Tussle between mechanical trading system and discretionary trading system

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The term Forex is defined as ‘Foreign Exchange’. The system used for doing business on the foreign exchange is also known as Forex Trading System. Every person doing business on Forex should compulsory have the knowledge about what exactly a Forex Trading System is. Using intuition is sometimes correct, but all the other times you should use your knowledge base. Same is the case with Forex trade. Primarily there are two systems prevalent in the market. One is Mechanical System and the other is Discretionary System.

Here again, Discretionary System is based on intuition, judgment, and prior experience while Mechanical system is based on the actual technical analysis that goes behind the working of the Forex market. People often start this debate of which one of these methods or systems is better, but the truth is that every person has his or her own preference or comfort zone within which they work. Thus, for some Mechanical System is better and for others it is the Discretionary System that works. Though each one of them has their own set of advantages and disadvantages, both of them provide with the same result.

There are a few points, before discussing the Forex trading system further, that should be kept in mind while going of either Mechanical system or Discretionary System. These points are solely dependant upon the need one has, so you should be clear about what is exactly desired. You need to make sure that the system you choose after going through its pros and cons entirely fits your requirement and more importantly your personality. You also need to follow the system with utmost discipline otherwise; you will regret your choice. Also, every system needs time to get perfect thus you need to be patient. Before you actually put it into practice, give it a dry run to check its viability.

Now that the psychological factors are cleared, lets look upon what is exactly Mechanical system and its other part known as Discretionary system. Mechanical systems are automated and back-tested thus; they leave no space for error. It follows rigid rules and is less susceptible to emotions and feelings; hence, they provide a better chance of profit. The disadvantages might include calculation errors. Also, as the Forex market is ever changing you need to keep changing the equations. An equation that proved beneficial last year might prove a disaster this year. Thus to curb the random changes in Forex market you need to be on your toes.

While, Mechanical system can provide you with accurate results every time you have the right equation in place, Discretionary system are easily adaptable and widely used. The decisions are based on emotional quotient, which includes experience, intuition, etc. People judge the market moves through some sort of signals that are provided during the upward or downward movement in the Forex market. The disadvantage here is that you need to give lot or time and effort to gain that kind of experience or hold on the market fluctuations.

Last but not the least, you should always consult your broker before even choosing the Forex trading system you want to follow. In the end, if done correctly, both the methods can be profitable but only the one, whose rules are followed strictly, gives consistent profit.