Benefits of Mechanical Trading Systems
In the previous article we discussed how you go about setting up mechanical forex trading systems. These automated software systems look for technical market indicators and buy or sell accordingly – sometimes without any input from a human operator. As a result, they have become controversial. After all, the idea of a computer generating money while you sleep seems a little too good to be true.
But there are several reasons that automated trading is legitimate.
First, any profit you receive is because of value added work – you set up the system in an intelligent, informed way. Like any software engineer, you had to do coding, back testing, forward testing, and assume the responsibility for monitoring your program. All of that represents value.
Second, by accepting the profits for your system, you also assume the risk. If you designed your system well, you will do well, but if not, you also accept the tab. This risk is another part of the value that automated systems add.
Third, well-designed systems do perform a constructive role for the market, because they iron out volatility and push prices to more consistently represent value. A similar role is performed by independent, human actors, so what is wrong with having a computer do it instead?
Most importantly, there is a fundamental value to automated systems that applies to the people who design them. One of the most common critiques of mechanical systems is that they take the human element out of trading. But exactly the opposite is true, because the process of building the system helps every person who does it. Think of it this way – you can’t write clear, objective orders if you haven’t thought through your own strategy clearly. Unfortunately, many people have trouble articulating their strategy when asked for it, but when setting up a mechanical system, you are forced to describe your strategy in numbers or trading orders. The result is a clearer, more thought-out understanding of the method.
Another related benefit comes when the trader back tests or forward tests a system. With an automated trading system, this is as easy as pushing a few buttons and applying the same orders to other market data. When the process is done, the trader has a legitimate expectation of how he will do. Compare this to subjective trading, where someone might enter the market expecting to make a huge profit overnight and be controlled by unrealistic greed. It simply isn’t possible to back test a personal strategy as easily as one might run an automated system, and so the delusion goes unchallenged.
This points to a final benefit of automation – the computer executes and follows orders without an emotional connection. Even the best traders start to change their method when profits skyrocket or losses mount. In most cases, this only results in worse results.
But once you set up your system to follow orders, it doesn’t know your bottom line or care about it. It will continue to execute buy and sell orders until you make it stop. Since you should have tested it before going live, the strategy will probably work out over time, even if your emotions temporarily tell you otherwise.
Said simply, automated systems make trading more disciplined and consistent. Of course, they have their disadvantages too. For one thing, they never learn or adjust to new insights, but that’s your job! Even if you already use a successful system, continue to improve it and make adjustments. With effort, both you and your mechanical forex trading systems can be even more successful!
A lot of traders feel they aren’t too different from an animal on the Sahara hunting their pray. Just like the hunting animal knows there are certain environments where they are more likely to score their next meal the trader favors certain set ups before entering a trade. This article will walk you through the environment on the charts that will yield the higher probability candlestick set-ups. You will also be introduced to merging pivot lines that work well with candlestick charting.Trading by CandlelightCandlestick charting is a method of displaying price action so that you can readily see the battle and winner of buyers to sellers to obtain distinctive trading signals. Candlestick trading has been around for centuries and has been introduced to the Western world within the last few decades.There are many individual candlesticks and candlestick patterns that can tip you off to a new move. Common formations are the doji, the shooting star, and the hammer. To get a better handle on different patterns, Daily FX has a course to help you grasp different candles formations to assist your trading.Combining Market Type with Candlestick SignalsFirst, it’s important to note that a market is either in one of two common environments. Either a range bound market with price bouncing between support and resistance. This is the most common market environment. The other market that trader’s find themselves in is a trend with price showing higher highs and higher lows in an uptrend or the opposite in a downtrend.Trending Market: Ranging Market: Here is the first rule for candlestick entries that we want to focus on once the market type has been identified.-When in a range bound environment, we want to focus on candlestick formations or patterns near support or resistance for entries. Support and resistance can be identified by eyeing price action ceiling and floors or by adding Pivot Points to the charts.-When in a trending environment, we want to focus on candlestick formations or patterns near pull backs in the direction of the trend for entries.In addition to Pivot Points, we can also look to common indicators like the 200 period moving averages to help us pinpoint candlestick patterns around key prices in the market.Pivot points are a famous indicator to help you forecast future points of resistance and support to limit risk and find profit targets.The Pivot number is the high, low, and close added up and then divided by three.P= (H+L+C)/3= pivot pointThis is easier than it sounds because it will be a default indicator you can add.Once the Pivot Levels are added along with a major moving average, we will look for price action to move to one of these levels. That is when we’ll heighten our attention to patterns that develop to see if a reversal is upcoming or a continuation is shown. On the AUDUSD, 2 hour chart we see price respect and move off of the monthly pivot price. We also see additional action around the 200 day moving average that confirms the bounce of the Resistance line (green) back down to the monthly pivot line. There is nothing predictive about the Pivot Lines except the fact that many traders look to them in placing profit targets, stop exits or deciding when to stop buying or selling into a move. This gives Pivot Lines a bit of a self-fulfilling power. As you add these lines onto the charts, you see that price often respects these lines in either reversing from them or showing a strong continuation off of them.Here is the USDJPY, 2 hour chart which shows price bouncing off the pivot and rushing up to the Resistance 1 line. The take home message is that you can look to Pivot Points and a large period moving average for reversal or continuation signals and then set your stop below the signal and your profit target near the resistance or support line. This will ensure you keep good risk management while hunting for higher probability entries.Happy Trading.
