Mechanical trading can help you avoid many pitfalls of emotional trading that can ruin your trading account. Emotions are your greatest enemies in trading. As you mature as a trader, you will need to develop a mechanical trading approach.
Fear and greed are your two worst enemies in trading. Fear will make you exit a trade too early leaving profits on the table. Greed will compel you to stay in the trade in the hope of making more profit and in the end lose already the unrealized profit that you had made. By developing a mechanical system that is rule based and forces you to make decisions purely on merit can you avoid these two demons. These are the two biggest enemies to your trading!
Many traders start as discrete traders meaning that their every new trade is made independently of the past trades. There are some advantages of discrete trading but it is helpless against controlling your emotions. By developing a mechanical system, you will ensure that you follow a certain discipline in your trading and dont make emotional decisions in your trading.
The best example of a mechanical trading system is the Turtle Trading System. Turtle Trading System is basically a system for futures trading. It was developed as a rule based system that told you whether to trade the market or not. You only had to follow the rules. Thats it! This way if you had good trading discipline in you, the chances were always that in the long run you will make good profit in trading. In fact many Turtle Traders ending up becoming millionaires!
Now with the advancement in computer programming and automated trading, any mechanical system can be programmed into an automated trading system. This way anyone can trade with a good mechanical trading system!
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