Do you use a discretionary or a mechanical system to do your trading? The mechanical systems have their main basis in technical analysis and is applied systematically. Discretionary systems mainly use the experience, intuition, and judgment of the trader to determine the entries and exits of a trade.
The main question remains which one of the two is best.
The answer is somewhat diluted as it depends on your personal experience.
Advantages of mechanical systems
- You can automate and backtest mechanical systems easily.
- Their rules are rigid and work on the basis that the trade is there or not there. There is no room to deviate from the rules.
- As compared to discretionary traders, mechanical traders are not prone to emotions.
The cons of mechanical systems
- Many users have problems with or don’t know how to do backtesting.
- The systems require tick data to produce accurate results
- The Forex market is unstable. It always changes.
- Even though the market conditions might appear similar, they always vary.
- The fact that one system works well now, does not necessarily mean that it will do so in the future.
The advantages of discretionary systems
- Discretionary systems can adapt to new market conditions easily
- Trading operations come from experience
- It is easy for experienced traders to know the trading signals that are bound to bring more success.
The cons of discretionary systems
- It is impossible to backtest or automate discretionary systems. This can be…