Mechanical Trading Systems

Mechanical trading systems are definitely common when you talk to professional traders. Mechanical systems are the systems that all new traders should start with.

All new traders should start trading mechanical systems. These are systems that give you exact buy and sell rules. Like you buy a stock when this happens and sell it when that happens. Mechanical systems are made by using technical analysis to back test and papertrading different strategies until you find one that works.

They eliminate the need to make complicated decisions. When you are just starting out you will have to decide when to buy and when to sell a given security.

These decisions can be hard unless you have specific rules for you to follow. They also allow you to be actively trading the market without worrying about volatility.

If you have a mechanical trading system that works in the long run it can help you be confident enough to place a trade. It can also allow you to keep trading even when times seem rough. Having faith in your systems long term performance can help you keep trading even when you are taking loss after loss.

It can also keep you not betting too much when you are on a winning streak. If you are winning trade after trade you may be tempted to raise the amount you are putting into every trade. This could actually backfire.

If you win an average of 50% of the time and you have just made $2,000 by being right on 4 consecutive trades you need to be able to take the next trade like you normally would. Most people after winning 4 consecutive times would feel like they are on a hot streak and go "all in" during their next trade.

But if you know you have wins and losses but overall come out ahead if you bet a steady amount you can overcome this urge to bet a lot. Taking small profits add up in the long run.

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