| |
forex enterprise Article
Below,
you'll find extensive information on leading forex enterprise articles
and products to help you on your way to success.
Forex Trading System
By Raul Lopez, Wed Dec 7th
There are basically two types of Forex trading systems,mechanical and discretionary systems. The trading signals thatcome out of mechanical systems are mainly based off technicalanalysis applied in a systematic way. On the other hand,discretionary systems use experience, intuition or judgment onentries and exits. But which one produces better results? Ormore 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 systemapproach. Mechanical systems
Advantages This kind of system can be automated and backtestedefficiently. It has very rigid rules. Either, there is a tradeor there isn't. Mechanical traders are less susceptible toemotions than discretionary traders. Disadvantages Most traders backtest Forex trading systemsincorrectly. In order to produce accurate results you need tickdata. The Forex market is always changing. The Forex market (andall markets) has a random component. The market conditions maylook similar, but they are never the same. A system that workedsuccessfully the past year doesn't necessary mean it will workthis year. Discretionary systems Advantages Discretionary systems are easily adaptable to newmarket conditions. Trading decisions are based on experience.Traders learn to see which trading signals have higherprobability of success. Disadvantages They cannot be backtested or automated, sincethere is always a thought decision to be made. It takes time todevelop the experience required to trade successfully and tracktrades in a discretionary way. At early stages this can bedangerous. Now, which approach is better for Forex traders? The one thatfits better your personality. For instance, if you are a traderthat finds it hard to follow your trading signals, then you arebetter off using a mechanical system, where your judgment won'tplay an important role in your system. You only take the tradesthat your system signals. If the psychological barriers that affect every trader (fear,greed, anger, etc.) puts you in unwanted scenarios, you are alsobetter off trading mechanical systems, because you only need tofollow what your
system is telling you, go short, go long, closea trade. No other decision has to be made. On the other hand, if you are a disciplined trader, then you arebetter off using a discretionary system, because discretionarysystems adapt to the market conditions and you are able tochange your trading conditions as the market changes. Forinstance, you have a target of 60 pips on a long trade. But themarket suddenly starts trending up pretty strongly, then youcould move your target to say 100 pips. Does it mean that trading a discretionary system has no rules?This is absolutely incorrect. Trading discretionary systemsmeans that once a trader finds his/her setup, the trader thendecides what to do. But every trader still needs certain rulesthat need to be followed, such as the size of the position,conditions that have to be met before thinking to get in themarket, and so on. I am a discretionary trader. The main reason I chose adiscretionary system is that my trades are based on pricebehavior, and as you already know, the price behaves similar tothe past, but it is never identical, therefore the outcome ofevery trade is unknown. However, I do have rigid rules on mysystem, certain conditions have to be met before I even think ingetting in a trade. This keeps me out of trouble, once my setupis present and in accordance with the rules I have set, Iclosely watch the price behavior and finally decide whether itis a good opportunity or not. Whether you choose to be a discretionary or a mechanical traderthere are some important points you should take in consideration: 1. You need to make sure the Forex trading system you are usingtotally fits your personality. Otherwise you will find yourselfoutguessing your system. 2. You also need to have some rules andmost importantly have the discipline to follow them. 3. Takeyour time to build the perfect system for you. It's not easy andrequires time and hard work, but at the end, if done correctly,it will give you consistent profitable results. 4. Before goinglive, try it on a demo account or even on a small account (Iwill go for the second option, since psychological barriers willbe present.) About the author:Raul Lopez is a full time Forex trader and founder ofhttp://www.straightforex.com a high quality Forex training company.
|
|
