Mechanical Forex trading systems are systems that identify potential trade opportunities for a trader to take. They are referred to as mechanical since a trader will enter the market based on the signals generated by the system in spite of what is taking place in the market. Therefore, they are a great way of keeping emotions at bay when engaging in the business of trading currencies.
A mechanical Forex trading system is usually based on the strategies of the trader. And, it is meant to ensure that a trader follows the rules of his or her strategy no matter what takes place. If you want to come up with a profitable system, you should ensure that it has the ability of identifying trends as early as possible and it also has the ability of confirming if the identified trend is valid or not.
After developing your system, it is essential to trade it in a demo account for at least two months to know how it is working. Trying your system using virtual money will assist you in perfecting it and practicing how you will use it in live market conditions. After ensuring your system adequately meets your needs and preferences in trading, remember to always stick to the rules- regardless of what takes place.
There are some essential components that your system should clearly stipulate. Some of these are the time frame you will use for trading, indicators you will use to identify trends, indicators to confirm the trend, risk management strategy, and entry and exit criteria.
When developing your system, it is beneficial to backtest it; that is, subject it to historical market data with the aim of determining whether it is profitable or not. This will ensure you fine-tune it in case it may not be working according to your expectations.
A major benefit of a mechanical Forex trading system is that it allows you to attain consistency. Most Forex traders are usually faced with the challenge of failing to plan their trades and not trading their plans; therefore, they end up losing a lot of money through avoidable mistakes. Although a trading plan is able to bring good profits, failing to keep to the trading rules can be a prerequisite to your death a Forex trader. Because no trading plan is one hundred per cent efficient, a mechanical Forex trading system make sure that you keep the rules of the game, regardless of the market conditions.