Mechanical Trading Systems

Mechanical trading systems

Mechanical trading systems combine the the certainty of algorithmic trading without the need for programming knowledge

Mechanical trading systems bridge the gap between pure discretionary trading and full on automated algorithmic trading systems.

If you understand the benefits of using fixed mathematical rules in your trading rather than having to make many individual discretionary judgement  calls about when to enter or exit the markets but are not confident using fully automated trading systems then mechanical systems could well be the answer for you.

Whilst for short term  day trading  algorithmic trading may be essential for longer term swing trading of forex, commodities or indexes mechanical systems are often just as practical.

Mechanical trading systems are often referred to as "evidence based" systems because they can be fully back tested and therefore provide evidence  that the methodology does work and has worked over many years of historical data.

They overcome the problems that we have with discretionary systems which is that different people trading the same discretionary system can have different results depending on their individual interpretation of the rules. With mechanical systems and algorithmic systems the rules are clear and precise and hence everybody trading them will get identical results (excluding slippage and commission).

The rules will be simple and unequivocal so that you are in absolutely no doubt when and at what price you want to enter the market, precisely where your stop loss is and precisely where your profit target is. This then leaves you free to place your trades at those levels in the conventional manner.

Mechanical systems are NOT indicators. Indicators by definition just "indicate" whereas mechanical systems are hard and fast sets of precise rules that you simply need to follow. Different people using the same indicator will often get substantially different results. Different people using the same mechanical system will get exactly the same results (ex slippage and commission).

Indicators are an incomplete trading system leaving you to guess where stops and profit targets should be located whilst a mechanical trading system is just that - a complete trading system that can be tested and historical performance can be verified trade by trade.

Almost all commodity system are mechanical systems.

View the video below for an explanation of the differences between discretionary, mechanical and fully automated trading. Also revealed are the full rules  for a simple trading system that made $80,000 in just two years trading a single contract with no compounding.

Use the play and pause buttons at the bottom of the tablet to play this short video

To view performance results for some of our mechanical and algorithmic trading systems go to the Automated Systems page