Online Currency Trade

Mechanical and Discretionary Forex Trading Systems

Every forex trader must have a forex trading system that he can use to make successful and profitable transactions. The two basic types of forex trading systems are mechanical systems and discretionary systems. You can choose any of the two forex trading systems depending on your needs, skills and experience.

Mechanical systems are based on technical analysis performed in a systematic and organized manner. Discretionary systems, on the other hand, rely on personal intuition, judgment and experience. Which type of forex trading system should you use?

If you are new to forex trading or if you have little experience in currency speculation, you would be better off using a mechanical system rather than a discretionary system. Discretionary systems require forex trading experience to be effective while a mechanical system relies on rigid rules and not on personal judgment.

Mechanical systems are automated and can be efficiently backtested. This forex trading system has rigid rules so it can instantly determine if a trade can be performed profitably or not.

One major disadvantage of a mechanical system is its tendency to be backtested incorrectly. This forex trading system requires tick data to come up with accurate results. Since the forex market is volatile and can change anytime, your forex trading system must be capable of producing accurate outputs that can result in profitable trades regardless of market conditions.

Discretionary systems are based on judgment and experience, so a trader who uses this system can easily adjust to changing market conditions. Traders who use discretionary systems rely more on intuition and judgment than on forex trading signals in making their trades.

Discretionary systems can be dangerous to new or inexperienced traders because it requires a lot of discipline and experience to pull off successfully. This forex trading system cannot be automated or backtested.

The most important thing to consider in choosing the kind of forex trading system is if it fits your personality. If you have difficulty following trading signals, you should choose a mechanical system so you can take only those trades that your forex trading system tells you to. The same thing applies if emotional factors such as fear or greed affect your decisions. You simply follow what your forex trading system tells you.

If you are already experienced and disciplined in forex trading, you are better off using discretionary systems so that you can adjust to the situation as the market changes. For example, if your target is 80 pips, you can adjust this goal to 100 pips if the market condition is favorable.

Mechanical or discretionary? It depends on your personality and your goals as a trader. No matter what kind of forex trading system you use, you must have the discipline and fortitude to follow its rules. Then test your forex trading system using a free demo account or even a small account before you go live. If you follow these hard and simple rules, you will make consistent profits from forex trading.