously.
However, this system is not for a trader who prefers to control the way his or her investment is managed. But, using a part of the system for your forex trading helps you view the strategic aspects of initiating positions. This can be worth the investment you are ready to make.
For traders who emphasize consistency, this is the go-to system. The advanced and in-depth rules are capable of producing consistent results. However, this does not imply you can succeed consistently.
While the results are not immediate, they can help you make profits over the long term. However, there are drawbacks like the complete elimination of discretionary aspects, which can be valuable in certain scenarios.
So, you may have to let go of a considerable portion of your investment, which you can trade effectively otherwise. Hence, do not consider the system as a one-stop solution. Instead, use a combined approach that includes discretionary and automated signals, so you get the desired results in a hassle-free manner.