If you are about to begin your career in the forex market then one of the first things you will be planning to do is to either create your own forex trading system or analyse the various options that you can pick up and make your own.
While your training would have equipped you for distinguishing between good and bad trading systems, it is still important for you to get a different perspective. There are mainly two types of forex trading systems that you can use in the forex market and most options available in the market tend to fall into one of these types. Consider the following.
What Are Mechanical Trading Systems?
Mechanical forex trading systems tend to be based on technical aspects of forex rates which makes them highly objective but less focused on fundamental factors that drive the market rates. These types of systems, as is obvious, are extremely popular with new traders because it precludes having experience in the market.
As every step in the system is well defined and based on specific and stringent conditions, even inexperienced traders can end up making profits with these types of systems.
What Are Discretionary Trading Systems?
Discretionary forex trading systems, on the other hand, tend to leave a lot open to interpretation which makes them highly subjective. While these systems also cover technical facets of the forex market, they give equal importance to the fundamental factors which can become a bit too much for a new forex trader because he lacks experience to make the right choice.
However, at the same time, traders who are looking for a long and healthy career in the forex market should consider adopting or creating such systems seriously. The reason for this is simply that putting in a lot of effort to understand the forex market early in their career will benefit the trader for the long term.
Pros and Cons of Mechanical Systems
Everything is black and white with mechanical forex trading systems, which is both a good thing and a bad thing. For instance, the construction of these systems is such that there is either a trader with them or there isn’t.
There is no freedom to look for alternatives in the market. This means that many opportunities can be lost in the market because they do not meet the predetermined criteria or trigger points.
Pros and Cons of Discretionary Systems
Discretionary forex trading systems also have their pros and cons. For instance, they are good because they allow traders to develop in a well-rounded manner as opposed to just being unidirectional. Using such systems would help traders understand the market on the whole as against just learning a few characteristics of the market.
This kind of all-encompassing growth is important for a trader if his or her goal is not only momentary profits but sustained profits over an extended period of time. Furthermore, gaining this kind of knowledge through these types of forex trading systems will also help traders diversify in the forex market later on in their careers.