Mechanical Trading Systems
Make All Your Trade Decisions for You

Simply put, Mechanical Trading Systems are methods of trading that rely heavily on objective entry and exit criteria. The basis for this is quantifiable market data which has been repeatedly validated in history. After defining the entry and exit criteria, the trader must follow the trading system to the hilt. They are rigid and must strictly be adhered to in order to be successful in your investments. One disadvantage of this is that such an approach leaves no room for individual discretion, and the concepts of insight and trade understanding go out of the window.

Such trading systems are carefully thought-out plans of action which are formulated after a lengthy period of trade analysis and observation. If the stock of a company behaves in a particular manner, the system automatically assumes that it will keep acting the same way in the future. Mechanical Trading Systems are thus basically your trade minds that make all your trading decisions for you. All you have to do is input the trading data, and the system will give a response and a recommendation for appropriate action. Based upon this information and formulation, you may decide to sell, buy or do absolutely nothing if you see fit.

A major advantage of these systems is that they provide objective rules for the trader to follow. Traders who are often trade out of boredom without any real conviction or analysis, or those who are too overconfident and believe that they know exactly where the market is going can use Mechanical Trading Systems to avoid making costly trade errors.

There are various types of Mechanical Trading Systems, some which follow market trends or go the opposite way, and others which give best results in stable and consolidated markets. Mechanical Systems that wait for a trend to be established and then come into action, often use moving averages and moving average crossovers. Some systems, on the other hand, try to create some impact by getting in earlier and buying or selling breakouts. Countertrend systems often wait for prices to be extended compared to previous action, with the use of technical indicators.

It is not necessary to adhere to just one Mechanical Trading System at a time. Many different systems of different nature and qualities can be used simultaneously to ensure a better chance of making profits and to minimize losses. This also provides certain stability, and is a good alternative to using just one system, which can be likened to putting all your eggs in one basket.

It is a universal truth the sole purpose of all trading is simply to make money. But a major downside of this is that whenever money is involved, emotions always get in the way and cloud the judgement of the trader. Thus, Mechanical Trading Systems actually benefit the traders in this way by removing all responsibility from his shoulders. With emotions out of the way, the trader becomes stronger in his actions, and increases his chances of being successful.