Tuesday, September 7, 2010

An aproach to a mechanical system

Nothing is more true in markets... You should use a mechanical trading system.  Nevertheless, I'm not saying you should use an EA or an automated "black box" system.  That's other theme that I would like to comment in the future.  EAs or another magic box, are just rubbish.

What I'm trying to say in this post is that everybody needs a true mechanical system for trading.  A system that really analyzes the market and provides a valid entry or exit point, keeping any kind of emotion out of the equation. Letting almost all subjetivity aside. Why I said almost?  If you remember, I said before, and still convinced... the trader just has to know if a position would work out or not, or a "feel for the numbers" as I've read in some book.  Due market is really mercyless, this is really difficult for a beginer and specially if real money is on the line.

How a trader can be positive about some system?  It's not quite easy.  The only way that I could figure it out is by paper trading or backtesting... in multiple timeframes and pairs, for several months.  When a system has reached our expectations about its performing, we can test it in a real account which should be small, and the trader should be aware (or willing, I would say), to burn it.  Always with proper money management; without emotions, though.

How a trader can be comfortable with a system?  I could say that with several months of testing that system.  My personal point of view is that a trader should feel good and comfortable with a system if it was developed by himself. And that's what I'm trying to do.

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