Basically there are two types of Forex Trading systems

• Mechanical trading system

• Discretionary trading System

In the mechanical trading system the trends of the market are determined by the technical analysis and these analysis are applied in a systematic manner. In the discretionary system the trend of the forex market is determined with the help of experience, judgment or instinct. It is very difficult to decide which of these systems gives the best results and which system would suit your trading style in the best way. Let us try to understand these systems and which could be useful for you.

Let us first look into the pros and cons of the each of these systems.

Mechanical system

The advantages of mechanical system include

• This is an automatic system and can be back tested with efficiency.

• The mechanical system has firm rules and

• The traders who use these systems are less likely to be affected by emotional disturbances.

Disadvantages of the mechanical trading system include

• The traders imperfectly do the back testing for forex trading. If you want successful results with this then you would have tick the data

• The forex market keeps changing frequently and the changes are unsystematic. The market may look calm and more familiar but this is not the case. There are changes going on every second.

• If a system has been successful for the last year does not necessarily signify that it would work well this year also.

Discretionary System

The advantages of the discretionary system include

• The discretionary system s easily adjustable with the new market trends.

• The decisions made for forex trading with a discretionary system are based on the experience of the trader. So the trader needs to check which is better for him.

Disadvantages of the discretionary trading system include

• These systems are not back tested neither are they automated because the decisions are made on intuitions and judgments.

• It takes time for developing experience to make the trade successful. Going through the discretionary way can be dangerous in the beginning of the forex trading.

Coming to which approach is better for the forex traders. As a forex trader you should go in for the system that suits you the best. If you are not good at developing intuitions and you are a beginner then you should select the mechanical system. For this you wouldnt require your judgment to play a major role and you would only take up the dealings that your system would approve of. Besides if you are affected by any psychological condition then it is better that you trade with the mechanical system because in such cases you just need to follow the system and you dont have to use your experience.

Besides if you are a closely controlled trader then you should use the discretionary system. The discretionary system can adapt to the frequent changes in the forex market and you would be able to change your strategies according to the change in the market. However this does not mean that the forex discretionary trading system would not have any rules. With discretionary trading system the trader finds the trend of the market and then decides what does he want to do. The discretionary trading system is based on the price behavior. Every trader who follows a discretionary system makes certain rules for himself based on the position and size of the market.

Apart from the fact that you choose either the discretionary or the mechanical system of trading there are certain things that should be taken into consideration.

• No matter whatever method you follow you should make sure that the system meets your needs. If the system is not according to your needs then you would have to stick to the guessing system and this would result in you losing the profit as well as the principal investment amount.

• Make sure that you have some rules and strategies planned for your trade. Besides making the rules and strategies you should also make sure that you stick to them.

• You should take ample time to decide on which system you want to choose and then make the rules accordingly. Deciding on the system is not an easy task. You would need time and some amount of hard work. If you decide on the correct system then you can get maximum profits.

• Before you apply your system on the actual market it is advised that you should try your system on a trial or demo account. See how it works and then implement it on the main market.

With forex trading it is very important that you plan out things and follow money management. Besides money management you should also be ready to handle risks. If you stick to the strategies then you can become a successful forex trader.

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