1. Mechanical Forex Trading System is Recommended for Relatively New Traders
Online Forex trading system is part of the overall Forex trading plan which is about strategizing how to sell or
buy a particular pair of currency. Typically, there are signals generated by technical analysis or fundamental
analysis on which the entire trading system gets operated. The major aim of any trading system is to prevent the
information overload by filtering the technical or fundamental signals in such a way that only reliable signals are
executed. The signals determine whether a trader needs to buy, sell or close the present positions.
Traders have the options of two basic trading systems – the discretionary and the mechanical. In the
discretionary trading system, a trader needs to use her own judgment regarding the Forex. This judgment
needs to be based on technical or fundamental signals that she receives over the period of the trading. A trader
needs to use her creativity and flexibility in interpreting the fluctuations of the market conditions as it can be best
used by professional Forex traders who have lot of experience in deciding the validity of any signal they may
receive.
Opposite to this system, there is a mechanical trading system in which there are only fixed number of technical
or fundamental signals without the participation of the trader. This system too requires the creativity on the part
of the trader but only in the Forex system development phase.
In the beginning, when traders have just started foraying into Forex, the best trading system to use is forex agent
systems. These systems are sold as Forex signals that are normally developed by experienced traders who know
how to channelize their market knowledge of the Forex into a current strategy.
The mechanical trading system serves as a kind of shield against the extreme volatility of the market. Trading
without this system may result into the loss of capital. The reason is when it comes to deal with money, many a
times, new comers with newly acquired knowledge of Forex are likely to be gripped by fear and greed. And it is
because of this reason, mechanical trading helps traders keep them grounded and rooted. It is in a way a
disciplinary approach to deal with Forex as there are all the chances for traders to get carried away by the sheer
emotional power that money exercises on human psyche.
Apart from using these systems, the new comer traders can also refer to good Forex books, education courses,
bank reports and news wires. After a while, they can also develop their own mechanical trading systems with the
help of their own insights and intuitions. Usually, a trading system is comprised of two subsystems – the entry
system and the exit system. Both these systems can work on different or the same set of inputs which can be
technical or fundamental.
The entry system as it stands determines if and at which level the positions should be opened. The exit system
determines at which level the open positions should be closed. The entry system aims to find market points
which allow to open positions with high potential reward and low potential risk. The exit system's objective is to
protect the capital base and the unrealized profits. The capital base is protected by ensuring that the trades are
exited with a fixed loss when there is no longer a reason to hold them back.