While the previous section focused on how you can learn from your losing trades, this article breaks down how you can learn from winning ones. More often than not, winning trades contain valuable lessons that a trader can build on to get more profits later on. While losing traders offer the chance to learn from your mistakes, winning trades allow you to identify your strengths. In noting what you did right, you can remind yourself of the good trading habits that you can keep in order to improve your profitability.In some cases though, consecutive winning trades can lead to overconfidence, which can delude a trader into thinking that he no longer has anything new to learn. This is a dangerous assumption, as it might lead to overtrading or overleveraging. Always remind yourself to assess your recent trades and even try do identify if you could've done anything better.Even if a trade turns out to be a winning one, there may be a few opportunities missed or trading rules not followed. Just because you wound up with profits doesn't mean that your execution was perfect. In any case, it is important for your long-term consistency and profitability to review your trades and decision-making process.What's great about reviewing winning trades is that you are able to keep a positive mindset in trading. If you are in a losing streak, go over your previous winning trades and figure out why you were able to make profits off those. Was it a result of good foresight? Were you able to adjust more quickly to changing market factors? Was your analysis more thorough? As you review your winning trades or compare it to losing ones, it might also be helpful to keep a list of lessons learned. That way, you will have a constant reminder of the takeaways from each trade and come up with methods to do better in your next trades. You can even add to your trading strategy rules or make the necessary adjustments.Keeping track of your winning trades also reminds you to maximize your profit potential. For instance, if you had been comfortable with a 1:1 return-on-risk in the past, you can take a look at your winners and see if you could've made a 2:1 or 3:1 return-on-risk with a few adjustments. If you are consistently profitable with a particular strategy, you can also gradually adjust your risk for that kind of trade setup.Always keep in mind that there is no end to learning in the forex market. Even if you are able to come up with one winning trade after another, there will always be a way to do better and lessons to learn so that you can sustain your progress. Market conditions may change from time to time but if you were able to build on your strengths, you can retain the same level of confidence in your skills and be in a better to position to make adjustments.
There are many people like you who are interested in investing in foreign currency. There are many who have gained a lot of profits, especially companies who invest in the international market gain a certain percentage of their company profits by dealing with forex exchange. But it is hard for a beginner to get the right combination through which they can make maximum profits. Thus, if you fall under this category, it is advised that you look up for platforms that can keep you updated about the best currency combination. Also, they would help you learn about the basic terms that are used in forex exchange and gives you the latest information about the currency rates and more. If you are looking for a platform that provides you with first-hand information after taking the currency market into consideration, look nowhere else and check out Forex Traders Guide. It is a platform on the Internet that is dedicated to helping people like you to make wise decisions and know about the latest growth and development in the foreign exchange market.Forex Traders Guide is a one-stop destination to know the best things available for forex exchange. It is a forex trading guide that gives you suggestions about the best robots and advisors on the market. It makes you aware of the exact price of the robot, how to form a blockchain and several other commonly used terms in forex exchange. There are several blogs published on the website that you must read for gaining awareness and knowledge about the most amazing currency combinations, robots and advisors. They have listed the top five advisors and robots that you can read about in detail on Forex Traders Guide.Several companies have gained profits by referring to information published on Forex Trades Guide. If you also want to get rapid profits by investing in the right place and don’t want to be misled in the future by any trader, then this is your best option for gaining knowledge. Forex Glossary is a section on their website where there are more than 40 terms that are used in Forex. It is said that education is everything in forex and this is exactly what you will get here. So, without wasting any more time, start reading on Forex Traders Guide and invest wisely.