FX Mechanical Trading Strategies
Mechanical trading strategies are growing in success as technologies and algorithms are improved, and they provide strong trading signals for forex traders without marginal input or effort. Effectively, mechanical trading strategies aim to replace much of the research effort and discretion by following precise, computer-programmed criteria to determine when to trade. Simply by providing a constant feed of live market data, mechanical trading strategies output potential trading opportunities according to their algorithms, which then enable the trader to take action accordingly. There are a variety of different mechanical trading strategies that effectively automate much of the process, all aimed at varying budgets, and in that sense, deciding a mechanical strategy is for you is only really the first step.
What You’re Looking For
When choosing a mechanical trading strategy to use, you’re looking for previous testimonials and reported results as an indicator of how successful it might be for you. Different trading systems use different methodologies and algorithms, and so they all tend to produce different results – with some being more effective than others. Look behind the marketing and sales copy – ask in forums, look on blogs, and check out unbiased reviews of any mechanical trading strategy before opening your wallet. While forex trading robots can be highly effective, they can also be terrible at delivering results with any degree of accuracy, so it pays to make sure you’re using the right one when you’re trading your capital for real.
Which Trader Does This Suit?
Mechanical trading strategies are suitable for the beginner trader, or for more experienced traders who see value in automating part of their portfolio. In a sense, mechanical trading provides the ultimate strategy, because results are generated in the same consistent way, time after time. If you can find a mechanical strategy that works for you once, there’s no reason why it can’t work for you time and time again going forward. For the trader who likes the research component or who wants more control over how his capital is managed, mechanical trading is perhaps not the best avenue to pursue. However, for many traders, the benefits of integrating at least partial automation into the strategic side of generating positions is a worthwhile investment.
Strengths and Weaknesses
If it’s consistency you’re looking for, they don’t come any more consistent than mechanical trading strategies. While the algorithms can get quite in-depth and advanced, they work by automating the process in the same way time and time again. This way, they can replicate results and give you the definition consistency for which they are renowned. Note that consistency doesn’t necessarily mean consistent success – just a consistent approach to generating trading prompts that should, hopefully, over time deliver a profit. On the downside, if you leave a computer to generate your trading signals, you effectively eliminate much of the discretionary element of forex trading which is in itself often valuable. That means sacrificing at least part of your capital which you might otherwise be able to more effective trade off your own back.
Mechanical trading strategies are effective and worthwhile, and many traders swear by them as the first stage in identifying profitable trading opportunities. Of course, they shouldn’t be relied upon as the be all and end all of your trading, and arguably a mixed approach that uses both automated and discretionary trading signals will produce the most desirable effects.